Several appeals ref. (3205/2017, 6263/2017 y 5194/2017) have been ruled recently by the Supreme court in relation to how must a contribution of mortgaged properties to a Spanish company be taxed when the latter takes over the mortgagor’s obligations.
The question raised determines if for transfer tax purposes, the incorporation of a company by means of a contribution of mortgaged properties is to be deemed as a single deal, thus being taxed only by corporate transaction tax or, in the contrary, if it must also be taxed by transfer tax given the fact that the newly incorporate company is taking over the mortgagor’s obligations.
The Supreme Court states that the tax base on the corporate transaction will exclude the part corresponding to the loan that the new company will now be liable of, however, such taking over will not remain untaxed according to article 7.2 of our Transfer tax law.
The matter has been controversial as previous rulings from other courts have understood alike operations as a single one and not two and therefore subject to only one tax on the basis that taking over the mortgagor’s obligations is a necessary consequence triggered by taking over the mortgages in exchange of the shares in the new company.
The Supreme Court concludes that taking over the mortgages is not necessary due to the properties being contributed to the company, since this could also take place without the need of the new company taking over the mortgages and the company contributing those properties could remain as the mortgagor. Therefore, the incorporation of a company by means of a contribution of mortgaged properties and the new company taking over the mortgagor’s obligations will entail corporate transaction tax and transfer tax.