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V0804-14 24 March 2014 · SG de Impuestos sobre el Consumo Criterion in force
IVA · inversión del sujeto pasivo

Municipalities liable for investment if acting as entrepreneurs paying urbanisation fees

A municipality asks whether it qualifies as an investor under investment rules when paying urbanisation fees for residential land development, and whether it must disclose its status as an entrepreneur. The DGT responds that investment applies if the municipality acts as an entrepreneur by paying urbanisation fees with the intent to develop the land for business purposes.

The question raised

1st Application of the reverse charge mechanism provided for in Article 84.One.2, letter f) of Law 37/1992, insofar as the sector on which the urban development is carried out is residential and not tertiary, and whether it is necessary for the City Council to communicate its status as a business or professional to the entity performing the urbanization works.

The DGT's ruling

The reverse charge mechanism applies when the recipient is a business or professional and the transaction involves urbanization or construction. If the City Council is not a business, it shall acquire such status when urbanization costs are imputed to it in the form of assessments, provided that these are paid with the intention of applying the resulting land to a business or professional activity. In this case, it must expressly and reliably communicate its status as a business to the main contractor.

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