Conflict between VAT and Tax on Capital Transfers in the sale of solar panels

07.2012

During a tax inspection, one of our clients discovered that the buyer of all the assets of his Spanish limited liability company — a plot of land and solar panels, the sale of which is not subject to VAT but to Tax on Capital Transfers (“Impuesto de Transmisiones Patrimoniales” or “ITP”) pursuant to Art. 7.1. of the Spanish VAT Law — had only paid the Tax on Capital Transfers for the land, but not for the solar panels. As a consequence, the tax administration claimed the VAT that had not been charged from our client, as well as the corresponding penalty and default interest.

As a matter of fact, the Tax on Capital Transfers also raises issues in relation to the sale of solar panels in another case: Art. 108 of the Spanish Securities Market Law establishes a VAT exemption on the transfer of securities, but requires the Tax on Capital Transfers in those cases in which the company in question has real estate assets.

The question as to whether solar panels are immoveable assets has been discussed for years. A consultation to the Spanish Directorate-General for Taxes of 19 January 2009 determined that solar panels are moveable assets. But to add to the confusion, on 29 December 2009, we learned that the tax administration also distinguishes between non-assembled solar panels — considered moveable assets — and solar farms with assembled solar panels — considered immoveable assets. Other resolutions which consolidated this criterion soon followed, as the tax administration realised the importance of these transactions – consultations of 18 January 2010, 25 January 2010 and 23 April 2010.

It must be noted that, while these consultations reflect the opinion of the tax administration, the definitive criterion can only come from settled case-law, which does not yet exist for this matter. As can be seen, the relationship between VAT and Tax on Capital Transfers with operations concerning solar panels is very contradictory.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news++