Property tax tug of war between nations

Maybe the Irish knew something about the EU the rest of Europe didn’t, when they gave it a great big “No” in their latest referendum.

They knew their country had spent billions of EU-provided Euros to fuel the so-called Celtic boom and that many Irish families and investors sent some of their new-found wealth back into “Europe” in the form of investments in property, mainly in Spain as you might expect.

Now, post referendum, they have discovered their funds didn’t go into Europe after all, as their own tax authorities are saying it went “offshore” and demanding tax on any profits made there.

“Offshore” suggests fat cats squirrelling away untold millions into exotic Caribbean islands, rather than making a few hundred quid from renting out a property to ease the mortgage payments bloated by EU monetary policy.

Most buyers are probably not aware of their tax obligations in the country where they bought their apartments or villas. But the Irish tax offices has sent letters to those suspected of owning assets abroad, which tells them that under EU legislation, they have been identified as being in receipt of income from an offshore bank account or accounts, informing them that while this is not illegal, the holders must pay tax on any interest earned on the account.

The noose is also tightening for these non tax compliant owners of “offshore” property because advances in computer software have made it a lot easier for tax officials across Europe to share information.

In Spain, for example, new software was implemented some months ago, which alerts the tax office when there has been a change in the notary deeds of a property following a sale.

“Offshore” bank accounts were probably opened in connection with the purchase and running costs of a property abroad, so the Irish Revenue demands the date the property was purchased; whether it is being rented; the total costs involved; and the source of finance for the purchase.

Gotcha! Their Spanish amigos can click-send their data to confirm or reveal information. Gotcha and Pillado!

Meanwhile, the Hacienda, Spanish tax office, has moved to safeguard it’s tax “losses” to Eire and other European countries whose citizens have fuelled the Spanish property boom and the nation’s economy. Ungratefully, they are enforcing letting licences and fining home owners that don’t have them. Pillado!

Strange that these tax wars between nations have only kicked-off as the property boom across Europe ends. More buyers will be tax compliant for the small profits they may make during the property downturn, but when the boom cycle comes round again, the next generation of buyers will be into Latin America.

Then there will be no property tax bonanza for Europe as banana republics have little time for such niceties. Those places really are “offshore”. Gotcha cha, cha, cha…