VAT TAXATION OF TRANSACTIONS ON THE TRANSFER OF OWNERSHIP RIGHTS TO THE OBJECTS OF THE PURCHASED PROPERTY TO THE CREDITOR UNDER THE TAX CODE OF UKRAINE AND EU LAW: COMPARATIVE LEGAL ASPECT

Abstract

Foreclosure on the mortgaged property in Ukraine is carried out on the basis of a court decision, a notary’s executive inscription or in accordance with an agreement on satisfaction of the mortgagee’s claims. Foreclosure on the debtor’s property is the fulfillment of an obligation at the expense of the collateral. In the case of such foreclosure, the bank (creditor) acquires the debtor’s property as compensation for the debt. That is, the bank’s foreclosure on the debtor’s property is recoverable in the sense of civil and tax law, since it is carried out at the expense of the debtor’s obligation to the bank, that is, as a form of repayment (discharge) of the debt. Therefore, if the bank forecloses on the debtor’s property and the bank acquires ownership of his property, this is the fulfillment of the obligation – a recoverable action. The bank acquires the property not free of charge, but in exchange for repayment of the debt, which is equivalent to recoverable performance. According to the rules of the Tax Code of Ukraine, the fundamental criterion for calculating VAT when transferring ownership of the debtor’s property to the bank as a result of levying a foreclosure on the mortgaged object, regardless of the grounds (court decision, notary’s executive inscription or agreement on satisfaction of the mortgagee’s claims) for such a levy is a legal status of the debtor (regardless of whether it is a legal entity or an individual), namely, whether it is a VAT payer. If an individual or legal entity (debtor) is not a VAT payer, then the transaction of acquisition by the bank of ownership of the debtor’s property (upon its transfer) as a result of the bank’s foreclosure on his property will not be subject to VAT. If the debtor (legal entity or individual entrepreneur) is a VAT payer in accordance with the requirements of Articles 181 and 182 of the Tax Code of Ukraine, then the bank will be obliged to pay VAT when transferring to it the ownership of the property of such a debtor who is a VAT payer as a result of the bank’s foreclosure on the property of such a debtor. In EU law, the acquisition by a person (creditor) of property as a result of foreclosure on it and its subsequent sale is not always subject to VAT. The key question here is whether the person who acquires ownership of the mortgaged property as a result of foreclosure and subsequently sells it acts as a VAT payer and whether the supply of the specified property takes place within the scope of its economic activity.