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An irrigation community inquired whether improvement works on its hydraulic infrastructure are exempt from VAT, based on the premise that irrigation communities are not subject to the tax. The Directorate General for Taxes (DGT) ruled that the transaction is subject to VAT because it does not constitute a management or exploitation activity carried out by the community, but rather the procurement of services from a third party.
This ruling clarifies that while irrigation communities may be exempt from VAT in certain management activities, the procurement of construction or improvement services from external contractors is a taxable transaction, meaning the VAT must be accounted for and cannot be treated as a non-taxable event.
The tax team reviews your specific situation.
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