Reference value and Tax on property transfers and documented legal Acts (ITP-AJD), Inheritance and Donation Tax (ISD) and Wealth Tax (IP).

1.- Law 11/2021, on measures to prevent and avoid tax fraud, has modified a series of regulations, among them, the ITP and AJD Law, the ISD Law and the Real Estate Cadastre Law. These modifications may lead to an increase of the aforementioned taxes.

2.- In effect, commencing with the ITP and AJD, one of the most significant changes introduced by Law 11/2021 is to establish that the taxable base , in the case of the transfer of real estate, will be constituted by the reference value, unless the value declared by the interested parties, the price or agreed payment  of the transaction is higher, in which case, this would be taken as the reference value. In accordance with section 3 of article 10 of the ITP and AJD Law (section introduced by Law 11/2021), the reference value may only be disputed when the liquidation made by the Tax Administration is appealed or in case of the request for rectification of the self-liquidation.

3.-The definition of reference value is introduced in the third additional disposition of the Law of Real Estate Cadastre, in the redaction given by Law 11/2021. From this it could be deduced that the aim of this modifications would be to bring this value closer to market value (without exceeding it), and to update it annually. In this way, in all onerous transfers in which transfer tax and AJD is applicable, it would be necessary to check whether the declared price is below the reference value agreed for the year in question, since in such a case, if this value is not taken as the taxable base in filing the tax declaration, the Tax Authorities will initiate the corresponding liquidation procedure. However, as we have just indicated, in the possible appeal filed against the liquidation, the reference value should be challenged. We transcribe below the aforementioned additional provision, which also establishes that the values must be published in the electronic site of the General Directorate of Cadastre, so that they could be consulted:

“The General Directorate of Cadastre will determine, objectively and with the limit of market value, from the data available in the Cadastre, the reference value, resulting from the analysis of the prices communicated by the public notaries in purchases and sales of real estate effected.

To this effect, it shall include the conclusions of the analysis of the aforementioned prices in an annual report on the real estate market, and in a map of values that will contain the delimitation of homogeneous territorial areas of valuation, to which it would assign average value modules of the representative real estate products. The aforementioned map will be published in the electronic headquarters of the General Directorate of Cadastre.

In order to ensure that the reference value of real estate does not exceed the market value, an order of the Minister of Finance will establish a market reduction factor for properties of the same class.

Periodically each year, the General Directorate of Cadastre will approve, by means of a resolution, precise elements for the determination of the reference value of each real estate by application of the aforementioned average value modules and of the corresponding reduction factors, in the terms to be determined by regulation.

This resolution will be published by edict in the Electronic Site of the General Directorate of Cadastre before 30 October of the year prior to that in which it is to have effect, with prior collective audience. For this purpose, an edict will be published in the “Official State Bulletin” announcing the opening of the aforementioned procedure for a period of ten days, during which interested parties may present the allegations and evidence they consider convenient.

The aforementioned resolution may be appealed in economic-administrative proceedings, or potestatively by means of an appeal for reposition, by the interested parties and within a period of one month from its publication, without the interposition of the claim suspending its execution.

During the first 20 days of the month of December, the General Directorate of Cadastre will publish in the ”Official State Bulletin” an informative announcement for general knowledge of the reference values of each property, since they are not personal data, they may be permanently consulted via the Electronic Site of the Cadastre”.

4.- With regard to Inheritance and Donation Tax (ISD), it is also modified in the same sense as ITP and AJD, that is, when the object of the transfer liable to ISD is a real estate property, the taxable base will be the reference value, unless the value declared by the interested parties is higher, in which case the higher value must prevail. As in the case of Transfer tax and AJD, the reference value could only be challenged when the liquidation made by the Tax Administration is appealed or on the occasion of the request for rectification of the self-declaration.

5.- With regard to Wealth Tax (IP), section 1 of article 10 is modified in such a way that real estate may be valued for the purposes of this tax in accordance with the highest of the following three values: The cadastral value, the value determined or verified by the Administration for the purposes of other taxes or the price, counterpart or value of the acquisition. In this way, the property value could also be determined in accordance with its reference value.

6.- Definitely, a concept (reference value) is introduced which in practice may lead to an increase in the indicated taxes.