Have You Bought A Property In Spain In The Last 5 Years?

You paid transfer tax when you bought your property. Now you might be liable to pay more. Even though you have paid transfer tax you can be contacted by the Tax Authority up to five years later to pay more.

What to do in case of receiving a notification from the Spanish Tax Authorities asking for a Complementary Tax known as ”Declaracion Complementaria” (after having acquired a real estate in Spain and paid the correspondent Transfer Tax, ITP, (or Stamp Duty, IAJD). Since the beginning of the crisis the prices of real estates have suffered a big drop. But this drop in prices, contrasts with the increase of the cadastral values that have occurred in many municipalities of the Costa del Sol, as for example, Marbella, in 2011, or Estepona, in 2007.

This cadastral value is, at the same time, the base that in many cases the Administration uses to calculate the official value that a property has, known as Tax Value, that is then calculated by applying to the cadastral value a coefficient, different for each municipality, and approved every year by the Government.

Because of the crisis, the Spanish Tax Authorities are checking closely the real estate transactions, and as the acquisition prices that the buyers tax-payers declare (when settling the correspondent Transfer Tax - Spanish Impuesto sobre Tramisiones Patrimoniales, also known as ITP) is lower than this Tax value, the situation that new buyers are facing lately is that in all those cases, the Administration is sending them a so called ”Complementary Tax”, that means, that they request the buyers the payment of the additional tax on the difference between the Tax value and the real acquisition price that the buyer paid. In case of receiving a notification from the Tax Authorities with a Complementary Tax derived, there are three options:

• Just to accept it and pay the additional tax amount requested. There will be cases when the costs (and time and energy) involved in any of the other 2 options to be referred hereinafter b)and c) do not compensate, so a taxpayers may prefer to pay the difference between the tax already declared and settled, and the additional one that the Administration is asking for.
• In case there may be some kind of errors or defects in the legal motivation of the complementary same, an appeal should be submitted (Recurso de reposición or reclamación económico administrativa), being fundamental to reserve the right to apply for a contradictory valuation (tasación pericial contradictoria). With this, the obligation to pay the amount claimed by the Administration is suspended. If the result of the appeal Recurso de reposición, or in case, the Reclamación económico administrativa is unfavorable, you may request the contradictory valuation (tasación pericial contradictoria) to be done.
• If there are not material errors, neither defects in the legal motivation of the Complementary Tax sent by the Administration, within the term foreseen to submit the first appeal, tax payers can ask the Administration for a contradictory valuation (tasación pericial contradictoria), which process, in summary, is the following: Once it has been requested by written the starting of the contradictory valuation, the Administration should order and issue itself a technical valuation report (if it has not been done as a base and justification for the issuing of the complementary tax).

Once they have that valuation report, the Administration should notify it to the taxpayer, so that he can appoint an expert technician to prepare and perform his own valuation of the property. If the valuation of the Administration does not exceed more than 10%, and it is not higher than 120.000€ than the one made by the technician of the tax payer, the Administration will have to accept the value given by the latter, that will be used as the basis for the calculation of the amount of the tax to be paid, provided that it exceeds the acquisition value declared by the tax payer.

If the value is lower than this, the declared value will be considered “firm”. If the valuation of the Administration exceeds the mentioned 10%, and it is higher than 120.000€, then normally the correspondent organism of the regional Administration will proceed to designate a third technician to be involved.

Taking into consideration the result of the contradictory valuation, the Tax authority will confirm the initial liquidation sent to the tax payer, or they will issue the correspondent complementary tax form, with the additional default interest, being in any case subjected to a further appeal.
Appealing against the complementary tax is a good alternative but you will need to have received the letter in the first place.

You should make sure that you have arrangements in place that enable you to either: 1. Receive the notification at your house in Spain. 2. Receive it through a third person such as a representative or translator. It is crucial that you receive the letter in good time as you only have a one month window in which to appeal. After that time has elapsed you will have no alternative but to pay the tax.