Last September, the National Registry issued a new version of the Qualification Guide of the Real Estate Registry Department, in which it was established that when the rectification of the name and identification number of the owner of a property is motivated by a merger of companies, of any type, the transfer tax of the property involved will be levied. Therefore, the tax must be collected.
In any merger, when the name of the prevailing entity as owner is to be rectified, the transfer tax, which amounts to 1.5% of the property’s value, must be paid.
According to the Circular, this provision is based on institutional criterion DGT-CI-03-2020 and on official letters issued by the General Directorate of Taxation. However, the Circular seems to take a position outside the provisions of the Law and the institutional criterion itself, since, from reading the criterion, it is not understood that every merger must pay the transfer tax.
This becomes especially relevant when we analyze the Transfer Tax Law, which should be the appropriate regulatory source since it establishes that the transfer tax is levied in indirect transactions such as a merger of companies when there is a change in the power of control of the real estate.
Thus, in those mergers where there is no change in the power of control of the real estate, such as a merger of companies where the owner of the capital stock of both companies is the same person, the duty to pay the tax does not arise. Unfortunately, this has not been the position of the National Registry, which evidently will imply a limitation to the generation of business and corporate restructurings necessary in the business context.
This implies that, from now on, every time a merger is processed where real estate is involved, the Registry will require the payment of the transfer tax to register the change of the name and registration number of the prevailing company. Although payment is not the only way left, it would be necessary to establish administrative and judicial proceedings against such provision, which will take time and resources of the taxpayer.