When buying or selling a property, the normal scenario (or the most recommended) is to do it by means of a public deed before a notary. Unlike the private contract, the sale by notarized deed allows the access of the transaction to the Property Registry, and almost totally protect us against third parties.
Among other various functions of the notary, there is to verify that the transaction obeys the Law 10/2010, of Abril 28, prevention of money laundering and terrorism financing. Therefore, the deed must contain the sale payment method and, if any, the proof of all payments.
The most common payment methods in property transactions are the nominative cheque and the bank transfer. And, what happen with the cash payment or the bearer cheques?
Since the end of 2012, when the Law 7/2012 of October 29 was passed, it is prohibited to pay in cash more than 2,500 euros (or its equivalent in foreign currency) in those transactions in which one of the parties is an entrepreneur or a freelance professional. This limit amounts to 15,000 euros when the payer is a natural person acting as such, and who does not have its tax address in Spain.
The breach of this limit constitutes a grave administrative infraction and the penalty shall be 25 % of the amount paid in cash.
What do we mean by cash?
According to the article 34.2 of the Law 10/2012, the cash payment methods are:
– Paper money and coins, domestic or foreign.
– Bearer cheques denominated in any currency.
Any other instrument, including the electronic ones, designed to be used as a bearer payment means.
What is the difference between nominative cheques and bearer cheques?
The main difference between this payment methods is that, while the nominative cheque contains the person who can cash it, the bearer cheque does not contain the person to whom it is addressed to. Consequently, anyone who holds a bearer cheque can cash it. Thus, like paper money and coins, bearer cheques are easily transferable between people.
On October 13th, 2020, the Spanish Government published a new bill against tax fraud, which includes, among other measures, a tightening of the limit on cash payments between entrepreneurs, lowering the limit from 2,500 to 1,000 euros, while maintaining the limit of 2,500 euros for payments made by individuals.
Will this be the end of cash? We do not have the answer to this question, but we cannot deny this method of payment is being relegated.
Is the limit of 2,500 euros for payments in bearer cheques legal?
The recent Sentence 76/2021, of February 25th, of the Administrative Court No. 3 of Valencia has admit an administrative appeal against a sanction for a violation of the 2,500 euros limit for bearer cheque payment.
In this case, there was a series of real estate transactions for a total amount of 3.3 million euros paid by bank cheques, one of them being a bearer cheque of 200,000 euros which was sanctioned by the Regional Inspection of the tax office in Valencia.
Based on the Opinion of the European Central Bank of 1 February 2019 on limitations to cash payments, the appellant alleged that the sanctioning regime is excessive and the fines disproportionate, and it reiterates that the limitations on cash payments should not go beyond what is necessary to achieve its goals.
By this groundbreaking sentence, the judge agrees with the claimant mainly on the basis of the EU Court of Justice judgment of 26 January 2021, cases C-422/19 and C-423/19, in which the EU Court conduct a survey of the concepts of ‘legal tender’ and ‘monetary policy’ of banknotes and coins.
Regarding the first, it points out that the concept of ‘legal tender’ of a means of payment in a currency unit signifies that it cannot generally be refused in settlement of a debt denominated in the same currency unit, at its full face value, with the effect of discharging the debt (principle of acceptance of cash payments and discharging from payment obligations).
Regarding the second, it establishes that the main objective of the monetary policy is the maintenance of the price stability and, although it is an exclusive competence of the Union legislator, this does not prevent the Member States, within the framework of their own competences, to adopt certain measures to regulate the extinction of the pecuniary obligations.
In this sense, the EU Court indicates that the States may regulate the cash payments as long as (1) the principle of cash acceptance is not affected; (2) there is a reason of public interest such as the prosecution of tax fraud; and (3) the measures must be proportional, that is, the measures concerned must be appropriate for attaining the legitimate objectives pursued and do not go beyond what is necessary in order to achieve those objectives.
In the light of the foregoing, the Sentence of the Valencian Administrative Court concludes that the limitation of the cash payment of 2,500 euros when one of the parties is an entrepreneur or professional extends to almost all the operations that occur nowadays, being exceptional the transaction in which both parties act as individuals.
In addition, it states that this measure is not necessary to guarantee the fight against tax fraud in payments by bearer cheques, since there are other more effective means to achieve this objective. In particular, the Spanish regulation on the prevention of money laundering and terrorist financing already obliges banking entities to identify all the people who intervene in operations before them exceeding 1,000 euros and to keep the documentation for ten years.
Therefore, the provisions of the TFEU, and its interpretation by the CJEU, displace the internal rule, which could not be applied in the factual situation.
In short, limiting the amount of a bearer cheque is an unnecessary and disproportionate measure for the purposes of controlling tax fraud and it is contrary to the general principle of acceptance of the euro as currency in legal tender.
For the moment this is the only sentence and it is from an administrative court (not from the Supreme Court), but it applies the EU law and it is backed up by solid CJEU case law, so it should be taken into account in the elaboration of the new bill against tax fraud.