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V1740-22 21 July 2022 · SG de Impuestos sobre el Consumo Criterion in force
IVA · deducción

VAT deductibility in municipal infrastructure projects depends on the nature of the municipality's operations

A municipality asks whether it can deduct VAT on water infrastructure improvements when a private company manages the service. The DGT explains that deductibility depends on whether the municipality's activity constitutes an administrative concession or whether it provides the service in its own name.

The question raised

Question raised: Deductibility of the Value Added Tax amounts incurred by the taxpayer in the execution of the improvement works of the aforementioned infrastructures.

The DGT's ruling

If the management is carried out through an administrative concession, the provision is not subject to the tax. If the City Council provides the service in its own name, the water distribution activity is subject to VAT. The deductibility of the input tax paid on the works will depend on whether the goods and services are intended for taxable operations, non-taxable operations, or both (dual entities), a reasonable and homogeneous imputation criterion must be applied in the case of simultaneous use.

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