Informative Note. Clarifications on the Mortgage Signature Tax

In light of the numerous news articles that have appeared in recent days regarding the mortgage loan tax (or the Tax on Documented Legal Acts, hereinafter AJD) and the doubts it may generate, the main banking associations consider it important to clarify some issues:

Who demands the payment of this tax? Are banks the ones who receive the corresponding amount from clients?

As with other taxes, the demand for the AJD tax is determined by tax regulations, and its collection is for the public treasury.

Banks have not charged their clients any amount for this concept. Clients have paid the tax directly to the tax authorities of the Autonomous Communities as a consequence of what was established by the tax regulation.

That is to say, it is the tax authorities that demand the payment of this tax and who collect it. Therefore, banks have not received any amount.

If the bank is the one interested in the existence of the mortgage, why does the client have to pay the tax?

In a mortgage loan, the loan and the mortgage form a single economic reality. The party interested in the mortgage loan is the client, who wants long-term financing to purchase a home, under very favorable conditions in terms of duration and interest rates. Without a mortgage, the loan would have less attractive conditions, such as those of consumer loans, which do not have a mortgage guarantee behind them and therefore are not granted for as long or at such low-interest rates.

There is much confusion regarding whether the Supreme Court’s decision will be retroactive. Why does the financial sector claim that no retroactivity should be applied?

Banks have always acted in accordance with the law, under the tax regulations that have been in force for more than 23 years, specifically in accordance with the Regulation on Transfers of Property and Documented Legal Acts, approved in 1995. This regulation, as well as numerous rulings from the Supreme Court (the latest in November 2017 from the Third Chamber, Administrative Litigation and in March 2018 from the First Chamber, Civil), establish that it is the borrower, that is, the client, who must pay the AJD tax when constituting a mortgage loan.

The entire Spanish legal framework has always understood that the taxpayer for this tax is the client. This is the only way to understand, for example, that bonuses are established based on age, disability, or large family status, conditions that can only be met by clients, that the mortgage subrogation law exempts this tax payment, or that in calculating capital gains, this tax has always been included in the value of the house.

Moreover, if a new ruling cancels a norm that has been in force to date, the law establishes that its application will be from the day the ruling is published, meaning it should not have retroactive effect. This is what the principle of legal certainty consists of, and it is based on our rule of law, which is a guarantee for all, not just for companies but for the entire citizenry. Credit institutions need to operate with legal certainty, especially in the mortgage market, given that the duration of contracts is very long.

The mortgage regulation must continue to allow access to home ownership for all layers of the population.

Is Spain the only country that applies this tax? Who pays the tax in other countries?

In European countries where similar taxes exist, the taxpayer (the one who must pay it) is the borrower, that is, the client. This is the case, for example, in France, Italy, Luxembourg, Portugal, and Austria.

It is also the case in Spanish communities with regulatory capacity in this matter (Basque Country and Navarre), where the local laws establish that the taxpayer is the client.