The Supreme Court confirms the IBI exemption for leased properties

Entities under the special tax regime of Law 49/2002.

After several years of uncertainty and ‘suffering’ the restrictive interpretation of some City Councils (Barcelona City Council being the ‘standard bearer in the cause’) the Supreme Court has ruled and confirms that properties leased by entities to which the special tax regime of Law 49/2002 ‘on patronage’ is applicable, will be exempt from IBI.

If we look back, we must remember that this situation of uncertainty began on the occasion of the Judgment of the Court of Justice of the European Union (hereinafter CJEU) of 27 June 2017 (C-74/16). A ruling which, on the other hand, meant ‘the beginning of the end’ of the ICIO exemption for religious entities.

In this 2017 ruling, the CJEU recognised that this exemption (based on the Spanish Church-State Agreement of 3 January 1979) could contravene Article 107.1 of the Treaty on the Functioning of the European Union (TFEU). Therefore, the conditions that had to be met in order for this exemption not to be considered State aid contrary to EU competition law were established.

As we announced at the time, the fact that the CJEU considered this exemption as a potential State Aid was a risk and could lead certain Administrations to try to apply this doctrine to other exemptions, which is what happened and some local administrations (such as Barcelona City Council), and despite the fact that the Supreme Court in 2014 and 2015 judgments had declared the IBI exemption for leased properties, and under the interpretation of the CJEU of 2017, began to issue IBI settlements for leased properties, they began to issue IBI settlements for said leased properties (denying the previously recognised exemption and ruling against the appeals filed against the same) on the basis of considering that the rental of the properties was an economic exploitation not foreseen in article 7 of Law 49/2002 and consequently, a non-exempt economic activity (exemption in Corporate Tax on economic activities that conditions all subsequent exemptions in local taxes, so that, by denying the exemption as an economic activity, the exemptions in local taxes ‘lapsed’).

It was of little use to argue that article three of Law 49/2002 expressly states that leasing should NOT be considered an economic activity or, as recognised by the Supreme Court itself in its ruling, the clear intention of Law 49/2002 (as recognised in its explanatory memorandum) was to ‘overcome’ the previous regulation contained in Law 30/1994 and that the limitations that Local Administrations intended to apply were contrary, not only to the law itself, but also to the will of the legislator.

Even some local councils, as a result of the 2017 CJEU, settled previous non-prescribed periods and, year after year, have been settling the tax without ‘listening to reason’.

Well, that is as far as it goes, as in this ruling (this time written with impeccable clarity and forcefulness), the Supreme Court has recognised that:

• The leasing of real estate cannot be considered an economic activity
• As it is not considered an economic activity, it CANNOT be an economic activity NOT exempt from Corporate Income Tax - a requirement established in the regulations for a property to be subject to and not exempt from IBI.
• That the activity carried out by the lessee in said property is indifferent.
• And most importantly... that this exemption (unlike what was established in the STSJUE of 2017 mentioned above) can in no case be considered a State Aid contrary to Article 107.1 of the TFEU. In fact, the SC expressly states that:

"Without this Court having any doubt that the case before us is in accordance with the European Union's State aid regime".

"The impossibility of attributing a selective character to the aforementioned tax exemption excludes the possibility that it may distort or threaten to distort competition and, consequently, the recognition of that exemption as State aid".

• This judgment, in short, confirms and reaffirms the recognition of the exemption established in the STS of 4 April 2014 or 10 December 2015, and should therefore be considered as binding for the different jurisdictions and Administrations in the application of the IBI exemption for leased properties.

This ruling, in our opinion, is not only important for the case of leased properties, as it also nips in the bud ‘potential intentions’ of the Administration to consider that, despite the exemption provided for in the regulations and due to ‘the right to competition’, a property that is used in an economic activity (such as an educational centre, a nursing home, etc.) could end up contravening the IBI tax exemption. ) could contravene the TFEU and should result in the non-exemption of local taxes derived from that activity (IBI, IAE, Plusvalia municipal, ...).

In fact, the Supreme Court (in a hard and forceful manner) makes clear the important errors committed by the City Council in its interpretative drift and in its attempt to limit the application of the IBI exemption for leased properties... In order to, even as a precautionary measure, and as we have already mentioned, indicate that it would be difficult for the CJEU to validate a thesis such as the one defended by the City Council.

This judgement undoubtedly gives us the opportunity to file new pleadings in all the proceedings we have with the different local councils that had followed this ‘twisted’ interpretation... and we hope and wish that they will unblock all the proceedings that we had kept open while waiting for this long-awaited ruling and, above all, that they will proceed to refund the thousands of euros that they have improperly collected from all these non-profit entities that apply the special tax regime of Law 49/2002 (among which, we must remember, there are also Religious Congregations, Religious Congregations, Religious Congregations, Religious Congregations, Religious Congregations, etc.), Religious Congregations or Canonical Foundations and Associations - entities of the Church-State Agreements of 3 January 1979 which, by application of the Ninth DA of Law 49/2002 can apply the said tax regime - although with different requirements from the entities of article IV and V of the aforementioned Agreement).

We remain at your disposal to clarify the content of the Ruling and, if you are a damaged entity and need help in this task, to ‘recover what belongs to you’ and should not have been paid.