Judgment of the Supreme Court of October 20th, 2014. VAT and Transfer Tax. Supply of land during development


A judgment raised by the High Court of Madrid, confirming the settlement by the transfer tax when transmitting a land included in the Compensation Board, is challenged by a claim for unification of doctrine.

The claimant understands that the transmission of the land would be a VAT taxable transaction because what is transmitted is a plot provided to a Compensation Board and, in no case, is a second or subsequent transmission of a building, besides it had begun the urbanization prior to the moment of the transfer.

It should be noted that Article 20.One.20º of the VAT Law exempts supplies of rural land and others not having the status of building, without being applicable for the supply of developed land or under development.

In the present case the aim is to unify the criteria of the Court as to what actions are necessary to consider that a land is under development, as the contested judgment requires that specific development works are performed for such purposes. Thus says the contested judgment: “for the transferor to acquire an entrepreneur status is not enough that the transmitted land is integrated in said Compensation Board but, as already stated, it is necessary to have initiated, prior to the transmission of the land, activities for urbanization of land that were considered initiated from the time of purchasing of goods or services with the intention, confirmed by objective evidence, to be allocated to the development of such activities”.

The Supreme Court recalls that the criteria dictated by the Court has already been held in the past by the same section, referring to the judgments in dates April 19, 2003 and April 2, 2012. Accordingly, the doctrine refers to the need for the existence of material processing transactions, so what is critical to declare the exemption is the material preparation of the land for housing construction. The Court literally states: “Therefore, the fact that a development project is being implemented in the urban sense is not enough to declare the exemption, because what is critical in this is the material preparation of the land for construction housing”.

Therefore, the Court confirms the contested judgment, which does not consider proved the existence of material actions for land transformation and, therefore, an entrepreneur or professional status of the transferor and the VAT taxable transaction.

The judgment is dated October 20th, 2014 and with number 1176/2012.

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