The sale and purchase of real estate has grown substantially in recent years, and with it the amount of tax collected by the Autonomous Regions through the Transfer Tax and Stamp Duty (ITP-AJD), which is managed by the Autonomous Regions and is mainly levied on second transfers of real estate.
The General Tax Law on value checks
The regulatory regulation establishes that the taxable base of the ITP-AJD, in its modality of onerous transfers of assets, will be constituted by the the real value of the property or right transferred, so in cases of transfers between independent parties, normally equals the price agreed between the seller and the buyer.. However, as opposed to the valuation the taxpayer may make, article 57 of the General Tax Law establishes the different methods the Administration may use to carry out a value check, including the one regulated in section b) consisting of "Estimate by reference to values appearing in official tax registers".
How had the Administration been acting?
Well, for several years, the Regional Administrations have been applying this valuation method almost automatically, without analysing the property in question in a specific and individualised wayIn such a way that the administrations approved annual coefficients for the different municipalities in each province and this coefficient was multiplied by the cadastral value of the property.
In this way, the Administrations secured "minimum prices" on which each property had to be taxed according to those approved coefficients and, in many cases, even during the economic crisis that sank the property market, the Autonomous Communities increased or maintained these coefficients to obtain greater tax revenue.
Contrary to this approach, many legal scholars doubted the legality of this method, which did not analyse the property in question, its surface area, level of deterioration, the specific street within a municipality, age, etc., making it almost impossible to equate that "checked" value obtained by the Administration with the real value that the tax regulations establish as the tax base.
Supreme Court Judgment rejecting the valuation method
The Supreme Court finally rules on the valuation method consisting of multiplying the coefficient approved by the Autonomous Communities by the cadastral value of the property
The Supreme Court established case-law doctrine in 4 judgments handed down in mid-2018 (for example Judgment number 2186/2018, of 23 May 2018), in which it ruled that such a valuation method, in the form in which it was being implemented by the Autonomous Communities, was unlawfulby considering that "the method of verification consisting of the estimation by reference to cadastral values, multiplied by indices or coefficients (Article 57.1.b) of the General Tax Law). is unsuitable, due to its generality and lack of relation to the specific asset the estimation of which is concerned, for the valuation of immovable property in those taxes where the taxable base is legally determined by its real value, unless such a method is supplemented by the performance of a strictly verifying activity directly related to the singular immovable property being appraised'.
It adds that the interpretation of the valuation methods regulated in the aforementioned article 57 of the General Tax Law must be made inseparably from the provisions of article 10 of the Transfer Tax and Stamp Duty regulations, "which places the taxable amount at the actual value of the tax base, with the result that such a verification is possible only to the extent that the means of verification selected by the Administration is suitable and adequate, due to its capacity to singularise and individualise the economic valuation of specific assets, in order to achieve that real valueThis is not the case, for the valuation of real estate for the purposes of ITP, with the means consisting of the estimation by reference to the cadastral value, corrected with the use of coefficients or multiplier indices, if its application consists solely of the multiplication of the cadastral value by the single coefficient for the municipality".
In addition, the High Court concludes that the carrying out of a valuation "... is not a matter for the Court of First Instance.does not provide the administration with a reinforced presumption of veracity and accuracy of the values included in the coefficients, whether they appear in general provisions or not', as well as that "the application of such a method to rectify the value declared by the taxpayer requires the administration to give reasons why, in its opinion, the declared value does not correspond to the real valueThe mere discrepancy with the published values or general coefficients by which the cadastral value is multiplied is not sufficient to justify the initiation of the verification".
This implies that "the interested party is not legally obliged to prove that the value appearing in the tax return or self-assessment coincides with the real value, and it is up to the Administration to prove this lack of coincidence.".
Conclusion on the new case-law doctrine
In conclusion, it is important to highlight that the Supreme Court not only declares the aforementioned method unlawful in the automatic way in which the Autonomous Communities had been applying it, but also establishes that any value check the Administration may carry out, using any of the methods established in the General Tax Law, will mean that (i) first, the Tax Administration must demonstrate why the valuation made by the taxpayer does not correspond to the market value, as it bears the burden of proof, and, (ii) subsequently, carry out a valuation that individualises and singles out the property and its particular circumstances, so that the reality of the asset corrects the initial generalised valuation.
Therefore, if you have received a parallel assessment of your Transfer Tax self-assessment from your Autonomous Community, whether it uses the valuation method of multiplying a coefficient by the cadastral value or any other method, such as the expert report that many Administrations are now relying on, Please be aware that there are options to appeal if there has not been an individual valuation of the property, comparable properties in the area have been assessed, and an on-site expert visit has been made to evaluate its age, materials, finishes and deterioration, etc.,
In that case, you can contact us or your trusted advisor so that they can review the check carried out by the Administration and offer you a legal assessment of it and the possibilities of appealing it.
