Last 6 April 2016, the Spanish Supreme Court issued a judgment to unify the criterion in connection with the application of the use and enjoyment clause (Article 59.bis.b) of the EU VAT Directive 2006/112/EC). This is the first ruling issued by such Court in this regard, so it is an important precedent even though its criterion does not become compulsory until it is stated twice.

The clause basically implies that certain services rendered B2B to non-EU business are not outside Spanish VAT scope according to the general place of supply rule (i.e. where the recipient has its place of business), but subject to Spanish VAT, given that they are economically used in such territory.

With regard to the bottom of the issue, the Court analyzes a transaction which consists of a sale of telephone cards (i.e. minutes, so incidentally it should be regarded as a supply of services, instead of goods) performed by a Spanish entity to a business established outside the EU, particularly at Andorra. These phone cards could be uniquely used in Spain through a Spanish telecom operator. The controversy in the case at hand arises because the Andorran entity acted like a middleman (disclosed agent) in the transaction, so it did not used directly the services by itself, nonetheless its subsequent clients do (or even the clients of its clients, with no limit).

The Spanish entity understood that that the clause should not apply when the recipient of the services does not use the services by itself in Spain, since the transaction cannot be analyzed taken into account the subsequent transactions and the usage to be profited by the following purchasers of the cards. Regardless of that, the Spanish Tax Authorities and the lower Courts set that, in this case, the use and enjoyment provision is enforceable irrespective the use is made by the agent or a third party.

So, in the light of the European Court of Justice in judgment Athesia Druck (Case C-1/08), the Spanish Supreme Court solves the controversy in favor of the Tax Authorities criterion, this is, the Court states that the clause applies whenever the use and enjoyment is performed within Spanish VAT territory, either by the agent itself or by a third party.

In principle this judgment should not be extrapolated to every possible case where the clause is potentially applicable, but just to those when the use and economic use is not on dispute.

However, it is important to remark that this position could lead to situations of double taxation which could go beyond the objective of the clause, which is avoiding fraud schemes and non-taxation scenarios. In that sense, there would be room to discuss the Tax Authorities position when it drives to nonsense situations.

Finally, it would be recommendable to monitor the position of the Spanish General Directorate of Taxes in the application of the clause, since that body has changed its view about this particular topic during the last few years. Recently, the tax rulings issued by them are inclined to consider that the use and enjoyment rule does not apply in those cases where the recipient does not use the services directly, but we should wait for their reaction to this judgment.