Town halls are obligated to the provisional liquidation to calculate the taxable base of the definitive liquidation

Interesting Supreme Court decision (Contentious Administrative Division, on 12/13/2018) on the Impuesto Municipal de Construcciones, Instalaciones y Obras (ICIO, municipal tax on construction, installation and repairs)

It is well-known that the fiscal management of the tax applied to the physical execution of construction work, popularly known as the ICIO (Impuesto Municipal de Construcciones, Instalaciones y Obras, municipal tax on construction, installation and repairs), has one peculiarity with respect to other taxes, and this is that the Spanish tax agency (in this case, the town halls, since the ICIO is a municipal tax) is allowed to carry out a provisional liquidation even before the taxable act takes place, in this case, the performance of construction work. Normally, liquidation is completed with the resolution of the administrative act that authorises the construction, namely, the municipal construction permit.

Traditionally, city halls have understood the  provisionality aspect as a type of procedural act that permits them to quickly acquire revenue without incurring in future obligations. In doing so, once the practical permissions and accrediting administrative certificates for the completion of the works being taxed have been issued, many municipal institutions recalculate the real and effective cost of the construction project completed, swiping the slate clean of the first liquidation. They issue a new tax liquidation, the so-called definitive liquidation, which may double or even triple the initial amount given in the provisional liquidation by newly including appropriations, line items, equipment or facilities that were not valued the first time. The problematic nature of this situation is highlighted more significantly in situations where the items installed are more expensive than the cost of the work done to install them.

In a recent decision dated 13 December 2018 (Law 181810/2018), the Supreme Court reached a conclusion with sweeping logic. After very prudently analysing the judicial nature of the taxable acts embodied by the so-called provisional ICIO liquidations, they ruled that these provisional liquidations are definitive administrative acts that mark the end of a tax agency management procedure. As such, they are binding upon the government agency levying the tax, as per the maxim “nemo potest mutare consilium suum” (no one can protest their own actions). Therefore, the addition of any objective element in a new evaluation that could have been the subject of evaluation at the time of the provisional calculation and was not included is in violation of the law, due to the fact that this would entail a legal review of the administrative act without following the legal procedure established for this purpose.

From the preceding follow two conclusions: (I) First, from here forward, town halls should take great pains to correctly handle the ICIO. The taxed entity knows that the city administration is not free to determine a new taxable base as it pleases. The city is bound to the budget for the physical execution of works that served as a basis for the ICIO provisional calculation. (II) If the foregoing is important in and of itself, another implication derived from this judicial decision should by kept in mind by he who agrees with the former: the decision’s recognition of the nullity of those definitive liquidations resulting from an illegal review of the provisional liquidation in fact opens the door to their review, encouraging the corresponding legal review procedure regulated by Royal Decree 520/2005 of 13 May.

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