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VAT deduction in Spain in case of reverse charge

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Preservation of the right to VAT deductions in Spain provided reverse charge procedure is carried out due to an inspection procedure. There are also no penalties for not including output tax


In a court sentence dated 25/3/2009, the Tribunal Supremo dismissed a decision of the tax administration by which a company who had not settled VAT by reverse charge procedure had to pay a penalty corresponding to the output VAT it did not charge in due time.

With this decision, the Court stresses the importance of the neutral principle of VAT for companies, which is applicable even in the event of there being no amount to pay to the tax administration because input VAT and output VAT are the same, as is the case of reverse charge procedure.

This court sentence is paramount, as the administration, when carrying out company finance inspections, regularly attempts to limit the capacity of taxpayers to deduct VAT in this type of operations. On occasions, the administration even forces to charge output VAT in due time, with a sanction and accrual of interest payments. Deduction is also deferred to the moment of the inspection under the excuse that the company has four years to deduct its input VAT.

According to the Court’s decision, the reverse charge procedure should be regarded as one whole operation, with no amount due to pay the tax administration. However, the administration attempts to divide the operation into two different ones, which results in a substantial burden for taxpayers. In this case, the neutrality of taxes is seriously affected, which is why the aforesaid court sentence favours companies who carry out intra-community business operations.

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