SkatteInform notes disagreement between tax authorities and taxpayers when valuing gifts. The disagreement means taxpayers cannot count on the tax authorities to recognise the agreed trade value when the property is handed over to close relatives, such as children.
Date 18/01 2022
Valuation
Gifts to relatives must be valued at commercial value according to the Housing Tax Act. The valuation is legally binding on all parties.
Parents, when selling a property to their children, can choose to give a gift. When the property is to be valued by the parties, it must be done at the transaction value converted into cash value. For valuation purposes, the parties may use Circular 1982-11-17 No. 185 of the Department of Taxation on the Valuation of Assets and Liabilities in the Estate and in the Calculation of Gift Taxes.
The tax authorities must ensure that the value agreed between the parties, as described in the gift declaration, corresponds to the commercial value of the property. If the value of the property converted to cash value is at most 15% higher or lower than the stated cash property value, the valuation shall be taken as a basis.
If the value of the property is not within +/- 15% of the public cash property value, then the tax authorities may change the value agreed between the parties.
In several cases, the Danish Tax Agency has had its own views on the interpretation of the Valuation Circular and the Housing Tax Act. The Danish Tax Agency now assumes that the general market price development of the property can form the basis for the valuation. The Danish Tax Agency overrides the application of the valuation circular when the actual trading value on the market significantly deviates from the value agreed between the parties. The Danish Tax Agency considers that in these cases it is a special circumstance. We do not agree that the Danish Tax Agency can apply this under the current rules and the latest published case law in this area.
Therefore, there is now a lack of clarity on when the Tax Agency will be able to assert special circumstances.
Interpretation of special circumstances leads to different property values
In a pending case, the Danish Tax Agency overrides the application of the +/- 15% rule in connection with the sale of a property. The Tax Agency justifies this by “special circumstances”. As a result, even if a property is purchased at a value within plus/minus 15% of the cash value of the property, the tax authorities have corrected the value agreed between the parties to the currently assessed commercial value on the market. The Danish Tax Agency has justified this on the grounds that: special circumstances with reference to the Valuation Circular. In this regard, the Danish Tax Agency states that the price trend for comparable properties at the same address exceeds the public property value. This results in a change in the valuation of the transferred property. This despite the fact that the law says that the value agreed between the parties is binding. In addition, the Danish Tax Agency cannot substantiate their position with reference to the content of the valuation circular. The Danish Tax Agency has repeatedly failed to agree with their views before the Danish Tax Agency.
Thus, the Danish Tax Agency does not interpret the valuation circular in the same way as the Tax Agency. In a decision of the Land Tax Court (LSR2018.551.1.SR), the Land Tax Court rules that the tax authorities (Skattestyrelsen) must accept a valuation within the guidelines stated in the circular, regardless of whether the property has been traded at a higher value than the last public property valuation, unless exceptional circumstances exist. Furthermore, the National Tax Court does not consider it a special circumstance that property assessments have been suspended as part of the Government's plan to restore public property valuations.
The Land Tax Court states that when assessing the value, the tax authorities must only take into account actual and legal changes that may have occurred to the property, such as building changes, extensions or changes in zoning status, which have not yet been or have been reflected in the cash property value.
Tax authorities have appealed the case to the courts. It will now be exciting to follow this case.
Legal certainty for citizens
SkatteInform notes that citizens' legal certainty is jeopardised if the tax authorities are able to override the principle of equality and thus take decisions contrary to applicable law and case law.
The principle of equality means that both the citizen and the tax authorities can support equal rights under applicable law and case law. This also means that one party cannot make decisions according to its own opinion.
It is contrary to the principle of equality for the Tax Agency to take decisions in comparable cases which are not in accordance with the decisions of a higher body — in this case the National Tax Court.
We recommend that anyone considering the transfer of a property to a close relative seeks advice on this before the disposal is carried out. There can be a lot of money to be saved by carrying out the transfer on the basis of concrete advice, as taxpayers currently cannot count on the tax authorities to recognise the valuation in accordance with the valuation circular mentioned above.
SkatteInform can help with advice on this, and we will follow up with an update when a judgment is reached in the case that the Tax Authorities have appealed to the courts.
See also Supreme Court judgment of 26/4-2021
Contact SkatteInform
We provide qualified answers to your tax questions. If you need further advice regarding the transfer of real estate and the latest case law, we are happy to provide you with a fee upon further agreement.
Call us by phone 33 32 10 10
Send an email at info@skatteinform.dk
or visit us at www.SkatteInform.com
Disclaimer
The above information is for guidance purposes only, and we accept no responsibility for decisions made based on this information without prior individual advice. We accept no responsibility for errors or omissions.
Certified Public Accountant
ini@skatteinform.dk
