Refunds for collar or ‘floor’ clauses: personal income tax repercussions
A few months ago we discussed the tax effects of the elimination of collar or ‘floor’ clauses from mortgage agreements and the refunds of the interest paid in excess under those clauses, which financial institutions had made as a result of the supreme court judgment on May 9, 2013. The judgment limited the effects of the reversal of the ‘floor’ clauses to affect only the sums paid from the date of its publication (May 9, 2013).
However, this limit on the effects of their reversal was corrected by the judgment of the Court of Justice of the European Union on December 21, 2016, which determined that the financial institutions must refund the whole amount of the sums paid under those clauses from the beginning of the agreement.
In view of this scenario, as a result of the foreseeable increase in the number of demands from affected consumers, a procedure has been provided in Royal Decree-Law 1/2017, of January 20, 2017 on urgent measures to protect consumers in relation to ‘floor’ clauses, under which agreements may be reached with the institutions.
It also provides the tax treatment for the sums received in connection with those agreements or as a result of the enforcement or compliance with court judgments or arbitral awards.
Specifically, an amendment has been made to the Personal Income Tax Law, which taking its cue from the recent ruling by the Directorate-General for Taxes (DGT) on this subject, provides that the refunded sums in respect of interest under ‘floor’ clauses will not be included in the taxable income.
It also provides, however, that if those sums had formed part of the base for the tax credit for investment in the principal residence in non-statute barred years, the right to claim the credit in relation to those sums will be forfeited and any sums incorrectly deducted not including late-payment interest must be added to the net tax payable to the central and autonomous community authorities accrued in the period in which the agreement was concluded or the relevant court judgment or arbitral award was enforced.
Moreover, an adjustment to the interest deducted as expenses in determining the net income from real estate capital or from economic activities in non-statute barred periods must be made on the relevant supplementary returns, on which no penalty or late-payment interest or surcharge will fall due, which must be done within the period between the date of the agreement (or judgment or award) and the end of the following filing period for the self-assessment return for this tax if there has been an economic loss to the tax authorities.
Otherwise, a rectification document must be filed merely for information purposes, in the same period, we surmise. The wording of the royal-decree is vague in relation to the tax treatment that must be given to any sums received in respect of the legal interest rate on money in force in each year on the sums collected incorrectly.
In view of the DGT’s new ruling in this respect, we understand that the interest is indemnificatory and, as such, will be taxed as a capital gain, to be included in the savings component of the taxable income and, therefore, at 19%, 21% or 23% (according to the amount involved) in the year in which it was received.
Therefore, as we said before, if you have benefitted from the reversal of the collar or ‘floor’ clauses and therefore your financial institution has refunded certain sums to you, you should look at the impact it may have on your personal income tax return and perhaps set aside some of the amount received to pay the tax bill.
Garrigues Tax Department