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V4398-16 14 October 2016 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IVA · comunidades de regantes

Transfer of irrigation water rights between irrigation communities subject to VAT and Corporation Tax

An irrigation community has enquired whether transferring part of its water flow to another community in a different catchment area is exempt from VAT as a water management activity. The DGT has ruled that the transaction is subject to VAT and that the income is taxable under Corporation Tax as it constitutes returns from an economic activity.

The question raised

Whether the assignment of irrigation water rights held by an irrigation community as a concessionaire to another irrigation community of a different hydrographic basin must be understood as being carried out within the scope of water management and exploitation and therefore considered a non-taxable transaction by application of the provisions of Article 7.11 of the Value Added Tax (VAT) Law, or whether, conversely, it must be understood to exceed such functions and must consequently be considered a taxable but not exempt transaction.

The DGT's ruling

The assignment of irrigation water rights to third parties in exchange for consideration is subject to VAT, with the irrigation community acting as the taxable person. For Corporate Income Tax purposes, the income obtained from said assignment constitutes an economic activity and is not covered by the exemption for non-profit entities. The distribution of funds among the members does not constitute a transaction subject to VAT for them.

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