Resolution from the Central Economic-Administrative Court (TEAC). Reverse charge in VAT in the transmission of immovable goods for the execution of a guarantee


The case refers to the transfer of a plot between two parties, both taxable person, which comprise two mortgages. The buyer retains from the price paid the amount of both guarantees and issues a bank check addressed to the bank entity that holds the mortgages, so that the land is supplied free of charge. The VAT of the supply was charged and the buyer proceeded to deduct it.

However, subsequently, the tax authorities considered that the supply fell within the cases of reverse charge, as specified in the article 84.One.2º.e), third point, of the Spanish VAT Law, thus requesting the VAT due to the buyer, allowing the simultaneous deduction but refusing the deduction of the VAT borne on the purchase, as it was unduly charged.

The buyer filed an appeal alleging that this was not an exempt supply on which is renounced to the exemption, but it was a supply of goods directly subject and not exempt from VAT, besides the supply cannot be found in one of the cases covered by the rule for reverse charge, as it was not an execution of the guarantee nor the buyer is subrogated to the loan, but it is the seller the one who cancels the debt.

It must be recalled that the controversial article states, in the third point, the condition of VAT taxpayer of the purchaser for:

“- Supplies made in execution of a guarantee constituted over the immovable goods, provided that the guarantee is executed when the property is transferred in exchange for the total or partial extinction of the secured debt or the obligation to extinguish the aforementioned debt by the purchaser.”

In this sense, the national legislation is transcribing the provisions of the Article 199 of the VAT Directive 2006/112 /EC, which provides the possibility for Member States to apply the reverse charge for “delivery of goods provided as security by one taxable person to another in execution of that security”, but also set up in the second paragraph a top framework for Member States to consider where the debtor can become the taxpayer.

From the Court’s analysis of the spirit of the Community legislation, it believes that the objective scope of the rule is for local transfer of goods between two taxable persons of a goods that is affected as guarantee of a principal obligation and that delivery is in execution of that security, according to which, the basic premise of the Community provision is none other than the execution of the guarantee.

In line with the above, the Court goes on to say that from the aforementioned provision the guarantee is executed when:

–          The property is transferred in exchange for the extinguishment of the debt, i.e. the payment in kind.

–          When the customer assumes the obligation to extinguish the debt (adjudication in payment of debt assumption), or

–          When there is an execution of the security over the property.

Therefore, to the extent that the case does not obey neither a payment in kind nor adjudication in payment of the debt, as it becomes clear that the acquirer does not subrogate to the loan, but it is the seller who is obliged to cancel the mortgages and, precisely for this, the buyer retains such amounts from the price paid, the Court considers that the Tax Administration did extended the interpretation beyond the framework that the Community legislation provides for cases of reverse charge, since this case is far away from the essential element of guarantee execution, thus proceeding to accept the claim and to cancel the VAT settlement.

In our opinion, given the complexity and the high amount involving real estate transactions, it is important to carefully analyse each one from the point of view of the VAT legislation, in order to prevent risky situations that could arise from the incorrect VAT treatment.

Attached is a copy in Spanish of the resolution from the TEAC, of January 22nd, 2015, with appeal number 5195/2013.

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