Public deed vs. invoice for VAT purposes

02.2013

It is very common that, in real estate transactions, public deeds of sale are used as an invoice for the purpose of deducting or charging VAT. A recent example can be found in a ruling by the Spanish “Tribunal Supremo” of 27 February 2013, which examined the role of output VAT in a swap transaction, whereby the owner of a plot of land transferred ownership thereof to a construction company in exchange for a share of the properties to be built on said land. This transaction is subject to VAT, and the transfer of the land is considered a pre-payment. Therefore, the construction company is required to issue an invoice with output VAT to the former owner of the land.

In this case, the construction company did not comply with this requirement at the time and issued an invoice years later, claiming that an invoice was not really necessary as a public deed existed. The Court insisted on the fact that a public deed could by no means substitute an invoice, and reaffirmed its ruling of 8 November 2004, which established that an invoice is not only necessary as proof of the transaction that has been made, but it is also essential in order to charge or deduct VAT. Only in very exceptional cases is a deed accepted as an invoice.

Finally, the Court ruled that the maximum period for charging VAT was one year, after which it was no longer possible to do so — without prejudice that the party who is liable for the payment of such VAT is obliged to do so regardless.

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