Giving in compliance, or dation in payment, is a way of extinguishing a debt by paying not in cash, but in goods. It can be used to settle debts to the State (Tax and Social Security, for example) or credits.
This procedure takes place when, faced with the existence of a debt, it is proposed to the creditor that, instead of receiving money, accept a good as a payment method.
However, and for the dation in fulfillment to be valid, there must be an agreement between debtor and creditor. Otherwise, the creditor advances to the pledge, in order to receive the money from the sale of the pledged goods.
If there is an agreement between the two parties, and after the payment is made, the debt is extinguished.
The gift in fulfillment is usually linked to three situations: tax foreclosure proceedings, debts to Social Security and non-compliance with credit for the purchase of housing.
Generally, the dation in compliance involves real estate, quotas or shares of companies, automobiles and works of art. However, and provided there is an agreement between the two parties, other assets can be used to settle debts.
Donation in compliance in case of tax foreclosure
In the cases of debts to the State whose collection depends on the Tax Authority (AT) the payments in kind are related to tax debts, but not only.
Since October 2019, AT is also authorized to collect debts related to costs, fines, fines and other amounts collected in court proceedings.
Pecuniary penalties established in administrative decisions, judgments or rulings relating to administrative offenses or fines may also be subject to tax enforcement.
So, if you are notified and intend to pay the debt with goods, know that has 20 daysafter service of process, to request the dation in fulfillment.
To do so, you must submit a detailed description of the goods given in paymentwhich must not have a value greater than the debt.
The only exceptions are cases where the immediate use of said assets for purposes of public or social interest is demonstrated, or if the donation is made in a process that leads to the conclusion of an agreement for the recovery of State credits.
After submitting the application, the tax enforcement body (finance department where the process takes place), sends all the documentation to the head of the service.
This may refer the process to the competent minister, arguing that the donation is not interested, or request the evaluation of the goods offered in payment.
Valuation of goods for compliance
The assessment, which must be carried out in the maximum period of 30 daysis carried out by a TA representative and two specialists designated by him.
In the case of immovable property, experts will be appraisers from the regional lists and, in the case of movable property, people with adequate technical expertise.
If the assessment is complex, it may be carried out by the Directorate-General for State Assets, the Directorate-General for the Treasury, the Public Credit Management Institute or a specialized entity.
This assessment must be carried out taking into account the market values for the good in question.
Expenses with assessments are considered costs of the tax enforcement process, and must be paid by the debtor.
Once all the necessary elements have been gathered, the process is sent for dispatch to the minister or the competent executive body. This may also request additional elements.
In the order authorizing the gift in fulfillment the terms of delivery of the offered goods are defined. There may also be a selection of assets, choosing those that are best suited to repay the debt.
If the value of the donation is greater than the debt, the dispatch must give the debtor a credit for the amount of that excess.
These credits can be used to pay taxes or other tax benefits, purchase goods or services within 5 years or pay rent. However, the revenues must be under the administration of the ministry or body where the donation process takes place.
The surplus can only be received in cash if the debtor has ceased activity and has no debts to the Tax Authority.
For the dation in compliance to be valid, a report must be made in the process or, in the case of real estate, a report for each building.
While the process takes place, the debtor may change his mind.
However, you can only withdraw the donation in payment up to 5 days after notification of the ministerial order. And to do so, you will have to pay not only the entire debt, but also the assessments made.
What happens to the goods?
In the order in which the payment in compliance is authorized, it may be determined to be sold, by proposal in a sealed letterof goods given in payment.
If there is an urgent need to sell the goods – because they could depreciate, because they have little value or because they could deteriorate or become obsolete – the sale can be carried out by private negotiation.
The author of the dispatch may also authorize the services under his dependence to lease or encumber these assets data in payment or to sell them.
Debts to Social Security
Debts to Social Security can also be settled by payment in kind, that is, through movable or immovable property free of liens or encumbrances.
The process is similar. The debtor requests the payment in kind, delivering a description of the goods with which he intends to pay the debt.
Afterwards, you will have to wait for acceptance by Social Security. Next comes the assessment made by the Social Security Financial Management Institute, and paid by the debtor.
The process ends with the transfer of assets from the debtor to the creditor and with the payment of credits if the value of the assets exceeds the value of the debt.
In the case of real estate, it will be necessary to deliver updated copies of the land certificate and the land book and location, fraction and implantation plans.
For movable property, it is sufficient to identify and describe the property.
Until recently, the payment of the mortgage loan was not a sufficient condition for the debt to be paid off.
This is because, as in other cases, the creditor (in this case the Bank) would ask for an appraisal of the property. Now, if, for example, the house had appreciated, the creditor might have to hand over the property and still pay the remainder.
The Basic Housing Law, approved in 2019, establishes that the dation in compliance “extinguishes the debtor’s obligations regardless of the value attributed to the property”.
However, this must be contractualized and the credit institution is required to provide this information before the conclusion of the debt restructuring. This measure is intended to prevent indebted families from losing their homes.
The dation in fulfillment can also be used in situations other than those already mentioned, namely sharing, whether due to divorce or death.
In this case, the compensation (or tonnage) owed by an ex-spouse or heir can be paid through delivery of assets.
Donations involving real estate can also be used so that a partner of a company can be compensated for the supplies he has made to that society.
Donation based on fulfillment
The dation in fulfillment intends, through the delivery of a good, and by agreement with the creditor, to settle a debt (articles 837 to 839 of the Civil Code).
THE gift for compliancealthough it is also related to the payment of a debt, it is different, since it does not intend to extinguish the debt immediately, but rather to facilitate this payment (art.840 of the Civil Code).
Thus, the obligation is not extinguished immediately. This only happens as the debt is being paid, thanks to a means or instrument provided to the creditor.
An example of giving in terms of fulfillment is when the debtor assigns to the creditor a claim on a third person.
Imagine that A owes money to B, but is, at the same time, a creditor of C. If C pays B, he still receives the amount to which he is entitled and the debt is extinguished.
Article originally published in July 2019. Last updated in February 2023.