The exemption for reinvestment in habitual residence: a period of two years and its breach due to force majeure –

By Xavier Orfila Sans

On February 5, 2020, the Superior Court docket of Justice of Madrid printed a judgment of particular curiosity concerning the breach of the two-year interval for the reinvestment of the capital achieve obtained within the switch of the taxpayer’s recurring residence, because of causes power majeure past the management of the latter. The taxpayer information an administrative contentious enchantment towards the decision issued by the Regional Financial-Administrative Court docket of Madrid of September 27, 2018 (hereinafter, TEAR of Madrid), wherein it’s agreed to reject the economic-administrative declare, issued by the Pozuelo Administration of the State Tax Administration Company, for the Earnings Tax of People for the yr 2011.

The plaintiff alleges that within the 2011 revenue tax return, obtained a capital achieve that was declared exempt with the dedication to proceed with its reinvestment in a brand new recurring residence throughout the established interval. From that declaration, the quantity of 118,000 euros has been reinvested so far within the acquisition of a bit of land on which the brand new residence was to be constructed. The home was transmitted on 12/27/2011 for an quantity of € 148,000. On 03/18/2011, that’s, throughout the 2 years previous to the transmission, a plot of land the place the brand new residence was to be positioned was acquired by public deed. As well as, on 02/07/2012 the geotechnical examine of the home that was deliberate to be constructed was accredited. All this with the purpose of justifying that his final intention with the capital achieve obtained from the sale of his recurring residence was the development of a brand new one on that land.

The taxpayer himself states that If the work of the home has not been accomplished throughout the interval decided by regulation, it is because of exterior causes and power majeure to the need of the identical, which have prevented the scheduled work. Particularly, after buying the land and having accomplished the work mission, he requested a license for it from the Metropolis Council, and it’s right now that he was notified of the denial of the license for city planning causes.

In accordance Article 38.1 of Legislation 35/2006, of November 28, on Private Earnings Tax and of partial modification of the legal guidelines on Company Tax, Non-Resident Earnings Tax and Fairness Tax (hereinafter, LIRPF),

The capital beneficial properties obtained by the switch of the taxpayer’s recurring residence could also be excluded from tax, offered that the overall quantity obtained by the switch is reinvested within the acquisition of a brand new recurring residence beneath the circumstances to be decided by regulation “. Moreover, it’s added by the Legislator that “When the reinvested quantity is lower than the overall quantity acquired within the switch, solely the proportional a part of the capital achieve obtained comparable to the reinvested quantity can be excluded from taxation. “

The circumstances to be decided by regulation are indicated within the Article 41 of Royal Decree 439/2007, of March 30, which approves the Regulation of Private Earnings Tax and the Regulation of Pension Plans and Funds, accredited by Royal Decree 304/2004, of February 20 (hereinafter, RIRPF) is modified. The primary part of article 41 RIRPF offers that its rehabilitation is assimilated to the acquisition of a dwelling, taking such consideration the works in the identical that meet any of the necessities set forth in letters a) and / or b). For the score of the house as traditional, the provisions of article 41 bis of those Laws can be adopted. In line with the primary paragraph of article 41 bis RIRPF,

For the needs set forth in articles 7.t), 33.4.b), and 38 of the LIRPF, the constructing that constitutes their residence for a steady interval of not less than three years is taken into account the taxpayer’s recurring residence “.

The second part specifies that

For the house to represent the taxpayer’s recurring residence, it should be successfully and completely inhabited by the taxpayer himself, inside a interval of twelve months, counted from the date of acquisition or completion of the work “,

with out prejudice to a sequence of exceptions expressly offered for in mentioned part.

The second requirement required to use the exemption is decided in article 41.three RIRPF, which offers that

The reinvestment of the quantity obtained within the sale should be made, as soon as or successively, in a interval not exceeding two years from the date of switch of the recurring residence or in a single yr from the date of switch of the shares or participations.

The Legislator doesn’t make categorical point out of the chance that this time period is breached by the taxpayer within the occasion that there are causes of power majeure, which forestall him from fulfilling his needs to make the funding in a brand new recurring residence within the preliminary time period stipulated.

The State Legal professional, within the reply to the declare, seeks to defend the pursuits of the Tax Company, alleging that it’s required to follow the regularization of the capital achieve obtained by the switch of a property, because the taxpayer doesn’t adjust to the necessities offered in Article 38 LIRPF, in order that mentioned capital achieve is exempt. As acknowledged within the TEAR of Madrid, as a way to apply the exemption for reinvestment in recurring residence, materializing the reinvestment in development of the longer term recurring residence, it’s essential that mentioned house is acquired inside two years earlier than or after the switch of the earlier recurring residence, being detached, for the applying of the exemption, the second wherein the development has began and completed (see DGT C1198-09).

