In the contribution of a property of a spouse to the company of property of property more and more Courts consider that the taxable event of the tax on donations cannot be understood to have been realized, since the recipient of the contribution is not the other spouse, but the Company itself.
Exemption in the Transfer Tax (ITP) and treatment in the Inheritance and Donations Tax (ISD)
From a judgment of the Superior Court of Justice of Murcia, of October 2018, we have the following case:
One of the spouses of a marriage in a community of property provides the conjugal society free of charge with a private property, which both accept, and formalize by public deed.
It indicates the marriage that they later notice an error in said deed, and proceed to correct it with the granting of another, in which they expressly state that the contribution made was with the will of both spouses to increase the property free of charge.
Consequently, they present a self-assessment by Property Transfer Tax (ITP) in which they declare the transfer as subject, but exempt from said tax, by the exemption provided for in the LITP art.45.I.B.3.
After a limited check by the Administration, it understands that there is a taxable event not self-assessed of the inheritance tax for the donation made, so that turns a provisional settlement to the wife,which is confirmed by the Regional Economic-Administrative Court (TEAR), which considers that the second deed does not imply a mere correction of the error noted in the first, but a change in the will of the parties.
Not being in accordance with the criterion expressed by the Administration and endorsed by the TEAR, the controversy is finally analyzed by the High Court of Justice, which in the resolution of the appeal determines the following:
1) In relation to the Inheritance and Donations Tax (ISD):
The Court points out its disagreement with the Administration, since it cannot be held that the contribution of the private property made by the husband can be classified as a donation in favor of his wife, since she was not the recipient of the act of disposition,but the company of property.
Therefore, the taxable event of the tax on donations cannot be understood to have been carried out, and considers the decision under appeal to be contrary to law.
2) In relation to the Transfer Tax (ITP):
In the first place, the Court recalls that the Civil Code allows for contracting between the spouses and the possibility that by agreement of both spouses the character of joint property is conferred on one that was already the property of one of them (CC art. 1323).
It understands that the contribution of the farm has been operated in the aforementioned terms, so it considers fully applicable the exemption established in the LITP, already mentioned.
And it reinforces its approach by bringing up a Supreme Court ruling, which determines that the contributions of property and rights verified by the spouses to the conjugal society enjoy exemption in the ITP, inaccordance with the provisions of the LITP art.45.I.B.3 (TS interest of law 2-10-01).
In view of the foregoing, the High Court of Justice concludes by upholding the action, annulling the contested acts, and recognising the appellant’s right to the repayment of the amounts paid, where appropriate, for the liquidation drawn up by the Administration.
Exemptions in the Transfer Tax provided for a conjugal company
According to civil law, the matrimonial property regime is that which the spouses stipulate in matrimonial capitulations,with the legal limitations provided for. In the absence of capitulations or, when these are ineffective, the regime is that of a community of property,by virtue of which, the gains or benefits obtained are common to the spouses indistinctly, being attributed in half when it is dissolved.
Taking into account that the exemption is recognized in respect of operations and acts relating to the conjugal partnership, the following tax benefits are recognized:
a) Modality Of Onerous Patrimonial Transmissions (TPO). The exemption is hereby declared in respect of:
- the contributions of property and rights of the spouses to the conjugal society, including those that occur after the celebration of the marriage (TS interest of law 2-10-01); and
- the awards and contributions that, as a result of the dissolution of the company, are made to the spouses in payment of their assets. The exemption in this case does not extend to declared over-awards occurring in favour of one of the spouses.
b) Modality Documented Legal Acts (AJD). Deeds made to document acts relating to conjugal society are exempt. Consequently, the exemption is not applicable in the following cases:
- legally constituted domestic partners (DGT CV 20-12-07; CV 10-3-16);
- de facto unions (DGT CV 6-5-05); nor
- marriages subject to the regime of separation of property (TS interest of law 30-4-10; TSJ Catalonia 9-7-15).
This is NOT a donation
Let’s take as an example that you enter a significant sum into an account in which there are other holders, is it considered that there is a donation in favor of these? Many taxpayers have doubts about this issue…
Well, we go on to give some answers:
In the case of compensation:
A taxpayer plans to collect a significant amount of severance pay. And since he intended to deposit it into an account that was also owned by his partner, he asked the Treasury if this income could be considered as a donation in favor of the other co-owner (for 50% of the income).
Well, taking into account the above assumption, the Treasury has considered that the deposit of an amount of private money – that is, of a single holder – into an account in which there are several holders does not, in itself, constitute a donation.
For there to be a donation, there must be three requirements, which in this specific case do not meet:
- There must be an act of disposition of the donor in favor of the donor free of charge and in the spirit of liberality (this is what jurists call “animus donandi“).
- Secondly, there must be an acceptance of the donation by the donor.
- And this acceptance must come to the knowledge of the donor.
On the other hand, the Treasury confirms that if these three requirements are not met, there is no donation. And it reiterates that a bank account implies a deposit contract between the depositor (owner of the deposited) and the depositary (bank), a relationship that is not modified by the fact that more holders appear in that account.
Co-ownership simply implies the availability of funds by any of the holders, but not that all of them become owners of the assets deposited.
This conclusion is valid regardless of the relationship between the account holders:
- If they are married and the regime of property applies to them, the amount received as compensation already belongs to both spouses (in fact, in this case the aforementioned doubt would not arise).
- But the conclusion is the same in any other case. For example, if the money received is clearly proprietary (because it comes from an inheritance received by one of the spouses), or if it is a domestic partnership or a married marriage in separation of property.
For there to be donation, the three requirements indicated must necessarily be met.
In any case, there will be a donation if subsequently the balance of the deposit is used to make an investment in which the other holder will appear as owner or co-owner.
IMPORTANT: If the balance is destined to the acquisition of a house in which both will be owners, yes it will be considered that there is a donation of 50% of the balance destined to the acquisition.
But if the balance is maintained, or is consumed little by little to meet the family burdens (family maintenance, education of the children, etc.), in no case can it be considered that there is a donation in favor of the other owner, even if he is benefited by such consumptions.
The deposit of a private sum into an account in which there are other holders does not imply the existence of a donation. This is whether it is the spouse or the unmar up-to-case partner.
If you have any questions about this type of tax, you can contact us and our team of advisors will be in charge of helping you.