Global Employer Services News November 2022

Questions on the constitutionality of the “benchmark value” of property

Over the past few decades, one of the most litigious matters in the field of taxes in Spain has been the substantiation of property values – particularly in the case of real estate -- for purposes of calculating property transfer taxes (ITP from the Spanish acronym) when the acquisition is for valuable consideration, or inheritance and donation taxes (ISD from the Spanish acronym) when the acquisition is not for valuable consideration.


Traditionally, the tax authorities of Spain’s Autonomous Communities – the country’s 17 first-level political and administrative divisions --.have been legally responsible for the ITP and the ISD, given that the State delegated these functions. These tax authorities would frequently question the property values declared by taxpayers in the public deeds formalising the properties’ sale or hereditary allocation. Initiating the obligatory procedures for substantiating the declared values almost always resulted in a new tax settlement – and sometimes even in additional fines -- which increased those transactions’ tax cost.

The tax authorities would usually carry out valuations in different ways, many of them indirect or through an evidential analysis of the property’s age, location, and comparable properties, but without conducting an in-person survey or inspection of the property that took into account the particular and specific circumstances of the individual property.

Because of this practice, taxpayers were often able to challenge the valuations made by the tax authorities and initiate administrative procedures to have the valuations confirmed. It could take a long time for these proceedings to reach the courts. As a result, the Spanish Supreme Court, in its role as the highest authority and interpreter of ordinary law, established a legal doctrine to be followed by all Autonomous Communities that made it obligatory, in cases where the declared values were contested, for the tax authorities questioning the value declared by the taxpayer to substantiate its grounds by means of an in-person and individualised survey of each property. Any valuation that did not involve a “personal visit” from the Autonomous Community’s tax office to the property became inadmissible.

New Rules

In response to this legal doctrine, and by invoking the desire to reduce the volume of tax litigation, the government enacted Law 11/2021 of 9 July 2021 (published in the Official State Gazette of 10 July 2021) which introduced, effective 1 January 2022, the concept of benchmark value.” A property’s benchmark value basically consists of a value determined by the General Directorate of the Cadastre (a state body) that is then used as the assessment base to calculate the ITP and ISD taxes.

In other words, when a property transfer is subject to either of these taxes, the assessment base of the corresponding tax must be the property’s benchmark value. Any other value that the taxpayer might consider applicable is unacceptable, unless that value is higher than the benchmark value. Therefore, it is no longer necessary to have a tax inspector visit the property, as the Supreme Court had mandated: the benchmark value determined by the Cadastral Authority each year will prevail in all cases.

Furthermore, if the transfer is subject to the ITP or AJD tax under the modality in which stamp duty applies to the first copies of public deeds that are issued for real estate properties and the assessment base is determined by the value of these properties, that base may not be any lower than that which would result from applying the benchmark value.

Finally, when the benchmark value is used as the assessment base for the tax applied to a property’s acquisition, this value will be taken into account when applying the rule for determining the assessment base of the property tax to which it may be subject, as applicable. Therefore, the benchmark value will affect the property tax only in respect of properties acquired on or after 1 January 2022, and not any pre-existing assets/property.

For example, a house is sold and the two parties agree to a sale price of EUR 200,000. If the benchmark value as determined by the Cadastre is EUR 300,000, the taxpayer must declare, for purposes of the ITP, the amount of EUR 300,000. If, for example, the benchmark value had been EUR 100,000s, but the parties had agreed to a price of EUR 200,000, the latter value will have to be included.

In sum, the benchmark value of a property will always be the minimum assessment base for calculating these property transfer taxes.

According to the law, the benchmark value may never be higher than the “market” value, although that “market value” will always be that determined by the Cadastre each year. Effectively, the benchmark values of properties will be determined, from year to year, by applying average value calculation modules, based on the price of all the property sales made before a notary public or recorded in the Property Registry, and obtained in the context of the annual real estate reports prepared by the Cadastre.

The way in which the benchmark value is individualised for each property, based on the corresponding average value calculation modules, using coefficients and calculation rules, will be detailed in an annual resolution issued by the Cadastre, which will also be published on the Cadastre’s website.

What can taxpayers do if they do not agree with the “benchmark value” that the Cadastre has determined for a property? First, taxpayers may contest the Cadastre’s resolutions through administrative proceedings within one month of the date of publication. The taxpayer may also, at any time, initiate cadastral regularisation proceedings in relation to the property’s characteristics.

But the taxpayer may also -- and this is a cause for concern -- wait until it is time to file the corresponding tax form on execution of a transaction, and challenge the submitted self-assessment (in which the taxpayer has been compelled to use the benchmark value as the taxable base). This transfers the burden of proving that the benchmark is not the “real” value or “market” value to the taxpayer, and the taxpayer will then have to prove this, normally by submitting an expert’s opinion and initiating the corresponding judicial review, with the consequent legal costs.

Current Issues

It’s now been more than a year since the entry into force of this new law, and far from achieving the legislature’s expressed intent of reducing tax litigation, the change has resulted in an increase in the amount of such court cases. More and more frequently, taxpayers unhappy with the benchmark values assigned to their properties have initiated legal challenges.

Quite apart from whether taxpayers can challenge their self-assessments in which the benchmark value based on an expert’s opinion has been used as the taxable base, the concept of the benchmark value raises serious concerns as to its compatibility with the constitutional principles of legal certainty (article 9.3 of the Spanish Constitution) and financial capability and tax legality (article 31.3 of the Constitution) This is especially true now that the most recent ruling of the Constitutional Court, dated 26 October 2021, declared the concept of “municipal capital gains” to be unconstitutional. This infringement of constitutional principles may be invoked by taxpayers in their legal challenges, so that the competent legal bodies may submit the corresponding question of unconstitutionality before the Spanish Constitutional Court.

In light of the 26 October 2021 Constitutional Court decision, it cannot be ruled out that, if the court declares a benchmark value unconstitutional, the effects of that declaration might not be limited only to the taxpayer that filed that particular legal challenge.

Should you need any assistance with the implications of these changes please contact your BDO advisor.

Antonio Puentes