Collecting 200,000 euros for the sale of a property, but declaring that it cost 170,000 euros and collecting the rest as black money. Declaring a property to be worth less than its actual value is a practice that is as common as it is dangerous, since tax evasion is punished severely by law and tax authorities are making their audits and controls ever stricter.
This is one of the most common forms of the underground economy, in which “in order to save taxes, a fraudulent purchase and sale is carried out in which a part is paid in cash in order to reduce the tax base,”.
Thus, this practice does not result in the complete elimination of payments to the Treasury, but rather in “the apparent reduction of the amounts to be paid.”
The impact of the shadow economy in Spain is not known, but the most optimistic forecasts put it at just under 10% of total GDP, while the most pessimistic estimates put it at 25%. This is a reality that is difficult to quantify, even if we are all aware of it, since the transactions are completely hidden from registration and statistics.
The buyer of a property in this way can save between 6% and 11% of the real estate transfer tax. “This tax depends on the Autonomous Communities, so you don’t pay the same everywhere,” he adds.
“For example, if you buy a property for 170,000 euros and collect 30,000 euros, the tax base is reduced,”. “The risk is very high,” because, he says, “if the contractually agreed price is lower than the market price, the Ministry of Finance can conduct an audit and calculate the actual real estate transfer tax.”
In addition, if tax authorities discover the deception, the buyer could face “default interest and even fines for tax evasion.”
The practice could also be counterproductive from a tax perspective if the buyer’s goal is to resell the property. “If he ends up reselling the property for a lot more money, the capital gain will be high, so he ends up paying more income tax,” he warns.
“For the seller of the property, the fraud is more advantageous because he saves more taxes and takes less risk,” explains the lawyer. In this sense, “the seller reduces the payment of income tax, since the transfer value is lower,”.
On the other hand, since he received less money, “he can claim that he recorded losses on the sale and purchase, which exempts him from paying municipal capital gains tax,” the attorney says. “This is only the case if the property is sold for less money than it was bought for,” he explains.
“The risk is that if the tax authorities do not consider the value of the property “credible” because it is much lower than the market value, they can initiate a value review and demand income tax on the higher capital gain obtained,” the attorney says.
More information you may obtain contacting the professionals of the law firm Despacho Lamas in Palma de Mallorca by +34 971 720 202