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V1057-14 14 April 2014 · SG de Impuestos sobre el Consumo Criterion in force
IVA · suministro de agua

Potable water supply by a local authority association to municipalities is subject to VAT even when charged via a fee

A local council has requested clarification on whether the supply of potable water provided by a local authority association to its municipalities is subject to VAT when charged through a fee. The Directorate-General for Taxes (DGT) has ruled that this activity is subject to the tax due to its economic nature and specific regulations.

The question raised

Liability for Value Added Tax on said supplies.

The DGT's ruling

The supply and distribution of water by a Mancomunidad to its constituent municipalities is subject to VAT, even if the consideration is a fee. This is because water distribution is expressly listed as a taxable activity under Article 7.8 of the VAT Law. The application of non-subjectivity by public entities requires that they act in the exercise of a public function and not in competition with private parties, but water distribution has a marked economic character that determines its taxability.

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