HUNDREDS OF Irish citizens who sold holiday villas and apartments in Spain before 2007 could be in line for a refund of overpaid tax following a landmark ruling by a Madrid court.
The court has upheld an appeal by an elderly British couple against the Spanish tax authorities after they were forced to pay more than twice the rate of Capital Gains Tax (CGT) on the sale of their holiday home compared to residents in Spain.
Up until January 1st, 2007, Spain taxed gains on property sales by non-residents at a flat rate of 35 per cent, compared to just 15 per cent for residents.
The situation was brought to the attention of the European Commission by individuals and consumer groups, leading Brussels to threaten infringement proceedings against Spain on the grounds that its domestic law discriminated against non-resident EU nationals.
After repeated warnings from the commission, the Spanish government amended the law and now all sales are subject to the same flat rate of 18 per cent.
However, the amendment did not satisfy the thousands of owners who had sold their properties prior to 2007.
Spanish law firm Alvarez, Manglano and Associate, which has brought proceedings on behalf of many European Union clients, particularly British, announced recently that it had won a crucial test case heard by the High Court in Madrid in February.
According to the firm, the court recognised that “the overcharging contravened EU rules and should not have happened”.
It is encouraging other victims to file claims as soon as possible to receive a refund of the amount overpaid, plus 6 per cent annual interest.
The decision paves the way for the settlement of a string of claims from EU nationals, including many from Ireland, following widespread publicity given in the European media in the past year to the discriminatory practice.
According to early estimates, the total amount overcharged to non-residents could run into several hundred million euro, with individual sellers likely to receive about €20,000 if their claim is successful.
It is unlikely that all foreigners who sold their properties before 2007 will be eligible, however, given that under Spain’s tax laws claims can only be made dating back over a four-year period, a technicality that could save the Spanish government millions of euro.
The ruling has prompted many law firms in Spain – particularly in popular tourist regions such as the Costa del Sol, Balearic Islands and the Canaries – to advertise no win, no fee services to non-residents wishing to register claims.