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V0472-20 27 February 2020 · SG de Impuestos sobre el Consumo Criterion in force
IVA · empresario

VAT deductibility in festivals: application of differentiated sectors or the pro rata rule

A non-profit association seeks clarification on whether it can deduct VAT on expenses for a free music festival that receives subsidies and generates income from advertising and catering. The Directorate General for Taxes (DGT) rules that the entity is considered a taxable person and that deductibility will depend on whether the activities constitute differentiated sectors or if the pro rata rule applies.

The question raised

Issue raised: Deductibility of Value Added Tax amounts incurred for services provided by musicians, electricity, assembly, security, etc.

The DGT's ruling

The association holds the status of a taxable person by carrying out onerous activities such as advertising and hospitality. Cultural services may be exempt if the entity is of a social nature. If the advertising and hospitality activities are separate sectors, the expenses exclusive to these shall be fully deductible and the pro rata rule shall be applied to common expenses. If they are not separate sectors, the general or special pro rata rule shall be applied to determine the deductible portion.

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