The Spanish Tax Administration used to verify the precise value of Real Estate with the following CVC formula: it multiplied the cadastral value by a coefficient unless there was a direct visit by a member of the Tax Office in person of the Real Estate. The Regional Tax Offices used the same formula in relation to the property transfer tax.
In 2012, some Spanish buyers had acquired properties in Seseña in the Castilla-La Mancha region for very reduced prices, given the up-market location of the properties. The Regional Government of Castilla-La Mancha used CVC to raise the value of the property declared in the Transfer Tax by the buyers and to charge these buyers higher amounts in the tax. The buyers protested against the Regional Government and the case reached the Supreme Court.
When Regional Governments use CVC, it harms buyers who purchase property at reduced prices. Accordingly, the Supreme Court has now established that CVC (Article 57.1.b of the General Tax Law) is not appropriate for the valuation of Real Estate unless there is a direct visit by a member of the Tax Office in person to the Real Estate in question. The Court also declared that CVC does not in and of itself provide a truthful and correct description of the value of a property.
Furthermore, the Supreme Court emphasizes that it is not the buyer who must bear the burden of proof with respect to the declared precise value: “the interested party is not legally obliged to prove that the value shown in the tax declaration or self-assessment coincides with the precise value, being the Administration that must prove that fact”.
Therefore, if the buyer is disagrees with the use of CVC, he or she can use any means admissible in law, because the burden of proof now falls on the Spanish Tax Administration.
The impact that the Supreme Court’s judgement has had on the CVC formula applied by the Administration is devastating, and it is to be expected that the legislator will soon respond to a change of direction in the direction established by the Supreme Court.
