Errors in VAT charges and remedies for recovery

03.2014

Under the previous legal framework, a taxpayer who had paid VAT in error could claim a refund, but not through the formal administrative procedure for recovery of undue payments. This left such taxpayers in a position of legal uncertainty, as they were forced to pursue civil litigation to recover a credit arising from a tax overpayment.

Fortunately, the situation has since evolved. Article 35.2(g) of the General Tax Act now recognises as a taxpayer the person who has borne the burden of VAT — even if that person was not originally liable to do so. In other words, the party that has been incorrectly charged VAT is now entitled to seek redress within the tax procedure itself.

This change — though slow in coming — was supported by a landmark ruling of the Spanish Supreme Court (Judgment of 9 January 2008), which acknowledged the standing of such individuals to initiate administrative proceedings. The Court of Justice of the European Union (CJEU) has also played a decisive role in prompting the Spanish administration to amend its approach, particularly through its judgment of 15 March 2007 (Case C-35/05), which obliges Member States to facilitate the recovery of unduly invoiced VAT by taxpayers. It now remains to be seen whether this broader interpretation of the refund procedure will eventually be extended to taxes other than VAT — a development which, unfortunately, remains legally complex and uncertain.

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