November 8, 2018 / 4:49 PM / 10 months ago

Spanish banks won't be allowed to deduct stamp duties from tax bill

MADRID, Nov 8 (Reuters) - Spain’s banks will not be permitted to deduct mortgage stamp duty from their annual tax liabilities, Budget Minister Maria Jesus Montero said on Thursday, as the government prepares to make banks pay the tax instead of customers.

On Wednesday, Spain’s government moved to counter a Supreme Court ruling that would have forced customers to continue paying mortgage stamp duty, and pledged to swiftly pass a law obliging banks to pay the tax instead.

“The text approved today (by the cabinet) modifies article 15 of the corporate tax law to introduce that this expense will be considered as non-deductible by the lender,” Montero said.

The law will come into effect on Saturday, a day after being published in the Official Bulletin.

The back-and-forth over who is liable for mortgage stamp duty began with an October court ruling and has stalled banks’ mortgage lending business in recent weeks, creating legal uncertainty and prompting the government to act, Montero said.

Banks previously said they had not decided if any extra costs from the tax would be passed on to clients. But some in the sector said expenses could be recouped over the life of a mortgage.

Shares in Spanish banks had tumbled after the October ruling, which went against them, but partially recovered when it became clear that the government’s new law will not be applied retrospectively.

This will spare banks from potentially having to pay back borrowers who for two decades have paid the tax themselves, which analysts and ratings agencies estimated could have cost them more than 15 billion euros ($17.2 billion) collectively.

Shifting the stamp duty back to lenders from now on will collectively cost the banks around 1.15 billion euros ($1.32 billion) a year, according to an estimate by Spanish tax inspectors union Gestha.

Though Spanish banks have avoided the worst scenario, the new ruling comes at a sensitive moment, as they struggle to glean earnings from loans with interest rates at historic lows and as increasing competition erodes margins.

$1 = 0.8742 euros Reporting by Carlos Ruano and Jesús Aguado; Editing by Elaine Hardcastle

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