Tax Newsletter

Case law:

Value Added Tax (VAT)

• Ruling of the Supreme Court of 7 April 2025.VAT. Supply of goods.
  • The Supreme Court settles appeal number 2875/2023 brought by the Attorney for the Government against the ruling by the National High Court which upheld the administrative appeal brought in relation to the provisional settlement of VAT for the 3Q in the financial year 2010. The question to be decided by the Court is whether the transfer of assets – or proportional interests in them – on the dissolution and winding-up of a joint ownership [L1]arrangement which has been liable to pay VAT constitutes a supply of goods subject to VAT, even though the economic activity carried out by the joint ownership arrangement, in this case leasing, is still performed by the joint owners since the leasing continues after the dissolution and winding-up of the joint ownership arrangement.
  • The Court finds the appeal to be admissible and sets case law by ruling that, firstly, the transfer of assets – or proportional interests in them – on the dissolution and winding-up of a joint ownership arrangement which has been liable to pay VAT constitutes a supply of goods subject to VAT, even though the economic activity carried out by the joint ownership arrangement, in this case leasing, is still performed by the joint owners since the leasing continues after the dissolution and winding-up of the joint ownership arrangement. Secondly, it rules that in cases of dissolution of joint ownership arrangements engaged in leasing in which the subject-matter of the transfer is solely the real estate leased by the joint ownership arrangement, these assets may be considered sufficient to constitute an independent economic unit for the purposes of applying non-taxation of transfers of assets under section 7(1) of the Value Added Tax Act. The following points need to be considered for the application of section 7(1) of the VAT Act: (i) the factual circumstances of the specific case; (ii) in particular, the kind of economic activity to be performed; (iii) that the transferee intends to operate the business establishment or the part of the undertaking transferred and not simply immediately wind up the activity in question and also sell any inventory, and (iv) the circumstances of a transaction may, or in certain cases must, be taken into account provided they can be ascertained on the basis of objective factors.

• Ruling of the Court of Justice of the European Union of 30 April 2025.VAT. Joint and several liability.
  • The European Court has heard Case C-278/24 concerning a request for a preliminary ruling from the Regional Administrative Court, Wrocław, Poland. The questions the CJEU has to address and rule on are firstly whether the provisions of the VAT Directive, and also the principle of proportionality, must be interpreted as precluding national legislation which provides for a mechanism whereby a member of the board of directors of a legal person is jointly and severally liable for the VAT debts of that legal person without it having first been established whether that member of the board of directors acted in bad faith or whether their conduct could be found to constitute a culpable error or negligence. Secondly, whether the provisions of the VAT Directive, in conjunction with the principle of legal certainty, the principle of legitimate expectations, and the principle of the right to sound administration, must be interpreted as precluding a national practice which, in order to escape joint and several liability for the VAT debts of a legal person with a single creditor, requires a member of the board of directors to submit an insolvency application, which is unenforceable under national insolvency law and practice. And thirdly, whether the provisions of the VAT Directive, in conjunction with the principle of equality before the law and the principle of non-discrimination, must be interpreted as precluding national legislation which allows unequal treatment of members of the board of directors of legal persons, such that a member of the board of directors of a company with more than one creditor may escape liability for the company’s debts by submitting an insolvency application, whereas a member of the board of directors of a company with only one creditor does not have the possibility of effectively submitting such an application, with the result that they are deprived of the possibility of escaping joint and several liability for the legal person’s VAT debts and of the right to an effective remedy.
  • The CJEU addresses the questions raised and finds that the provisions of the VAT Directive should be interpreted as not precluding a national mechanism under which: (i) a member or former member of the board of directors of a company with a VAT debt may be held jointly and severally liable with that company for tax arrears arising during their term of office; (ii) that liability is limited to tax arrears, enforcement of which against that company has proved unsuccessful in whole or in part; (iii) exemption from that liability depends, in particular, on proof adduced by the member or former member of the board of directors that an application for a declaration of insolvency in respect of that company has been filed in due time or that the failure to file that application is not due to fault on their part; insofar as that member or former member, in order to demonstrate that there was no such fault, may validly claim that they exercised all due diligence in the conduct of the affairs of the company concerned, it being specified that, for that purpose, that member or former member cannot merely claim that that company had the public exchequer as its sole creditor when its permanent insolvency was established.