The Common Directorate of Taxes (hereinafter, DGT) in question 1251-06 says that Spanish legislation, in line with the Supreme Court docket and the bulk opinion of the doctrine, contains the principle of title and the way in which to find out the date of acquisition of the property, in such a method that “It doesn’t switch (…) the area if the custom of the factor bought is just not credited”(Judgment of April 27, 1983 of the Supreme Court docket). The custom will be carried out in a number of methods, amongst which will be cited for actual property: the inserting in energy and possession of the factor bought, the supply of the keys or the possession titles or the granting of a public deed. The DGT itself clarifies that within the circumstances of deliveries of portions to the developer, the acquisition of the home is known to have occurred when, after the sale contract is signed, the custom or supply of the factor bought is carried out, which within the case of actual property will be carried out in a number of kinds: inserting in energy and possession of the factor, handing over the keys or titles of possession or the granting of a public deed. Within the circumstances of direct execution of the development works by the taxpayer, the acquisition date is known to have occurred with the completion of the works. If the completion date of the works can’t be confirmed, the date of the deed of declaration of recent development can be taken because the acquisition date (see DGT C0532-17).

The State Legal professional remarks that the taxpayer himself acknowledges the breach of the required necessities demanded by the Legislator for the applying of the exemption, and but, regardless of this, he claims the exemption, alleging that the breach was motivated by power majeure and overseas to their will, a declare that can’t succeed, because the legislation doesn’t set up exceptions to compliance with the deadline attributable to power majeure. The danger of failing to adjust to the two-year time period should relaxation, in line with the State Legal professional, on the taxpayer himself..

Within the fourth authorized foundation, the info and authorized bases that motivated the decision for which provisional liquidation was carried out, dated March 11, 2015, are talked about. Thus, on February 7, 2012 the geotechnical examine of the housing that was deliberate to be constructed. The Tax Administration remarks that with the above information the acquisition of the land is in any case a property beneath development that after the 2 years required by the laws is just not completed as a result of the taxpayer has not offered a declaration of recent development, certificates of habitability, amongst others. Subsequently, and since one of many necessities to have the ability to apply the exemption for reinvestment has been breached, because the taxpayer has not reinvested the quantity obtained by the switch of the recurring residence within the acquisition of a brand new recurring residence inside a interval of two years from the switch, the capital achieve obtained within the quantity of 63,727.96 euros is not going to be exempt.

The Superior Court docket of Justice of Madrid establishes that in view of the info it’s confirmed that the home was not constructed inside a interval of two years, which suggests non-compliance with the necessities established within the cited norms for the origin of the exemption for reinvestment. The Court docket itself emphasizes that as a way to apply the exemption for reinvestment, in line with the aforementioned precepts, it requires the efficient reinvestment in a brand new recurring residence, which within the current case has not occurred, not complying with the necessities established within the aforementioned laws. that don’t enable exception for in case of non-construction within the mounted phrases. Moreover, it’s not acceptable to grant a brand new interval. Article 14 of Legislation 58/2003, of December 17, Common Tax (hereinafter, LGT) offers that “The analogy to increase past its strict phrases the scope of the taxable occasion, the exemptions and different advantages or tax incentives is not going to be accepted.”. There isn’t any doubt that each the Courts and the Tax Administration are obliged to use the laws accredited by the Legislator in its strict phrases, the necessities set therein being clear, that within the present case not all the weather have been met. essential to proceed with the applying of the exemption.

In consecuense, the Court docket proceeds to dismiss the contentious-administrative enchantment filed by the taxpayer, declaring the contested decision in accordance with the Legislation.

Though the writer’s opinion coincides with that expressed within the actions carried out by the our bodies of the State Tax Administration Company, and the pronouncement by the Superior Court docket of Justice of Madrid, we can’t ignore the defects of the present regulation by not foreseeing the chance that mentioned interval of two years is breached when circumstances of power majeure happen. The brand new panorama seen as a consequence of Covid-19, which has led to the whole paralysis of the financial system together with actions similar to development, may result in many taxpayers not assembly the deadlines set by the Legislator. This might indicate unequal therapy between taxpayers, since some could be disadvantaged of the exemption as penalties of unforeseeable occasions and power majeure that might forestall them from having fun with this extra helpful tax therapy, regardless of having accomplished all potential acts to fulfill the deadlines set.


Picture: Miguel Rodrigo Moralejo

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