The judgment of the Court of Justice of the European Union of March 12 2026, in Case C-515/24, resolves an issue that is particularly relevant for Spanish VAT but also for the broader interpretation of Article 176 of the VAT Directive.
Background and case significance
The dispute concerned the deduction of input VAT incurred on certain expenses connected with client entertainment or recreational services. However, the real importance of the case did not lie so much in the specific nature of those expenses as in a more structural question: whether the exclusion of the right to deduct laid down by Spanish law could validly be regarded as ‘maintained’ under the so-called standstill clause in Article 176 of the VAT Directive.
Before the date of Spain’s accession to the then European Communities, the country did not have a VAT system fully comparable to the Community model, nor a general deduction mechanism in the terms of the harmonised system. For that reason, the introduction of VAT in Spain and the entry into force of certain exclusions from the right to deduct took place at the same time.
This is where the underlying legal problem arose. If Article 176 allows EU member states to maintain certain historical exclusions, can an exclusion really be regarded as ‘maintained’ when the restriction comes into existence at the same time as the harmonised system itself?
The court’s findings
The court’s response is clear and direct. As a starting point, it recalls that the right to deduct input VAT is a structural principle of the common VAT system and that any exception to that right must be interpreted strictly. At the same time, however, the court also recalls that Article 176 of the directive establishes a transitional regime and as long as there is no full harmonisation in this area, member states may maintain certain national exclusions that were already in place on a relevant reference date. In Spain’s case, that date is the date of accession.
The core of the court’s reasoning rests on two ideas. The first is that, in its view, Spanish legislation did not subsequently expand the material scope of the restriction at issue. The second is that, before accession, economic operators in Spain did not have a harmonised VAT system with a general right of deduction comparable to that of the EU. For that reason, the court considers that the simultaneous entry into force of the right to deduct and of its limitations did not represent a subsequent restriction of a pre-existing right but the original configuration of the Spanish deduction system at the moment of accession.
The court avoids a formalistic interpretation of the standstill clause. Instead, it adopts a functional approach. This is also linked to a relevant consideration from the perspective of equality between member states.
An excessively rigid interpretation of Article 176 would have placed at a disadvantage those states, such as Spain, that joined the Community without previously having a VAT system fully comparable to the Community model, as opposed to those that could more easily rely on the continuity of their earlier exclusions. The judgment therefore avoids an interpretation of the transitional regime that would have created a difference in treatment based solely on the historical configuration of national tax systems before accession.
What the judgment does not say is also significant. In essence, the ruling follows the line already anticipated by the advocate general (see this article) but omits the most controversial aspect of her opinion, which is the idea that the Spanish restriction could be regarded as sufficiently foreseeable merely because it had been published (in an official gazette) before accession.
That reasoning was open to question, because the real issue was not whether taxpayers could anticipate the entry into force of a limitation but whether that limitation could legitimately be regarded as maintained for the purposes of Article 176 of the directive.
Implications of the ruling
From a Spanish perspective, the practical significance of the judgment is clear. It confirms the compatibility with EU law of the limitation on the right to deduct laid down in Article 96 of the Spanish VAT Law and strengthens the position of the Spanish legislature in an area that has generated constant litigation.
This does not mean that all future disputes will disappear, since there will still be controversy over the classification of particular expenses and whether they fall within the excluded categories. But it does mean that the broader structural debate over the compatibility of this restriction with EU law is now, in essence, resolved.
Case C-515/24 confirms that the standstill clause in Article 176 remains a legally effective tool and that, in the Spanish case, it provides solid support for the EU law validity of a restriction on the right to deduct that is of major practical importance.
The relevance of this case is therefore not limited to Spain. The judgment also provides a useful reference point for understanding the scope and limits of standstill clauses that are still present in the legislation of many member states.
