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The refund of input VAT in Spain to non-resident businesses as a regular source of conflict
Tax advice in English and German
The procedure for the refund of input VAT in Spain often creates conflicts with the Spanish tax authorities that can go on for years. The office in charge of examining these applications is extremely restrictive and rigid.
Cases in which the foreign company is denied the requested input VAT refund as a non-resident entity due to errors in invoices are very common.
As an example, one of our clients, a major European company with no establishment in Spain, specialising in the sale and rental of machinery, was unable to obtain a refund for the Spanish VAT borne in Spain for large purchases of machinery made over several years.
Our client first purchased the machinery from a Spanish company for immediate resale to a non-Spanish company belonging to the same group as the seller, which was in charge of financing the project. The machinery was later rented out for use in Spain, during which time, the machinery had not left the country.
Pursuant to Spanish legislation, in the event that neither the buyer nor the seller of goods located in Spain are established in the country, it is the buyer of such goods who must obtain a Spanish tax number in order to declare the Spanish VAT through the reverse charge mechanism. The absence of a Spanish tax number on the part of the foreign buyer led the Spanish tax authorities to incorrectly assume that the goods had left Spain – as if it were an intra-Community supply – and, as such, the VAT refund for the first buyer should follow the procedure for established taxable persons.
This option is not applicable, as the company which first bought the goods can neither – contrary to the authorities’ suggestion – request a refund as an established company (as it is not), nor prove that the goods had left Spain (as they did not).
For this reason, the relevant administrative and judicial remedies were pursued, claiming that the actual nature of the operation could not be altered by a formal error, given that the Spanish tax authorities used this as grounds for not granting the refund of the money.
Finally, many years later, the tax authorities granted the requested VAT refund.