VAT treatment in the establishment and application of security deposits

The Directorate General of Taxes (DGT) has issued a relevant criterion regarding the treatment of Value Added Tax (IVA) in operations involving the establishment of security deposits as economic guarantees. This scenario is common in sectors where guarantees are required to ensure compliance with contractual obligations.

What the DGT has ruled

The query presented focused on determining whether the act of establishing a security deposit constitutes an operation subject to the Tax. After analyzing the current regulations, the DGT has established the following:

• The establishment of the security deposit: At the initial moment, the delivery of the amount as a security deposit does not constitute an operation subject to VAT. This is because said delivery does not represent consideration for the delivery of goods or the provision of services, but rather acts solely as a guarantee.
• The application of the security deposit: The scenario changes if the retained amount is ultimately used to cover the payment for the machinery or goods that are the subject of the contract. In that case, such amounts become part of the consideration for the operation, becoming subject to the tax.

What it means for you

This criterion has a direct impact on manufacturers and companies that request economic guarantees from their customers to secure specific orders. It is fundamental to distinguish the moment the guarantee is delivered from the moment of its execution or application toward payment. As long as the security deposit maintains its nature as a guarantee, the VAT taxable event is not triggered. However, at the instant that said security deposit is intended to satisfy the price of the goods, it will be integrated into the taxable base of the subject operation.

What should be done

When implementing economic guarantees in supply or manufacturing contracts, it is necessary to ensure that the documentation correctly reflects the nature of these financial movements. The distinction between the deposit of the guarantee and its subsequent application toward payment is key to the correct settlement of the tax. It is recommended to assess each contract and the way these amounts are managed to avoid errors in the application of the regulations of Law 37/1992 and Directive 2006/112/EC.