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Government forces Banks to pay mortgage tax

Government moves fast to force Banks to pay mortgage tax after tax ruling

A most unusual event has happened by the Government; a Royal decree has been passed after the Supreme Court said the client should pay the tax.

The government has responded fast after the Supreme Court controversially ruled this month that customers must continue to pay the mortgage-loan notary tax (AJD).

As consumer groups slammed the decision, Prime Minister Pedro Sánchez promised swift action.

Within the same week the cabinet had passed a royal decree forcing banks to pay the fee which was due to come in to force 10th November 2018.

Treasury minister Maria Jesús Montero said the government would be vigilant to ensure the banks did not pass on the charge to the customer when setting up loans.

In a move to silence a growing public outcry and gain political advantage, the Prime Minister, Pedro Sánchez, held a hurriedly arranged press conference to announce that the government would change the law to force banks to pay a tax on mortgage loan transaction paperwork.

A royal decree to that effect was approved at a cabinet meeting on Thursday 8th November 2018 (and the law change was due to be published in the official state bulletin (BOE), Friday, coming into force on Saturday.

The announcement came less than 24 hours after a meeting of Supreme Court judges in Madrid had narrowly voted to rule that it should be the customers taking out a mortgage who should continue to pay the increasingly controversial charge.

The widespread discontent over the tax, known as the Impuesto de Actos Jurídicos Documentados, has grown from nowhere over the last few weeks.

The fee is levied on a broad range of documents processed by a notary, not just mortgage papers, and is a variable percentage charged depending on the money mentioned in the loan paperwork.

Up to now banks have been charging their customers the tax, which varies by region. Experts say it can be between 1,000 and 4,000 euros on a typical mortgage.

Court finds against banks first

A Supreme Court ruling was published  in October 2018 which said that, as the bank was the party in the deal asking for the documents of the loan to be registered, and then it had to be the bank that paid for the tax.

The minute that first judgment was announced on 18 October, bank shares fell amid fears that refunds would be due on existing mortgages as well.

Dramatic backtracking

However, with signs of internal disagreements at the highest level of the Supreme Court, an unprecedented decision was taken to summon all the judges responsible for hearing cases linked to the public administration to meet on Monday, 5 November, to debate and then vote on whether their colleague’s decision should stand or not.

By the time the judges’ meeting arrived, public interest had grown to such an extent, with claims that the judges were trying to protect the banks’ interests, which no political party had dared to show support for the banks continuing to pay.

The judges’ meeting went on all of Tuesday as well. And when the final vote came it was 15 in favour and 13 against the customer continuing to pay.

Analysts said that had the decision gone against the banks and been retrospective, the banks stood to lose up to 16 billion euros.

Consumer rights’ group Facua said the verdict was “absolutely disgusting”, as the debate swung from the courts to the politicians.

Government steps in

By mid morning on Wednesday, Pedro Sánchez had his response ready. “The government respects the independence of the Judiciary but as the Executive we cannot avoid feeling sorry about this situation,” he said.


Malaga is one of the provinces where mortgages take up the highest share of income.

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