Tax Newsletter

Case law:

Value Added Tax (VAT)

• Ruling of the Court of Justice of the European Union of 5 December 2024. VAT. Refund of excess.
  • The CJEU has heard Case C-680/23 concerning a request for a preliminary ruling made by the Tribunal Administrativo e Fiscal do Funchal (Administrative and Tax Court of Funchal, Portugal). Specifically, the CJEU must determine whether, when Article 183 of the VAT Directive uses the term "following period", it is referring to the next immediate period in the calendar. If the answer to the first preliminary question is negative, the question arises as to whether, in the event a company ceases its activity and later resumes it — with a fifteen-month gap between the two events — the company can deduct, in the first return filed upon resuming activity, the amount of the excess carried over when it ceased economic activity.
  • The Court of Justice addresses the preliminary questions raised and determines that, with regard to the first question, the phrase "following period" refers to the tax period immediately following the tax period in which the amount of deductions exceeded the VAT due. With regard to the second question, the CJEU rules that Article 183, first paragraph, of Council Directive 2006/112/EC of 28 November 2006, must be interpreted as not precluding national legislation that provides that, when a taxable person ceases their economic activity, they cannot carry forward to a subsequent tax period any VAT excess declared at the time of ceasing activity, and they may only recover that amount by requesting a refund within a twelve-month period from the date of cessation, provided that the principles of equivalence and effectiveness are respected.
• Judgment of the Supreme Court of 13 November 2024. VAT. Reduced rate.
  • The Supreme Court resolves the appeal for reversal of the ruling no. 2154/2023 issued by the National High Court concerning the provisional assessment for VAT relating to Q4 of 2008. The issue in dispute in this case concerns whether, in light of the principle of primacy of European Union law, as established in the CJEU ruling of 17 January 2013 (Case C-360/11, Commission v Kingdom of Spain); as well as the prohibition on the so-called inverse vertical effect of Directives, the reduced VAT rate is applicable to disposable materials for clinical analysis exclusively intended for in vitro use. This is based on the understanding that such materials can objectively only be used for the prevention, diagnosis, treatment, alleviation or cure of diseases or conditions affecting humans or animals.
  • The High Court dismisses the appeal for reversal and determines that, in this case, there is no breach of the principle of interdiction against the inverse vertical effect when the claimant is seeking recognition of a right through the application of a reduced tax rate that neither EU law nor national legislation explicitly and unequivocally provides for. The Court also emphasises that reduced rates must be interpreted narrowly. As stated by the Supreme Court, the appellant is requesting the application of a reduced rate to materials supplied to a related company, which it classifies as "medical supplies". This reduced rate is provided for in the EU Directive under the category of "pharmaceutical products". However, the VAT law incorrectly classifies these materials as "medical supplies", as determined by a CJEU judgment issued prior to the assessment in question. The fact that the State has implemented an incorrect transposition does not justify the application of the reduced rate on the basis of inverse vertical effect, as this does not permit disregarding the content of the CJEU's judgment. Our High Court considers, as argued by the State Counsel, that Spain transposed the Sixth VAT Directive within the required timeframe and, similar to Germany, deemed it unnecessary to transpose Directive 2006/112/EC (the VAT Directive), which consolidates and repeals the Sixth VAT Directive to clarify the existing EU legislation on VAT. Consequently, it cannot be said that the State failed to fulfil its transposition obligations.

Administrative Doctrine:

Value Added Tax (VAT)

• TEAC Resolution 00/02754/2022 of 26 November 2024. VAT. Adjustment of deductions.
  • The TEAC has resolved the appeal filed against the decision of the Madrid TEAR, which dismissed the claim challenging the provisional assessment issued by the Regional Verification and Control Unit of the Madrid Special Delegation of the AEAT concerning VAT for Q1 2016. The disputed issue raised in this appeal concerns the adjustment of deductible amounts related to the acquisition of capital goods, as provided for in Articles 107 to 110 of the VAT law. In this regard, the Madrid TEAR concluded that the operation in question does not qualify as a "lease-back" arrangement and instead constitutes a loan rather than a transfer of goods, given that, in this case, the goods under dispute were both purchased and sold.
  • The Central Court upheld the appeal, concluding that the doctrine established in its resolution of 22 November 2023, addressing claim number 00/04231/2021, applies to this matter. Consequently, it concluded that the procedure for adjusting deductions on capital goods, as regulated in Articles 107 to 110 of the VAT law, cannot be applied to adjust deductions if there was no initial right to deduct. This was established by the CJEU in its judgment of 11 April 2018, in Case C-532/16. It can be concluded that the adjustment of improperly claimed deductions must be carried out at the time of the acquisition of the goods and services, when their intended use and the right to deduction should be assessed.
• Binding Consultation V1618-24 of 3 July 2024. Personal Income Tax and VAT. Spain and Brazil.
  • The consulting party is an individual who is a tax resident in Spain, engaged in providing services involving the industrial design of toys and clothing for pets, as well as the creation of industrial prototypes for these products. These services are provided in Spain. However, the individual is considering offering their services to a company based in Brazil, which will use the products of these services to manufacture the toys and clothing and sell them in various countries around the world. The Brazilian company has no permanent establishment in Spain or within the European Union. The question is raised as to whether they must charge VAT on their invoices for the services provided to the Brazilian company and whether there are any VAT obligations for such operations. There is also a question as to whether there is any non-resident tax obligation for providing the services.
  • The DGT responds to the consultation, determining that, for VAT purposes, the consulting party qualifies as a business or professional. However, the services provided will not be subject to VAT, pursuant to Articles 69 and 70 of the VAT law, as the provision of services is considered to occur outside the territorial scope of the tax. With regard to the obligations of the consulting party, these will be the formal VAT obligations set down in Article 164 of the VAT law. Finally, with regard to Personal Income Tax and Non-Residents Income Tax, since the consulting party declares that they are a tax resident in Spain, the income earned from the provision of services to the Brazilian entity will be taxed in accordance with the provisions of the Personal Income Tax law and the Double Taxation Agreement between Spain and Brazil. Furthermore, the income received by the consulting party must be subject to withholding in accordance with Article 75.1 of the Personal Income Tax Regulations. 
• Binding Consultation V1635-24 of 5 July 2024. VAT. Autonomous economic unit.
  • The consulting party is an entity engaged in providing financial services. Within the framework of a corporate reorganisation, it plans to transfer the regulated investment fund distribution business from a branch established in the territory where the tax applies to a Luxembourg entity, which will continue to carry out the same business through a branch in the territory of application. The question arises as to whether the transfer of the regulated investment fund distribution business can be considered a transaction not subject to VAT.
  • The DGT responds to the consultation and determines that, for a transaction to qualify as not subject to tax due to the transfer of an autonomous economic unit, according to Article 7.1 of the VAT law, the set of elements transferred by each business must be sufficient to enable the continuation of an autonomous economic activity by the transferor. In this case, on the understanding that in the context of a corporate reorganisation, the consulting party will transfer the assets related to the regulated business of the Spanish branch to a Luxembourg entity and that transfer will include all the assets and liabilities necessary to carry out the transferred business, it could qualify as non-taxable under Article 7.1 of the VAT law.