Tag archives for Tax evasion

Equity Release for Fiscal Planning is Tax Fraud, Confirmation in Writing Received

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As explained on a previous post, the “Hacienda” has now confirmed what many believed: that attempting to mitigate inheritance and wealth taxes by taking out a mortgage loan on a property that was otherwise unencumbered is tax fraud.

What are the implications of this conclusion for the banks?

In principle, the consequences can vary enormously depending on whether banks misrepresented their clients by making them believe that they could mitigate taxes legally, when this is untrue, and this can be proven in a court of law. Where proven, the contracts can be declared void and the bank forced to lift the mortgage on the property, and by application of article 1.306 of the Civil Code, be prevented from claiming the draw downs.

Banks that have assisted inheritors in collecting life assurance/insurance payments on death of the policy holder, without demanding that taxes were paid, can become “substitute taxpayers” and end up footing the bill. Where the owed tax exceeds €120,000, this could constitute a crime under the Spanish Penal Code, punishable with prison terms.

And for property owners?

Taxpayers may have effectively mitigated taxes by declaring the charge to represent a “true” debt, in the belief that they were doing the right thing. The right of the Tax Office to demand unpaid taxes are not compromised by virtue of agreements between the cheating banks and their victims and so, they can pursue taxpayers.

One thing is now clearer: property owners are now in a far better position to pursue the declaration of voidness/nullity of the equity release agreement, as a single juridical contract, given the gross misrepresentations by banks, and their agents, when selling this fraudulent product.

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Offending Equity Release to be Scrutinized by the Spanish Tax Office

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Lawyers for ERVA have formally requested the Tax Office to provide an opinion on whether the widely publicized and marketed “tax-mitigating mortgage” is, from a tax point of view, a legal option under Spanish laws.

No sooner we get an answer than we will be publishing its content on this site.

Contracts Used to Evade Taxes Declared Void

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Several Spanish Courts are already ahead of the game on using contractual artifices to evade taxes, pretty much what the Equity Release was all about. The chief difference between both setups is that whilst the ones already set aside were mutually agreed on the understanding that it was illegal to do so, on the Equity Release banks lied as to the legality of the matter and misrepresented the truth.

As Nordea put it

We offered you advice which we thought was correct at the time of publication. It was however your prerrogative to go elsewhere to obtain correct advice…(!)

In contrast to Nordea’s clever plan, Madrid-based National Audience said the following about contracts used to avoid Capital Gains Tax:

It is reasonable to presume that the profuse and complex series of contracts carried out by the parties answered to a fiscal strategy and, in reality, had no other purpose than to evade taxes…In summary, the object of each of the contracts agreed to was unconnected from the real economical nature that they are intended for, and were rather used seek tax avoidance, once the contracts were succesfully implemented, on the gains derived from the main agreement.

The Superior Court in Navarra established that:

No juridical contract can enjoy this status if it is intended to attain a tax advantage, because no tax advantage can be transferred between the parties, and thus such contract produces no effect in respect of third parties…what has been confirmed is a surreptitious avoidance of taxes which none of that parties were entited, directly or indirectly, to legally avoid.

And more recently, on the 2nd of February 2012, th Supreme Court in Madrid endorsed all prior judicial opinion on the matter by ratifying that:

We must conclude  by asserting the illicit nature of the object of the contract insofar as the aim pursued by the parties was an illegal and immoral business common to both…exemption and tax advatange…without any of the parties being entitled to it.

If the contracts are not valid, there is no question of them being set aside and damages being awarded…for they never existed.

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