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Acquisition of the status business established in Spain and expedient VAT refunds

Big is not beatiful. Size is not synonymous with quality

Risks in the acquisition of the status of business established in Spain for more expedient VAT refunds


Our client, a French company, dissatisfied with the tardiness of the Spanish administration in refunding output VAT in Spain (and which had already been reported on more than one occasion by the European Commission), decided to become established in Spain for VAT purposes (but not in regard to other taxes). The company thus obtained a Spanish tax number (NIF) and established the commencement of its activity in Spain in December.

During the review of its refund request as a business established in Spain, the Spanish administration refused to authorise the return on the basis that the company had not issued invoices to customers in December with output VAT and insisted that the refund was to be carried out as if the company were non-resident (although this was no longer possible as the established period of one year had lapsed). That is to say, given that the permanent residence in Spain had not been “used“ in regard to output VAT for sales made during the quarter, the administration concluded that there had been no permanent establishment during that period. Reference was made to section 119.1 of the VAT Law which requires sales activities in order to speak of business residence in Spain and that in the absence of income in Spain, the foreign company must request a refund as a non-resident company.

This interpretation cannot be deemed to be correct under any circumstance, as this precept would then become applicable to companies which never make sales in Spain, such as representative offices. After several months of discussions with the administration, we were finally able to persuade the tax authorities that the request for refund was correct. Should we have failed in our negotiations, the only option would have been to claim VAT refund via legal action, which would undoubtedly have ruled in our favour, but at a cost of having to wait some 4 or 5 years for the refund.

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