Formal requirements for renouncing the VAT exemption on real estate transactions


The Spanish Supreme Court Judgment 110/2015, of 15 January 2015, in response to an appeal for unification of doctrine filed by an entity against the approach of the High Court of Madrid in its judgment of 10 July 2012.

The issue is about the fulfilment of the requirements to renounce to the exemption in VAT of real estate transactions. Specifically, the judgment focuses on the requirement of communication by the acquirer to the transferor of its condition as taxable person entitled to deduct VAT.

In this sense, in terms of the requirements of the renounce to the exemption from VAT, it should be mentioned that Article 8 of the Spanish VAT Regulations states “… and in any case, should be supported by a statement signed by the purchaser, in which it establishes its condition as taxable person entitled to the full deduction of VAT paid for the acquisition of the relevant property … “.

The judgment of the Superior Court of Madrid appealed by the company, interprets this article from a strictly formal point of view, which argues that to renounce to apply the VAT exemption is essential and disabling condition statement expressed by the acquirer stating its condition as a taxable person entitled to the full deduction of the VAT paid on the acquisition of the property, it is not sufficient, in the opinion of this Court in deed mention that the transaction would be charged with VAT.

At this point, we should mention that the formalistic approach taken in the previous paragraph was also initially upheld by the Spanish Supreme Court, however, this Court has clearly evolved into an anti-formalistic approach to the waiver of exemption from VAT which focuses on the interpretation criteria of that rule from the perspective of its purpose.

The new doctrine of the Spanish Supreme Court (Judgements of October 5, 2005; March 14, 2006; December 13, 2006; January 24, 2007 and January 20, 2001) differs significantly from overly formalistic approach that defends the judgment under appeal, adopting a new doctrinal rule postulates that these formal requirements of Article 8 of the VAT Regulations must be interpreted from the perspective of the purpose of the rule, which is to avoid breaking the chain of deductions made by the exemptions, which must be interpreted accordingly with a restrictive criterion.

Realising valid by the Spanish Supreme Court and by the General Tax Directorate to the resignation communicated reliably when recorded in deed that the transferor has received a sum of money by way of VAT although not explicitly display the waiver of exemption, since that with the said indication is sufficiently meets the requirement regulations, with which it is intended that both parties know the tax to which the operation is submitted by a demonstration that also make faith against third parties.

Based on the recent Supreme Court doctrine, the Court has ruled in favour of the company, enabling the waiver of exemption from VAT and cancelling the judgment of the Superior Court of Madrid in order to unify doctrine.

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STS 15 enero 2015

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