Risks in acquiring the status of established taxable person in Spain in seeking a faster refund of VAT

04.2013

Our client, tired of the sluggishness of the input VAT refund process as a non resident entity, decided to establish a company in Spain for VAT purposes. The company obtained a Spanish VAT number and notified the commencement of its activity in December.

When the newly-established company applied for a VAT refund, the tax administration reviewed the request and refused the refund claiming that the company had not issued invoices with output VAT to its clients in December, and insisted that the request should be made through the specific procedure for non-established taxable persons — which was no longer possible as the one-year period to do so had already expired. As the permanent establishment in Spain with output VAT charged on the sales made during that quarter had not been “used”, the tax administration concluded that no permanent establishment existed during this time. The administration was referring to Art. 119.1 of the Spanish VAT Law, which states that, if there is no income in Spain, the foreign company can only apply for a VAT refund as a non-established taxable person. This is an incorrect interpretation of the law, as this precept should only be applied to companies which do not make any sales in Spain, such as representative offices. After months of discussions, we finally succeeded in convincing the tax administration that the request for a VAT refund had been filed correctly. Had we failed in our attempt, the only option would have been to start legal proceedings, which we would certainly have won, but at the cost of having to wait 4 or 5 years to receive the refund.

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