On 28 March 2019, the Spanish Central Administrative Court ("TEAC") published a judgment in which it sets out the different requirements that a transaction must satisfy in order to apply the use and enjoyment provision contained in Article 70.Two of the Spanish VAT Law (representing the implementation of Article 59a section b of the EU VAT Directive, which is optional for EU Member States). It should be highlighted that there is only a limited number of judgments in which this provision is applied (none of which have been issued by a Tax Court) and thus the judgment is highly relevant in Spain.
The case assessed whether the assignment of certain personnel by a Spanish entity to a related entity established in Switzerland would fall within the scope of Spanish VAT by virtue of the use and enjoyment provision. The Court concluded that, in this case, the tax authorities had not evidenced the use and enjoyment in Spain and that therefore, in principle, this situation was outside the scope of the provision according to general B2B place of supply rules for general services (Article 44 of the EU VAT Directive).
This judgment is important in two key respects:
|i.||The Court adopted the interpretation employed by the General Directorate of Taxes, the body which issues tax rulings; and|
|ii.||It is inferred that it is for the tax authorities to prove the use and enjoyment where this is asserted —and not for the taxpayer to establish the absence thereof.|
According to the interpretation applied by the General Directorate of Taxes (for instance, through tax ruling V2306-17 of 12 September 2017), the effective use and enjoyment of the services takes place within Spain when:
|i.||The recipient uses the services to perform transactions subject to Spanish VAT; and|
|ii.||There is a direct or indirect link between the controversial services and the services to be rendered by the recipient.|
In its judgment, the TEAC states that since no such link has been established between the assignment of personnel services and the services provided by the Swiss company, the services consisting in "assignment of personnel" are not subject to VAT in Spain.