VAT treatment for the compensation arising from an agency agreement
Binding tax ruling V11792-15 issued by the Spanish General Tax Directorate (DGT) on June 08, 2015.
This issue deals with the imposition of VAT on the compensation granted by court order, by clientele as a result of the unilateral termination of an agency contract.
Article 78.Tres.1º of Spanish VAT Law 37/1992 stipulates: “There shall not be included in the VAT taxable base amounts received by reason of compensation, other than those referred to in the preceding paragraph which, by their nature and function, do not constitute consideration or compensation for the supply of goods or services subject to VAT.”
In this regard, the key to determining whether there is a compensation for tax purposes, is to examine whether the amount paid is intended to compensate the recipient for the loss of property or rights or, on the contrary, if the purpose is to reward operations performed which constitute a taxable event.
Article 28.1 of Spanish Law 12/1992 on the Agency Agreement, notes that when such contract is terminated, whether by fixed or indefinite time, the agent who had brought new customers or significantly increased operations with the existing clientele, shall be entitled to compensation if their previous activity can continue to produce substantial benefits from the business and is equally appropriate for the existence of agreements limiting competition, losing commissions or other circumstances have occurred.
In these terms, the “compensation for clientele” which is regulated in Article 28.1 of Spanish Law 12/1992 has the nature of compensation for services rendered, and therefore should be subject to VAT.
For this reason, the person who would receive the compensation must charge the corresponding VAT quota at the time of accrual of the operation. In case of not being known the amount of the operation, it should have estimated provisionally subject to further correction.
Take into account that after more than a year after the operation, the service provider lost the right to charge the VAT but not its obligation to pay it.