Administrative Doctrine:

Value Added Tax (VAT)

• Binding Consultation V0226-25 of 27 February 2025.VAT. Property transfer.
  • The petitioner is a commercial entity that acquired a property through an administrative auction in a second or subsequent supply of the property and is currently considering transferring it to an individual who might be a businessperson or professional for VAT purposes. The consultation concerns whether this transfer will be subject to, and if so exempt from, VAT, and if so whether the exemption can be waived.
  • The Directorate General of Taxation (DGT) answers the consultation by stating that pursuant to section 20(1)22 of the Value Added Tax Act, insofar as the transfer in question is a second or subsequent supply of a building, it will be subject to, but exempt from, VAT. Notwithstanding the above, section 20(2) of the Value Added Tax Act allows the taxable person transferring the property to waive the application of the above exemption as long as the requirements set out in the Act and in article 8 of the VAT Regulations are met. Consequently, any waiver of the exemption will only be applicable when the purchaser of the property is entitled to deduct the tax paid on its acquisition in whole or in part. It should also be borne in mind that if the exemption is waived in the terms specified in section 20(2) of the VAT Act, the reverse charge mechanism in the second indent of section 84(1)(2)(e) of the VAT Act would be applicable.
• Binding Consultation V0284-25 of 14 March 2025.VAT. Refurbishment work.
• The petitioner is an individual who is a civil servant who has been posted abroad for a certain period of time but has a property in the tax territory for his own private use where he is going to carry out refurbishment work. The consultation concerns the VAT rate applicable to this work.
• The DGT responds to the consultation by saying that the undertaking carrying out the refurbishment work will be considered a businessperson or professional and therefore any supplies of goods and services made in the performance of its activities will be subject to VAT. As for the tax rate, to determine whether the works carried out by the petitioner are considered refurbishment works and are taxed at the reduced rate, reference should be made to section 91(1)(3)(1) of the VAT Act. Under this provision and the DGT’s criterion, when the businessperson carrying out the works provides part of the materials used and their cost is greater than 40% of the taxable amount of VAT, the works will be classified as a supply of goods and taxed at 21%. Otherwise, the works would be taxed at the reduced rate of 10%.

Other decisions of interest:

• Binding Consultation V0226-25 of 27 February 2025.VAT. Property transfer.
  • The petitioner is a commercial entity that acquired a property through an administrative auction in a second or subsequent supply of the property and is currently considering transferring it to an individual who might be a businessperson or professional for VAT purposes. The consultation concerns whether this transfer will be subject to, and if so exempt from, VAT, and if so whether the exemption can be waived.
  • The Directorate General of Taxation (DGT) answers the consultation by stating that pursuant to section 20(1)22 of the Value Added Tax Act, insofar as the transfer in question is a second or subsequent supply of a building, it will be subject to, but exempt from, VAT. Notwithstanding the above, section 20(2) of the Value Added Tax Act allows the taxable person transferring the property to waive the application of the above exemption as long as the requirements set out in the Act and in article 8 of the VAT Regulations are met. Consequently, any waiver of the exemption will only be applicable when the purchaser of the property is entitled to deduct the tax paid on its acquisition in whole or in part. It should also be borne in mind that if the exemption is waived in the terms specified in section 20(2) of the VAT Act, the reverse charge mechanism in the second indent of section 84(1)(2)(e) of the VAT Act would be applicable.
• Binding Consultation V0284-25 of 14 March 2025.VAT. Refurbishment work.
  • The petitioner is an individual who is a civil servant who has been posted abroad for a certain period of time but has a property in the tax territory for his own private use where he is going to carry out refurbishment work. The consultation concerns the VAT rate applicable to this work.
  • The DGT responds to the consultation by saying that the undertaking carrying out the refurbishment work will be considered a businessperson or professional and therefore any supplies of goods and services made in the performance of its activities will be subject to VAT. As for the tax rate, to determine whether the works carried out by the petitioner are considered refurbishment works and are taxed at the reduced rate, reference should be made to section 91(1)(3)(1) of the VAT Act. Under this provision and the DGT’s criterion, when the businessperson carrying out the works provides part of the materials used and their cost is greater than 40% of the taxable amount of VAT, the works will be classified as a supply of goods and taxed at 21%. Otherwise, the works would be taxed at the reduced rate of 10%.

• Binding Consultation V0250-25 of 5 March 2025. DTAA Spain-Australia.
  • The petitioner is a dual British and Australian national who has been tax resident in Spain since 2017. Through an Australian private fund and wealth management company, the petitioner receives regular and one-off income from a pension account in Australia whose funds come from compensation he received in 2012 as a result of an accident. The consultation concerns personal income taxation of the amounts received by the taxpayer.
  • The DGT responds to the consultation by saying that based on the statements made by the petitioner, it is evident that without any connection to any employment activity he took out a life annuity through a pension account and that this was set up using the compensation he received as a result of the accident he had had. According to the consultation letter, the petitioner has received a monthly income for life along with occasional amounts on request since the product was taken out. If the petitioner dies, the obligation to pay the annuity is terminated without the right being transferred to a third party. As for the tax treatment in Spain of the amounts obtained, pursuant to section 25(3) of the Personal Income Tax Act and given the characteristics of the life annuity received by the petitioner, the amounts obtained, both monthly and one-off, are investment income. As this is an immediate life annuity, the investment income will be calculated annually pursuant to section 25.3(a)(2) of the Personal Income Tax Act based on the petitioner’s age at the time the annuity was established. The result will be included under savings taxable income pursuant to sections 46 and 49 of the Personal Income Tax Act. Finally, if according to the above Australia has taxing powers under the Agreement and the taxpayer has paid income tax in Australia on the annuity received, the tax paid may be deducted pursuant to Article 23(3) of the DTAA between Spain and Australia.