The tax authority has intensified its efforts to uncover potential irregularities related to the declaration of habitual residence, using electricity consumption as a key monitoring tool. This new practice aims to verify whether claimed tax benefits, such as deductions for home purchases or exemptions on capital gains from the sale of a primary residence, are properly substantiated.
The Balearic Islands Supreme Court has endorsed the use of estimates based on electricity consumption for this type of audit, providing the tax office with a new legal basis to verify the accuracy of declarations submitted by taxpayers. This approach seeks to prevent tax fraud in cases where a property is declared as a primary residence but is not regularly occupied by its owner.
In this context, the tax office may request specific information from taxpayers, such as data on essential utilities like electricity, water, gas, telephone, and internet. These details allow for comparisons with consumption levels in the years preceding the property’s sale. Such data is critical to demonstrating that the property was continuously occupied, thereby meeting the legal requirements to claim the corresponding tax benefits.
In addition to consumption records, further documentation may be required to prove the taxpayer’s actual connection to the property. This could include historical census certificates, correspondence from financial institutions, details of healthcare services, school attendance records for children, and notices from official agencies such as social security or the traffic department. These documents collectively aim to confirm that the property was indeed the taxpayer’s primary residence.
Electricity providers are obligated to supply the tax office with consumption data necessary for these audits. The objective is to use this information as an additional tool to compare the property’s usage patterns. A low or significantly reduced energy consumption could raise suspicions about whether the property is genuinely used as a primary residence.
Such audits and documentation requests are part of the Ministry of Finance’s strategy to ensure the proper application of tax exemptions and deductions. Specifically, for the exemption on the reinvestment of capital gains from the transfer of a habitual residence, the law requires the property to have been the taxpayer’s primary residence for at least three years. Any indication that the property was used for purposes other than those declared may prompt an investigation and a subsequent demand for unpaid taxes.
The growing reliance on unconventional technologies and information sources, such as electricity consumption, highlights the importance of accurate tax advice in verifying habitual residence. With the right guidance, taxpayers can prepare and present the necessary evidence to avoid tax-related issues and ensure access to legally established benefits.
In summary, given this new monitoring strategy, property owners should exercise caution and stay well-informed about legal requirements to avoid penalties and unexpected setbacks with the tax authorities.