There has been a lot of talk, and some confusion, about whether Brian Pallister is dodging a luxury tax on his home in Costa Rica. Here’s what we know so far on two connected but different issues:
1) Has Pallister ducked a tax bill?:
The Free Press reported on April 4th that Pallister’s holding company with the unnecessarily long name Finca Deneter Doce Sociedad Anonima had been flagged for non-payment of a luxury tax (commonly called the Solidarity tax, it’s a national property tax in Costa Rica that is separate from municipal taxes). The assertion seemed to be based, at least in part, on a page on this web site. It’s important to note this is NOT a Costa Rica government web site. It seems to be that of a law firm that discusses real estate and taxation issues, but my crack research team has been unable to confirm that or the validity of their tax-dodger list.
Interestingly, The Costa Rica government has an official list of people who have defaulted on the luxury tax. And Pallister’s company is not on the list.
Pallister has told the media he has paid every tax bill he’s received and was told (presumably by his lawyer or real estate agent) his home does not qualify for the luxury tax. The only publicly available, official Costa Rica government list seems to back up the idea that he has never been asked to pay the luxury tax.
2)Should Pallister be proactive by paying the luxury tax, even if he hasn’t been billed?
It has been suggested he should. This is where language barriers and bureaucratese can create uncertainty. The Costa Rica government exempts houses with a calculated construction value of 126 million colones (about $230,000 US), according to Article 6 of the applicable law. To be sure, Pallister’s bungalow with a full walk-out basement looks luxurious, even if Pallister has disputed media reports that it is 7,700 square feet.
How is the tax calculated? That’s where things get complicated. It is not based on market value of the home, but on construction costs. The Costa Rica government has a guide to calculating the tax, which is a bureaucrat’s dream with different values depending on the quality of construction. Google translate doesn’t simplify things, either. Some web sites that appear to be Costa Rica media have articles that say many people don’t pay the luxury tax by either not declaring the full construction value of their home or not volunteering updated information. Enforcement seems to be a problem, and it looks like the system relies to some extent on self-declaration.
The Costa Rica government alludes to a problem in that regard in this announcement, where they mention an audit that uncovered hundreds of unpaid cases.
So here’s where things lie now: Pallister said a couple of weeks ago he would go back and see whether his home is above the $230,000 US exemption level and should indeed be subject to the luxury tax.
He’s also threatened to sue the Free Press over its original article on the subject. There may be merit to the lawsuit, but is it a wise political move? That’s another question.