Irrigation communities must charge VAT on water supply and hydraulic works

The nature of the activities carried out by irrigation communities has been analyzed by the Tax Administration. In a recent binding ruling, the treatment of Value Added Tax (IVA) applicable to both the water supply and the execution of hydraulic infrastructure intended for irrigation has been specified.

What the DGT has resolved

The Dirección General de Tributos (DGT) has determined that the distribution of water and the execution of hydraulic infrastructure works for irrigation carried out by irrigation communities constitute operations subject to IVA. In this sense, the cost of said works, when integrated into the consideration for the supply, is taxed at the reduced rate of 10%.

Regarding deductibility, the resolution establishes that, as these are taxable operations, the amounts paid for the execution of the works generate a right to deduction. However, the corresponding regularization must be carried out if these are considered investment goods. Likewise, the DGT clarifies that the reverse charge mechanism provided for in Law 37/1992 is not applicable, as the requirements for urbanization or construction of buildings are not met.

What this means for you

For irrigation communities, this resolution implies the obligation to charge the tax on their invoices. This directly affects the members, who must bear the cost of the IVA included in both the fee for the water supply and the cost of the hydraulic infrastructure works.

For the internal management of the community, the confirmation of being subject to the tax allows for the exercise of the right to deduct the amounts paid, provided that the legal requirements are met and the necessary regularization is carried out in the case of investment goods.

What should be done

It is necessary for irrigation communities to review their billing models to ensure that the reduced rate of 10% is correctly applied to both the water and the integrated infrastructure costs. Likewise, the correct management of the amounts paid must be verified to guarantee the right to deduction and to comply with the regularization obligations for investment goods when applicable.