Other frequent Conflicts in VAT refunds for non-residents

07.2015

When a foreign company requests a refund of VAT incurred as a non-resident, the Spanish tax authorities often deny it, claiming that the foreign entity is established in Spain through a permanent establishment (PE) or that self-invoicing between the foreign entity and the PE occurred (CJEU, 27 March 2006, Case C-210/04).

Courts have had to intervene in such disputes. The Supreme Court judgment of 18 June 2014 applied Article 5 of the OECD Model Convention to assess PE status. However, the CJEU emphasises that VAT is an indirect tax and that economic autonomy and risk in the non-resident’s operations determine whether a PE exists. Subsequent judgments (Cases C-318/11 and C-319/11) confirm that a non-resident entity is not considered a PE unless it undertakes materially significant economic activity in the Member State, entitling it to VAT recovery.

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