The Tax Office has launched an inspection campaign aimed to property companies that own dwellings used by their partners. The purpose of these inspection procedures is to verify if the dwelling of the property company is available for partners or is used by them, if there are revenues derived from said leasing and if the mentioned revenue is at market price.
The housing rentals between a company and its partners (or the use or availability) is considered a related party transaction for Corporate Tax purposes, and, as such transaction, it should be valued at its market price.
The tax consequences derived from the inaccurate valuation of the rent (or use or availability) can be very relevant for both, the company and the partner. In these cases, the Tax Office considers that the difference between the amount invoiced and the market rental value is considered as a higher taxable income for the company and, as a taxable dividend for the partner or shareholder.
From our professional experience in recent months we have been observing that the Tax Office, for leases valuation purposes, carry out valuations which typically are based on a lax and partial analysis of the rental market, specifically those referred to the rental housing market in the Costa del Sol area.
The determination of the market value concerning the use or leasing of a detached house or villa tends to be complex due to the fact that, in the majority of cases, does not exist a comparable market that can serve as a basis to fix the market prices. For this reason, the valuation is typically a discrepancy aim with the Tax Office.
As a consequence, and if this is the case, it is very important to make a review of the transactions that should exist between you and your property company to determine if the value applied is a market value and to document the transactions to defend the value applied is arm’s length before an inspection procedure is started by the Tax Office..