The allocation of real estate to partners during liquidation will be taxed at market value

The process of dissolution and liquidation of a company involves the distribution of its assets among its partners. When these assets include real estate, the valuation of said assets for tax purposes cannot be carried out arbitrarily, as regulations require reflecting the economic reality of the operation.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that, for Corporate Income Tax (IS), the allocation of assets to partners due to dissolution requires valuing the real estate at its market value. This implies that the existing difference between the market value of the property and its tax value must be included in the company's taxable base.

Regarding Value Added Tax (IVA), the administration establishes that the delivery of these assets to partners constitutes a taxable operation. However, there are important nuances depending on the type of asset:

• Rural land: May be subject to exemptions depending on its nature.
• Buildings: It must be verified whether the operation qualifies as a second delivery of buildings to apply the corresponding exemption.
• Plots: In the case of land, the exemption will depend on whether material urbanization works have begun or if they maintain their status as plots.

What it means for you

If you are part of a company in the process of liquidation that owns real estate assets, the tax impact is direct. The company will have to face an additional tax burden in Corporate Income Tax (IS) by declaring the gain derived from the difference between the book/tax value and the market value of the delivered real estate.

For the partners, the operation also has consequences. They must include in their own taxable base the difference between the market value of the assets they receive and the tax value of the share they are liquidating.

What should be done

In the event of a liquidation that includes real estate assets, it is necessary to carry out a precise technical valuation that determines the market value of each property. This value will be the axis upon which both Corporate Income Tax (IS) and VAT (IVA) will be calculated, as well as the possible exemptions applicable to land or buildings. It is fundamental to analyze the condition of the land (whether they are plots or rural land) and the status of urbanization works to determine the correct treatment for VAT (IVA).