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V0839-20 14 April 2020 · SG de Impuestos sobre el Consumo Criterion in force
IVA · pago anticipado

VAT does not apply to amounts withheld for customer withdrawal if they are compensatory in nature

A hotel company requested clarification regarding the VAT treatment of non-refundable advance payments and cancellation charges. The DGT ruled that advance payments are taxed as payments on account, whereas withholdings due to withdrawal are not subject to VAT as they constitute compensation.

The question raised

Liability for Value Added Tax on the operations consulted.

The DGT's ruling

Advance payments for accommodation reservations are subject to VAT at the time of collection. However, if the client withdraws and the company retains an amount, such retention is compensatory in nature and does not constitute consideration for a service, thus falling outside the scope of the tax. In the event that VAT was charged on the advance payment, it must be refunded by means of a credit note.

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