Evaluating tax issues of refinancing operations in Spain

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Evaluating tax issues of refinancing operations in Spain

Sponsored by

sponsored-firms-garrigues.png
The decision comes as a relief to investors

Gonzalo Rincón de Pablo of Garrigues takes a look at mortgage novations and explains why taxpayers should take care with the costs of renegotiating mortgage facility agreements.

Halted economic activity and a continued decline in revenues in all economic sectors as a result of the COVID-19 crisis have compelled many companies to refinance or renegotiate their debts (secured by mortgages in a few cases). In this scenario, it has again become important to analyse the potential effects of those mortgage novations in relation to the stamp duty/tax.



Generally, under Article 31.2 of the Revised Transfer and Stamp Tax Law, any novation (i) that is stipulated in a public deed, notarised record or certificate, (ii) with quantifiable content, and (iii) eligible for registration at a public registry is subject to stamp tax, unless it may be exempt under a provision of law.



There is no general consensus over how to apply the described rules, and there has been abundant discussion by tax commentators and in the precedents over a number of elements in relation to mortgage novations:

a) One concerns the existence itself of ‘quantifiable’ content in the various types of novations, by reference to their contents and scopes, or of the nature as ‘eligible for registration’ of the stipulated amendments; issues which need to be analysed to determine whether the transaction is subject to stamp duty.

b) Another is, after it has been concluded whether it is subject to stamp tax, the analysis of what the taxable base, or even the applicable tax rate, should be.



An analysis of tax commentary and precedents provides a few important issues in relation to the various amendments being stipulated:



Novations implying an amendment of term or interest rates



An amendment of the term or interest rate is a transaction that meets all of the requirements mentioned above to make it subject to stamp tax.



Although this issue is not exempt from debate, the taxable amount for stamp duty purposes in these cases may be said to consist of the whole of the outstanding mortgage liability payable by the debtor when the novation occurs.



Having said that, and exclusively within the scope of refinancing transactions where the lenders are financial institutions, Article 9 of Law 2/1994, of March 30 1994, on subrogation and amendment of mortgage loans, allows an express exemption from stamp tax for these types of transactions. It must be noted that the precedents are unanimous over the restrictive nature of this exemption, to the effect that, if the novation deed contains any type of transaction other than a strict amendment of the term and/or interest rate for the mortgage loan or credit facility, the taxation of these other amendments must be analysed independently.



On this subject, the stated interpretation of the Directorate General for Taxes (DGT) is that any grace periods granted in a mortgage refinancing must be treated as an alteration of the mortgage term, and therefore, are exempt from stamp duty if the other requirements laid down are met.



Increase of the debt



An increase of the loan or credit facility amount is another transaction that meets the requirements laid down in Article 31.2 of the Revised Transfer and Stamp Tax Law, although no exemption is applicable.



In this case, the taxable base for stamp tax purposes consists of the amount by which the loan or credit facility is increased.



Amendment of the repayment system



The stamp duty on changes to the repayment system of loans and credit facilities is a debatable issue.



The stated interpretation of the DGT and of Madrid High Court is to treat these novations as subject to and not exempt from stamp tax, and that they must be taxed on the whole outstanding mortgage liability when the novation takes place.



Having said that, supreme court precedents (judgments dated March 19 2019, February 26 and March 4 2020) appear to convey (not wholly free from doubt) that amendment of the repayment system does not have to be subject to stamp duty (because it does not have ‘quantifiable’ content); or that it must be taxed exclusively by reference to the substantive content of the taxable event, which, in the case of a simple novation amending a mortgage loan recorded in a public deed means the economic content of the quantifiable financial clauses determining the taxable economic capacity.



Amendment of the appraised value at auctions of mortgaged property



Although the tax on a mortgage novation amending the appraised values at auction of mortgaged properties was the subject of widespread debate among tax commentators and in court precedents, according to a precedent from the Central Economic-Administrative Tribunal, in its decision of October 10 2017 (already accepted by the DGT, among others, in its biding ruling number V1914-18, in which it changes its earlier interpretation) this agreement must be treated as not subject to stamp tax, because it does not meet the ‘quantifiable’ content requirement.



In conclusion, it is advisable to analyse the possible tax costs of refinancing operations (in the above commented cases, among others) where there is a mortgage guarantee.



Gonzalo Rincón de Pablo

T: +34 91 514 52 00

E: gonzalo.rincon.de.pablo@garrigues.com

more across site & shared bottom lb ros

More from across our site

The threat of 50% tariffs on Brazilian goods coincides with new Brazilian legal powers to adopt retaliatory economic measures, local experts tell ITR
The country’s chancellor appears to have backtracked from previous pillar two scepticism; in other news, Donald Trump threatened Russia with 100% tariffs
In its latest G20 update, the OECD also revealed tense discussions with the US where the ‘significant threat’ of Section 899 was highlighted
The tax agency has increased compliance yield from wealthy individuals but cannot identify how much tax is paid by UK billionaires, the committee also claimed
Saffery cautioned that documentation requirements in new government proposals must be limited if medium-sized companies are not exempted from TP
The global minimum tax deal is not viable without US participation, Friedrich Merz has argued
Section 899 of the ‘one big beautiful’ bill would have spelled disaster for many international investors into the US, but following its shelving, attention turns to the fate of the OECD’s pillars
DLA Piper’s co-head of tax for the US and Latin America tells ITR about her fervent belief in equal access to the law, loving yoga, and paternal inspirations
Tax expert Craig Hillier agrees with the comparison of pillar two to using a sledgehammer to crack a nut
The amount is reported to be up 57% from the £5.6bn that the UK tax agency believes was underpaid in the previous year
Gift this article