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V1009-19 9 May 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · función arbitral

Sporadic arbitration services provided by civil servants are exempt from VAT and taxed as employment income for Income Tax purposes

A query was raised regarding whether compensation paid to arbitrators in labour election processes is subject to VAT and what the applicable Income Tax (IRPF) withholding rate should be, particularly when the arbitrators are civil servants. The Directorate General for Tax (DGT) ruled that VAT does not apply if the civil servant is not acting as a professional, and that such payments constitute employment income subject to standard withholding rates.

The question raised

Liability for VAT and Personal Income Tax (IRPF) withholding applicable in cases where the arbitral function is performed by civil servants belonging to other Public Administrations.

The DGT's ruling

Arbitration services are subject to VAT only when the arbitrator acts as an entrepreneur or professional. They are not subject to VAT when the arbitrator is a civil servant providing the service in a sporadic and isolated manner without conducting a business activity. Regarding Personal Income Tax (IRPF), these compensations are considered income from employment as there is no organization of means of production, therefore the general withholding tax under the Tax Regulations applies.

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