VAT unduly charged in non-subject transactions will be a credit between private parties

When a company pays an amount as VAT in a transaction that, by its nature, is not subject to the tax, doubts arise regarding the legal nature of that disbursement. The Dirección General de Tributos (DGT) has recently clarified that this payment does not have a tax character.

What the DGT has resolved

The administration establishes that if the transaction is not subject to the tax, the VAT has not accrued. Since the taxable event does not exist, neither the main tax obligation nor the obligation to pay between the parties arises under the regulations of this tax. Therefore, the amount that a company has unduly paid should not be treated as a tax, but as a credit within a legal relationship separate from taxation.

In this sense, the money delivered becomes a debt that the supplier owes to the client, functioning as a commercial credit between private parties from the moment the disagreement with the invoice is formalized.

What it means for you

This resolution has a direct impact on the accounting and taxation of companies in this situation. Since it is not a tax, the amount paid cannot be managed through VAT refund mechanisms or the rectification of tax liabilities in the usual manner.

For Corporate Income Tax (IS), the treatment of this amount changes radically. If the company decides not to claim that credit and it becomes uncollectible, the possibility of deducting that impairment loss will depend strictly on the provisions of the Corporate Income Tax Law (LIS). Deductibility will be conditional upon meeting the requirements of article 13.1 of the LIS and the corresponding accounting allocation having been made.

What should be done

Companies that detect undue VAT charges in non-subject transactions should:

• Treat the amount as a credit: It should not be recorded as a tax expense, but as an account receivable from the supplier.
• Verify Corporate Income Tax regulations: In the event that the credit cannot be recovered, it is necessary to ensure that the legal conditions for its deductibility as an impairment loss are met.
• Evaluate the legal relationship: The claim for the amount must be managed as a commercial dispute between private parties and not as a tax rectification procedure.