On 1 January 2014, the Spanish VAT Act was amended to extend the application of the "use and enjoyment clause."

The general VAT location rule indicates that services supplied to a business/entrepreneur who is neither a resident nor established within the Spanish VAT territory are not subject to Spanish VAT, but there are certain services that could become subject to the tax in case they are “used or enjoyed” in such territory.

Until now, the Spanish VAT Act specifically established that the referred clause was applicable to services that, under the general location rules, were not located in EU territory, Canary Island and the Autonomous Regions (Ceuta and Melilla), but that they were "used or enjoyed" within the Spanish VAT territory.

As a result of the modification, the Spanish VAT Act excludes the reference to Canary Island and to Ceuta and Melilla, and states that, from now on, the aforementioned clause is going to be applicable to services that are "used or enjoyed" within the Spanish VAT territory and that, under the general location rules, these are not located in the EU territory.

Focusing on the Canary Island due to its relevance, and given that the Canary Islands’ Indirect Taxation Act has not been amended accordingly, under its current wording, double taxation could arise for services that, under the general location rules, are located within the Canary Island territory and are subject to IGIC (which is Canary indirect taxation similar to VAT) at a 7 percent general rate, and that are also located within the Spanish VAT territory as a consequence of the application of the "use and enjoyment clause" at a 21 percent general rate.

Knowing the possible double taxation that could arise, we do highly recommend at least a review of the Spanish VAT treatment applicable to any service addressed to recipients that are established/based in Canary Island and that could be understood as "used or enjoyed" within the Spanish VAT territory, if VAT is not being charged due to general location rules and, if possible, analyse alternatives to avoid extra payment of indirect tax (VAT/IGIC).