Catalan Tax Authorities have recently published on tax rulings, with regards to the tax rebate applicable for the acquisition of dwellings by Real Estate companies and the possibility of carrying out different economic activities.
Reference of tax ruling: 138/18 of August 1st 2018 – Publication date: October 2nd 2018
This tax ruling focuses on the possibility that the Real Estate company or entrepreneur carries out different economic activities. In the case at hand, there is a company carrying out two different activities: the sale and acquisition of dwellings, and rental of touristic properties.
The Tax Authorities answer again that a tax rebate with regards to the properties acquired with the intention to sell to an individual for his/her habitual home will apply as long as (i) the company registers in its accounts such properties as current assets, and that this activity of sale and purchase is the main activity of the company.
Unfortunately, the Tax Authorities have missed an opportunity to clearly define what has to be deemed as “main activity” or what items should be considered to define such a term.
Do we have to link the concept of main activity to main source of income or the main profitable activity? Do we have to take into account such main source of income or annual profitability or during the five year term that the property acquired needs to be transferred?
Just as an example: A company acquires a property in the year 2018 with the intention to sell it within the 5 year term. Finally the sale will be made in 2020. Consequently, in the years 2018 and 2019, the only income/profit obtained is the one from the other properties only devoted to the rental touristic activity. Can the Tax Authorities consider that in 2018 and 2019 the main activity of the company was the rental touristic activity and deny the tax rebate applied in the acquisition, claiming for the difference, because the requirement of the main activity has not been met? We understand that this is not the aim of the law, but it is not clear. Again, what happens in the case that the profit obtained in the sale does not exceed the total income obtained with the rental activity?
Once again, we will have to work in favour of our clients’ interest in the face of uncertainty generated by the Tax Authorities.
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