Following the latest reform of the Bankruptcy Act, the Spanish Tax Authorities have established a mechanism to ensure the collection of the applicable VAT in the acquisition of property from companies declared bankrupt.

Until 1 January 2012, Article 84 of the VAT Act 37/1992, when regulating the reversal cases of the taxpayer liable for this tax, no reference is made to companies declared bankrupt and the cases of their goods being acquired. However, this situation has changed since 1 January 2012.

The new wording of the aforementioned Article 84 establishes among other cases that the entrepreneurs or professionals for whom taxable operations are performed shall be taxpayers liable for this tax when property is handed over by companies declared bankrupt and not the latter as had been the case until 1 January.

In other words, since 1 January 2012, the reversal of the taxpayer has been included in the case of the handing over of property carried out by companies declared bankrupt, with the taxpayer liable for the tax is the party receiving the property and not the party handing it over.  

Thus, the Tax Authorities is seeking to assure collection of the VAT on transfers of property by companies in bankruptcy as they are not able to apply the VAT collected to settle credits against the bankruptcy estate.  

In the case of dation in payment between real estate companies and financial institutions, the financial institution shall be considered as the taxpayer and shall be liable for settling the VAT, as the financial institution receives the property from the real estate company declared bankrupt in order to settle the financial liabilities that may be outstanding.

In addition and in relation to the tax rate applicable to the aforementioned handing over of property, this may range between 18% or 4%, according to the rate for the property in question. We should also take into account that the possible subsequent sale by the financial institution of the aforementioned property may be deemed a second building sale, which is exempt from VAT, and the institution may waive the exemption if the purchaser meets the conditions established in the VAT Act.

We will have to observe whether this amendment to the way VAT taxpayers are treated in the handing over of property by companies declared bankrupt dilutes in the future the widespread practice of dation in payment as a procedure to cancel liabilities.