Deduction of Spanish input VAT only if description of the transaction is carried out in the invoice

03.2012

Our customers often ask us about the level of detail which must appear in invoices in regard to services provided or goods sold. On many occasions it is tempting (due to expedient issue, lack of specific data at the time or sent to a related company) to include basic items such as “provision of miscellaneous services” or else “sale of machinery during month of January“. The problem with not providing details on the services provided or goods sold is that the buyer takes on the risk of being unable to deduct the input VAT in the invoice.

To this end, it is worth mentioning the ruling of the Audiencia Nacional of 5.5.2008 whereby the court confirms a decision issued by the administration refusing the deduction of input VAT as a result of too many invoices containing non-specific items. Indeed, input VAT can never become an expense for a business, but in order to ensure this, proof must be provided that the payments made are directly related to the business activity performed. This requires the detailed clarification of items for which payments are made. As is pointed out in the ruling: “it is not a matter of proving that there is a contractual relationship of provision of services between the companies – the buyer and the seller – as is the case at hand, but each specific transaction subject to deduction must be detailed in the pertaining invoice. The deduction process cannot be implemented on a generic provision of services, but on individual transactions which meet the legal requirements“.

We must also mention that in this ruling the court was suspicious from the start of the items contained in the invoices, given that both companies (buyer and seller) were related companies.

On the other hand, within the scope of Corporate Income Tax, this will be tax deductible, as the deductibility requirements for this tax are different to those required for VAT.