Decision of the Spanish Administrative Court on the prohibition of vertical downward effect in the direct application of the EU Directive


The Spanish Administrative Court in Case dated October 23, 2014, analyses the case of a taxpayer who, according to the provisions of the Spanish VAT Law in force, considered as not subject to VAT the transfer of business assets that constitute an autonomous business unit, before the amendment of that provision of the Spanish VAT Law by Law 4/2008.

However the Spanish Tax Authorities applied the interpretation of the EU Directive of the ECJ, which resulted in the direct application of the EU Directive.

The Spanish Administrative Court solved in favour of the company because only the tax payer can rely on the direct application of Community directives against breaches of the Member State, but not the reverse. Community law prohibits reverse or downward vertical effect, i.e., the possibility for a Member State to apply the provisions of an EU Directive not transposed into national law. In other words, the direct effect of the Directive cannot create obligations for the individual against the Member State that does not run on time or properly. The Member State cannot rely on its own failure to implement the directive.

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