A court supports those who were taxed below the deeded value of the house

The entry into force of the new Cadastral reference value (contemplated in Spanish Law 11/2021 on measures to prevent and combat tax fraud) has ended one of the controversies that taxpayers had with the Treasury under the previous regulations. This is the question of whether the tax can be paid at a lower value than the deed, provided that it is declared according to the official value of the corresponding Autonomous Community. Currently, in these cases, the deed value prevails. However, this issue still exists for transfers that occurred before the law came into force. And now the Regional Economic-Administrative Court (TEAR) of Madrid has supported the taxpayers' interpretation in a recent ruling, i.e. it supports that tax can be paid on a lower value than that of the title deed of a house.

José María Salcedo, managing partner of Salcedo Tax Litigation, who obtained the favourable ruling at the TEAR in Madrid, points out, "Before this law, there was no article requiring taxpayers to pay tax according to the value of the deed, even if this was higher than the official value of the Autonomous Community. In that case, the Administration applied Article 46.3 of Spanish Royal Legislative Decree 1/1993, which establishes that if the declared value is higher than the verified value, the declared value is taken as the taxable base."

However, this article only applies when the administration has initiated a value check, not as a general rule for quantifying the tax base. When a taxpayer files their tax returns according to the official value of the Autonomous Community, the administration cannot initiate a value check, as established in Article 134.1 of the Spanish Law 58/2003 on the general tax law (Ley 58/2003 General Tributaria, LGT). This means that when a taxpayer declares according to the official value, a check cannot be initiated, even if that value is lower than the value of the deed.

In the case decided by the TEAR of Madrid, the taxpayer also requested a prior property valuation, which was binding on the Administration, and the TEAR upheld the taxpayer in this case. The TEAR upheld the taxpayer who was taxed below the deed value, concluding, "If the property value was already reflected in the information provided by the Administration itself in the terms set out in the precept mentioned, and the veracity and sufficiency of the data and the factual elements and circumstances stated by the taxpayer when requesting it is not questioned, that value should prevail over the deed value, provided, however, that the other requirements of the rule are met (...)".

In short, according to José María Salcedo, these arguments have been accepted by the TEAR of Madrid in recent rulings, which opens the possibility for other taxpayers in similar situations to challenge tax assessments based on the deed value when they have filed their returns following the official value of the Autonomous Community or have obtained a prior valuation from the Administration.

However, Salcedo Tax Litigation's managing partner warns that it is important to note that there is still no clear Supreme Court doctrine on this issue, so each specific case needs to be assessed and appropriate legal advice considered.