The State and Autonomous Community governments affected by the DANA that occurred between 28 October and 4 November 2024 have approved various tax measures aimed at alleviating the economic costs and formal obligations of those affected in these first months. We review the main measures already approved and propose others that could be considered.

In response to the DANA that took place between 28 October and 4 November 2024, which caused serious damage to numerous municipalities (especially in the Autonomous Community of Valencia), both the State Government and those of the Autonomous Community of Valencia and Andalusia have so far approved various measures to support those affected.

Among others, the Government has approved Royal Decree-Law 6/2024 of 5 November and Royal Decree-Law 7/2024 of 11 November (published in the BOE of 6 and 12 November, respectively) and the Region of Valencia has approved Decree-Law 12/2024 of 12 November (published on the same day), which contain various tax measures, which we review and analyze below:

  • In Personal Income Tax (IRPF), (i) the deferral of the second IRPF payment of 2023 until 5 February 2025 and (ii) the 25% reduction in the net return of modules have been approved, as well as the possibility of waiving this regime in 2024 without preventing its application in 2025 or 2026 (and similar measures in relation to the simplified VAT regime), as well as (iii) an exemption for all direct public aid for personal damages caused by the DANA (which is also extended to Corporate Income Tax).

In addition, two new deductions have been introduced in the regulations of the Autonomous Community of Valencia for the cost of repairs to the main residence and contributions to the constitution or capital increase of entities in the affected municipalities. These deductions, however, are limited (for example, the deduction for home repairs can only amount to 2,000 euros) and can only be taken by taxpayers whose taxable income does not exceed certain amounts (for example, this deduction for home repairs only benefits taxpayers with a taxable income of no more than 45,000 euros under the individual system or 60,000 euros under the joint taxation system).

  • The Autonomous Community (Valencian Community) has introduced the following benefits in inheritance and gift tax (“ISD”) regulations: (i) a 50% mortis causa allowance for acquisitions by relatives in kinship group III in relation to persons deceased by the DANA, and (ii) a 100% reduction of the tax base for donations to repair or replace damaged assets, with limits of 150,000 euros for non-affected assets and 250,000 euros for assets used for economic activities.
  • In relation to the Transfer Tax and Stamp Duty, the Valencian Community has established a 100% rebate applicable (i) to the fees for legal documents (AJD) and onerous transfer of assets (TPO) accrued for the acquisition of properties for those who have lost their homes, (ii) to the gradual AJD fee for notarial documents related to the declaration of new construction and/or horizontal division of properties damaged by the DANA; and (iii) to the quota of the TPO modality for the acquisition of vehicles to replace the destroyed ones.
  • Benefits in local taxes have also been approved: (i) Exemption from Real Estate Tax in 2024 for urban, rustic and special properties damaged by the DANA; and (ii) reduction of the Economic Activities Tax in 2024 for industries, commercial, maritime-fishing, tourism and professional establishments whose premises or assets have been damaged, proportional to the time of cessation of activity.
  • In addition, temporary exemptions have been established in the fees for (i) deregistration of vehicles and duplicates of circulation or driving licenses, (ii) issuing or renewal of National Identity Cards, (iii) cadastral accreditation for certifications on properties located in the affected municipalities; (iv) applications for industrial property rights, or (v) immigration and aliens for persons entitled to submit applications for aid.
  • On the other hand, the suspension and postponement of deadlines for the presentation and payment of tax returns in both state, regional and local taxes and in the cadastral sphere has been agreed, together with the extension of deadlines for responding to summons and formulating allegations; and the deadlines for inspection actions and economic-administrative procedures have been extended.
  • Finally, other measures have been approved, such as (i) the possibility of exceptionally disposing of vested pension plan rights up to a maximum amount, for six months, or (ii) the non-seizability of direct public aid to companies and professionals and of that granted under the National Civil Protection System Law. Furthermore, (iii) aid applicants will not have to be up to date with their tax obligations. And in the Valencian Community (iv) incentives have been established for gambling taxes proportional to the damage and (v) an exemption in the water consumption sanitation tax until 31 March 2025.

It should also be recalled that in the legislation already in force there are some tax provisions that will help to mitigate the fiscal impact of the aid and compensation to be received by those affected. These include:

  • The third additional provision of the Corporate Income Tax Act stipulates that positive income derived from public aid aimed at repairing the destruction by flooding or other natural causes of assets assigned to the exercise of economic activities will not be subject to this tax, with the possibility of taking tax advantage of the loss not compensated for with the aid received.

Similarly, the fifth additional provision of the Personal Income Tax Law establishes that positive income arising as a result of the receipt of public aid intended to repair the destruction by flooding of assets up to the limit of such damage will not be subject to personal income tax. If the loss is greater than the aid, the difference can be used, whereas if the aid is greater than the loss, the excess should be taxed.

  • Section (y) of Article 7 of the Personal Income Tax Act states that aid from the autonomous communities or local entities to assist groups at risk of social exclusion, social emergency situations, housing needs or food needs is exempt from this tax, up to a maximum combined annual amount of 1.5 times the IPREM.

On the other hand, compensation paid by the Insurance Compensation Consortium for the destruction or repair of property is considered as aid for tax purposes and will not be taxed up to the limit of the cost of repair or replacement of the damaged items compensated. This has been recognised by the Directorate General of Taxes itself, for example, in its binding ruling of 27 June 2019 (DGT V1586-19).

However, considering (i) the magnitude and scope of the damage caused, (ii) that public aid in many cases will not cover the amount of the damage, and (iii) that many companies, entrepreneurs and individuals are establishing different aid mechanisms for affected employees, businesses and individuals, it seems advisable to approve additional measures, which could include, by way of example, the following:

  • Private donations:
    • Exemption in Personal Income Tax and Corporation Tax of the aid that those affected may receive from the private sector to compensate for damages (regardless of whether the beneficiaries are employees of the donors); and exemption of the income generated by the donors as a result of such donations.
    • Deductibility of the aid provided for corporate income tax purposes.
  • Elimination or increase of quantitative limits for taking advantage of tax incentives. For example, (i) the quantitative limit and the subjective scope of the deduction for the repair of the main residence in Personal Income Tax can be extended to all taxpayers who have suffered damage to their home, regardless of their taxable base or for taxable bases higher than those established at the time; or (ii) the quantitative limit of the allowances approved in the ISD for inter vivos acquisitions for property damage can be eliminated.
  • Additional exemptions, (i) in the ITPyAJD, for deeds formalizing mortgage loan and credit moratoriums, (ii) in the Registration Tax (Special Tax on Certain Means of Transport), in relation to vehicles acquired by those who have lost their vehicle, (iii) in the Tax on Constructions, Installations and Works, in relation to repair or rehabilitation works on damaged property; or (iv) in the municipal capital gains tax, for mortis causa acquisitions of property belonging to deceased persons.

These and other measures, together with those already approved, could contribute significantly to improving the situation of those affected by the DANA.

Jorge Gómez de Membrillera Ortuño