A Supreme Court’s judgement issued on 16 June 2016 establishes a new jurisprudential doctrine that interprets article 63.2 of the Local Treasuries Act. The Court considers that in sale and purchase transactions, the Real Estate Tax, must be distributed proportionally based on how long each party has been the proprietary owner. This can be done without the parties’ express agreement.
The Real Estate Tax (Impuesto sobre Bienes Inmuebles, “IBI“) is a real estate direct tax that levies the value of property. The proprietary right is, among others, a chargeable event that creates a tax obligation, where the passive subject is the party who holds the ownership of this right, in his/her capacity as a taxpayer. Additionally, IBI’s tax period coincides with one calendar year and accrual is on the first day of the tax period, i.e. in 1 January.
In this case, the owner, after paying the full amount of the IBI corresponding to the year when the property was sold, requested the buyer to pay him the proportional part of the IBI corresponding to the period of time between the date of the sale and the end of the chargeable tax period, this is until 31 December.
The seller’s claim was mainly based on the fact that the sale and purchase agreement included a clause under which the seller had the right to pass on the IBI based on the following wording “the seller shall be responsible for any contributions, levies, taxes or any other type of tax deriving from the property, the conservation and the upkeep of the buildings up until today“. Secondarily, it was also based on article 63.2 of the Local Treasuries Act (“LTA“) that lays down “the passive subject’s right to pass on the input tax charge in accordance with the rules of common law“.
Therefore, the Supreme Court considers that although the right to pass on the IBI from one party to another cannot be presumed from the parties’ agreement, it can be inferred from article 63.2 of the LTA. Consequently, the seller has the right to pass on the input charge proportionally, something that should be carried out in accordance with the rules of Spanish common law; and more precisely in the terms of the purchase and sale provisions under the Spanish Civil Code. As a result of these provisions, the purchaser becomes the owner of the property once it has been handed over to him and, therefore, from that moment onwards he must pay the proportional part of the IBI, without prejudice to the parties freely deciding not to apply article 63.2 of the LTA.
In summary, if at the time of accrual, i.e. 1 January, the IBI’s passive subject is thought of as the owner of the property, we consider that the new jurisprudential doctrine may interpret tax regulations in such a way that only tax consequences would stem from said time of accrual. According to the Supreme Court this would occur because tax regulations recognize the seller’s right to pass on IBI tax charge to the buyer, within a private context, unless both parties agree otherwise.