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V4709-16 8 November 2016 · SG de Impuestos sobre el Consumo Criterion in force
IVA · inversión del sujeto pasivo

Reverse charge mechanism is mandatory for construction works and cannot be subject to private agreement

A query was raised regarding whether the reverse charge mechanism can be applied by agreement in subcontracted supplies, or if it can be omitted if the supplier refuses. The DGT ruled that this mechanism is mandatory when legal requirements are met and cannot be altered by private agreements.

The question raised

Whether the application of the reverse charge mechanism is appropriate for subcontracted supplies, as well as the possibility of applying said mechanism to cases not provided for in the Law, through an agreement between the main contractor and the subcontracted suppliers. Finally, the procedure to follow in the event that the reverse charge mechanism is applicable and the subcontracted supplier refuses its application.

The DGT's ruling

The reverse charge mechanism applies when the total work consists of construction, renovation, or urbanization and the subcontract is a work execution (including installation and assembly). It does not apply to the supply of materials without installation. The mechanism is mandatory and its application cannot be agreed upon in cases not provided for by Law, nor can its exclusion be agreed upon when it is applicable. If the supplier refuses to apply the reverse charge when legally required, the recipient is not obliged to bear the tax impact.

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