Buyers should beware when declaring the transfer price of immovable property because there are fiscal obligations they must comply with for their own serenity.

A final judgment delivered on May 27 by the Administrative Review Tribunal presided over by Magistrate Gabriella Vella (application 160/11VG - C.H. Formosa Company Limited v Director General [income tax]) will explain why.

The case is about the declared transfer value on a deed of sale dated March 20, 2008 for an immovable property. It was mainly about the real value of or payment for the immovable property at issue compared to the value declared by the parties in the deed of sale. The declared value amounted to €628,930.81.

In line with article 32 of the Duty on Documents and Transfers Act (Chapter 364 of the Laws of Malta), duty is due inter alia on every document whereby any immovable property or real right thereon is transferred to any person. The duty amounts to €5 for every €100 “or part thereof of the amount or value of the consideration for the transfer of such thing or of the value of such thing, whichever is the higher”.

The law allows the Commissioner for Revenue to assess the real value of or payment for the transfer in question if he deems the declared value to be below 85 per cent thereof. This is what the commissioner did in this case and he set the real value of the immovable property at €980,000 (rounded up).

The company buying the title on the immovable property objected to the evaluation and the eventual demands by the commissioner in line with the Duty on Documents and Transfers Act. The commissioner refused to amend his assessment and insisted on his evaluation.

The commissioner’s assessment meant an additional taxable amount of €351,000, duty amounting to €17,550 plus an additional duty to the same amount (according to the law in force at the time, which was subsequently amended in liberal fashion) for a total of €35,100.

Buyers should beware when dealing with fiscal authorities

The company appealed, contending, among other things, that the transfer price declared was the actual value of the immovable property. It said the commissioner’s evaluation was based on the opinion of an expert who appraised the property as substantially renovated following the transfer. The expert denied this under oath and the tribunal accepted his declaration. The company also claimed that the sale was subject to approval by the bank, which was a creditor of the sellers, so that the latter may waiver guarantees, hypothecs and privileges in its favour. This essentially backfired. Bank officials testified that the financial institution had to receive an amount exceeding €1 million to accept and issue the waiver. This was above the declared value of the transfer.

On the basis of what the company submitted and the evidence produced, the tribunal was convinced that the transfer price in the deed of sale was not declared in full with the clear and evident aim of not paying all dues.

The tribunal referred to the evidence of both a director of the company in question and that of the company’s legal counsel. In the deed of sale exhibited by the commissioner, besides the declared value for the transfer of the title on the immovable property, the parties had also agreed to the sale of movable property (furniture etc.) there for the price of €528,343.34.

The tribunal asserted that this was an absolutely senseless difference of €64,057.77 between the declared price of the immovable and movable properties, particularly considering that the immovable property was in a state of absolute abandonment and extensive refurbishment was required.

It declared it could not believe, and, therefore, be convinced, that the company had acquired the movable property for a value in excess of €500,000. It was more probable and plausible that the company had paid the sum of €1,193,803.85 for the immovable property, being the total declared amounts for the immovable and movable properties on the deed of sale, the tribunal said.

The law provides that duty is due on the higher between the price paid and the market price of the immovable property, thus the tribunal declared €1,193,803.85 as being the value on which duty was to be calculated.

The tribunal rejected all the company’s pleas and, rather than confirming the dues assessed by the commissioner, increased the amount of the dues by €21,390, up to €56,490 from the €35,100 that had been claimed by the commissioner.

At the moment of writing, the decision was still subject to a right of appeal to the Court of Appeal, which is also empowered to increase the dues over and above the decision of the tribunal.

Buyers should beware when dealing with fiscal authorities, especially if buying immovable property and not declaring its real value in the deed of sale. Taking a chance when the law is involved may be successful but it can also lead to a worse situation than the one resulting from the fiscal authorities’ decision.

As far as the State is concerned, buyers beware and pay up.

Edric Micallef Figallo is associate with Azzoppardi, Borg & Abela Advocates.