Spain: New cases of reversal of VAT liability
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Spain: New cases of reversal of VAT liability


Arantxa De Luis

The Spanish legislation exercising the powers granted by article 199 of Directive 2006/112 on the common system of VAT has included, with effect from October 31 2012, three new cases on which the VAT reverse charge mechanism applies for certain real estate transactions. With this amendment, the legislation intends to avoid the detriment that arises for the public purse in these transactions if the VAT is not paid over to the Treasury (or is paid late – deferrals, insolvency situations) but is already deducted by the recipient of the goods and/or services. These three new cases of reverse charge come to sum up to that introduced in 2011 as a result of the reform of the Insolvency Law, in connection to supplies of properties made as a result of an insolvency proceeding.

The first of the cases introduced refers to transfers of properties a priori exempt from VAT (rural or non-buildable land, second supply of buildings) but in which the exemption has been waived in accordance with the option provided for in Spanish legislation. In these cases, since October 31, the recipient of the acquisition will be the taxable person and, logically, the one who must proceed to waive the above-mentioned exemption.

The second case established by the legislation deals with supplies of property made when enforcing the guarantee created over the property. The law establishes that the guarantee is deemed to be enforced where the property is exchanged for the full or partial cancellation of the secured debt, or where the transferee acquires the obligation to cancel it.

Lastly, a third case is established for works of construction, with or without the provision of materials, as well as supplies of staff for the execution of the works, which have as their purpose the development of land or the construction or refurbishment of buildings.

From a practical standpoint, this is the case that is raising most doubts, since it is the one which, in general and except for the specific real estate transactions referred to in the above-mentioned cases, occurs the most often.

This new case of VAT reverse charge mechanism applies to the entire chain of works of construction associated with the construction or refurbishment of buildings, so it affects not only the relationship between the developer and the principal contractor but also that with the subcontractors engaged by the latter.

Moreover, in practice it is not always easy to classify certain transactions – neither supplies of goods or services – as "works of construction", a concept from EU law which needs to be interpreted in accordance with the case law of the European Court of Justice, as the new legislation does not affect any supply of services or materials but only those which do qualify as works of construction.

Furthermore, not all works of construction are affected by this legislative amendment, but rather only those having as their purpose the construction or refurbishment of a building, a concept which needs to be clarified by reference to EU law and to the provisions established in this respect by the Spanish domestic law.

Lastly, the relevance of this amendment also arises from its scope of application, since it is not confined to construction and real estate companies but rather to any taxable person that, as a developer, undertakes a construction project with these characteristics. Developers not acting as traders or professionals for VAT purposes (private individuals, certain public entities.) fall outside its scope.

All of these legislative changes highlight the fact that the general rule of considering the taxable person to be the transferor or supplier of the services gives way to the special rule in myriad cases, which VAT-payers need to know and apply correctly to avoid the penalties that the Spanish legislation foresees for not reporting these transactions in VAT returns – despite their neutral nature – and that can be up to 10% of the VAT not reported in the return.

Arantxa De Luis (

Garrigues – Taxand


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