Tax axe to the real estate valuation September 3, 2021 Johnny Carroll Those who have children know this. Some children don’t know how to lose. And when, much to their regret, they have to do it, they destroy the game, and even try to change the rules of the game. Well, although it seems incredible, this is what the Ministry of Finance intends to do with the real estate valuation, in taxes such as Patrimonial Transmissions (ITP) and Inheritance and Donations (ISyD). Tired of seeing how the Courts annul their checks of values, he has decided to change the rules of the game in the next budgets. But what are the projected changes? How will they affect taxpayers? THE REAL ESTATE VALUATION IN THE CURRENT REGULATIONS OF THE PROPERTY TRANSFER TAX AND INHERITANCE AND DONATIONS The current regulations of both taxes provide that the taxable base is the real value of the properties transferred or acquired by inheritance or donation. In principle, it is understood that the real value of a property is that which is documented in the deed by which it is acquired. It should not be forgotten that the tax returns of taxpayers are presumed to be true. However, if the Administration does not agree with that value, it can review it using what is known as the value check procedure. And this is where the problems come for the Treasury, Property Valuers Adelaide which sees how most of these procedures are finally annulled in the Courts. And this, mainly, because these real estate valuations do not take into account the specific circumstances of the properties. These are never, or rarely visited, and the real estate valuation is done, therefore, from the office chair. And the Courts annul them as generic, and for not reflecting the true real value of the property. What is the real problem for the Treasury? For the burden of proof lies with her. That is, you must prove that the value declared by the taxpayer is not the real one of the tax, and indicate what this value is. Tired of always losing, the Treasury wants to change the rules of the game in the real estate valuation. And he cares little that taxpayers’ rights suffer. He wants to impose his assessments by force. And that if the taxpayer does not agree with them, let him be the one who must prove the true value of the properties. THE NEW REAL ESTATE VALUATIONS THAT THE TREASURY WANTS TO IMPOSE The General Directorate of Cadastre has prepared a new “reference value”, which is the one that is intended to be imposed on taxpayers. This Cadastre reference value has been calculated from real estate transaction prices, according to the information provided by Notaries and other sources. The “pilot test” of this Cadastre reference value has been carried out in Castilla La Mancha since 2015. And, in fact, that Autonomous Community already uses that reference value to motivate its value checks. The problem is not, in any case, that the Treasury and Cadastre have invented a new method to value real estate without leaving the office, or visiting them. The real problem is that now the Treasury intends to impose this value on taxpayers by force. HOW WILL THE TREASURY IMPOSE ITS NEW REAL ESTATE VALUATIONS? In the Preliminary Draft of the Law on Prevention Measures to Combat Tax Fraud that has been known, it is advocated to modify the tax base of the ITPAJD and the ISyD. This will no longer be the real value of the goods transferred, but their market value,understood as the most likely price for which they could be sold, between independent parties. However, for real estate, a presumption has been established that “the market value is the market reference value of the General Directorate of the Cadastre”. This presumption is of the so-called “iuris tantum“. That is, it admits proof to the contrary. Therefore, it will be the taxpayer who has to destroy the legal presumption, and demonstrate that the property verified has a market value lower than that resulting from applying the reference value of Cadastre. To do this, you must appeal the liquidation that is issued. And the usual thing will be to provide an expert report, which shows that the property has a value lower than that resulting from cadastre. VALUE CHECKS WILL ALSO AFFECT SELLERS When the taxpayer declares below the reference value of cadastre, the Administration may initiate a procedure for checking values. However, the novelty is that the result of this value check will also be notified to the transferees, when the value verified is higher than that declared. It is confirmed that the Treasury intends to pursue not only those who buy a property, but also sellers. The Treasury will apply the new real estate valuation to both. To the buyers, at the ITP. To the sellers, in the IRPF. Be careful also with the implications that may arise in the municipal capital gains tax. Transmissions in losses and, therefore, not subject to tax, may be altered by the new administrative real estate valuation, and force taxation. And vice versa… Of course, the estimation of the appeal that, against the administrative real estate valuation, present buyer or seller, will take advantage of both. At least the Treasury encourages solidarity between buyer and seller, both persecuted for the same cause. WILL THE EXPERT’S VISIT TO THE PROPERTY STILL BE ENFORCEABLE? The Treasury pretends not. His intention is to continue carrying out the real estate valuation from the armchair of the office, without anyone, neither taxpayers nor Courts, being able to tell him anything. A priori, the Administration will comply with valuing the property according to the reference value of Cadastre. This conforms to the new legal presumption, and leaves the ball on the taxpayer’s side. This must prove that, in the specific case, the property has a market value, lower than the reference value of cadastre. We are facing a situation similar to the one that currently exists with the mortgage appraisal method. In this method, the Treasury complies with valuing the property according to this appraisal, without further requirements of motivation. And also, without having to visit the property. However, these real estate valuations are being annulled in the Courts. Therefore, we consider that, when the taxpayer provides the minimum proof that the reference value of the Cadastre does not correspond to the market value, the fact that the real estate valuation has not taken into account the circumstances of the property, because it has not been visited, will always weigh heavily. WHAT CAN TAXPAYERS DO? In our opinion, the real estate valuation resulting from the proposed rule, if it finally enters into force, will not be uncontestable. Taxpayers may always provide proof to destroy the administrative presumption, consisting in that the market value (taxable base of the tax) is the reference value of cadastre. This evidence may be an expert. But the state of the property may also be accredited, or its poor conservation, if applicable. In addition, justification may be provided for transfers of similar properties that are known, and even for offers published on real estate portals. In short, we believe that the settlements may be annulled. Unfortunately for the Treasury, experience shows that, even if the rules of the game change, it still loses the game.