Stamp Tax in real estate developments. Two cases in favor of the taxpayer

In the first case, the taxpayer had acquired a piece of real estate and declared that it was destined to the construction of residential housing. Therefore, the deed was considered exempted from the Stamp Tax. The National Tax Authority considered that the exemption was not applicable because the taxpayer had not started the construction after five years counted as from the execution of the deed. The National Tax Court ruled in favor of the taxpayer, rejecting the tax authority’s assessment. Notwithstanding that it was proved that the real estate was indeed destined to the construction of residential housing, this case is interesting because the Tax Court pointed out that the law does not provide for a term in which the construction should be initiated and that this gap could not be filled by an unreasonable interpretation of the tax authority. Furthermore, it also pointed out another loophole: the law does not provide for how long this destination should be maintained.

In the second case, the taxpayer had also acquired a piece of real estate that was destined to the construction of residential housing and therefore the deed was considered exempted from Stamp Tax. In order to finance the construction, the taxpayer entered into a credit agreement with a bank and collateralized it with a trust (fideicomiso de garantía), to which it transferred the piece of real estate. The tax authority considered that the exemption on the first deed became no longer applicable arguing that transmitting the real estate to the trust meant a breach in the commitment to destine the real estate to the construction of residential housing.

The Tax Court ruled again in favor of the taxpayer, rejecting the tax authority’s assessment. It considered that the transfer to the trust could not be assimilated to a standard transfer, because it had only been made for collateral purposes. Furthermore, it pointed out that the taxpayer was still engaged in the real estate development, that it continued with the obligation to construct residential housing and that this would not have been the case in an ordinary sale. In other words, the Tax Court understood that the taxpayer transferred the real estate to the trust in order to secure the loan to be able to comply with the primary objective: carry out the project of constructing residential housing. It also pointed out that in the transfer deed to the trust, the parties had ratified that the main purpose of the project was to construct residential housing, and that this was in accordance with the spirit of the exemption. The Tax Court also highlighted that the facts proved that the taxpayer was indeed engaged in the construction project, because, for example, it included the real estate and the construction in its balance sheet and paid all the suppliers of the project.