Place of supply for VAT purposes of management services related to notarial mortgage deeds of real estate located in the Canary Islands
Within the VAT place of supply rules there is a special one for those considered as related to real estate, according to which these services should be deemed to be placed where is located the property (art. 70.One.1º of Spanish VAT Law).
However, sometimes the challenge is to correctly determine whether a service is effectively connected with immovable property, and therefore follows this rule of location for VAT, or other service is supplied over which a different place of supply rule does apply.
This is the question raised in the consultation submitted to the tax authorities in the Canary Islands with regard to services supplied to bank entities in relation to the management of notarial deeds for the cancellation of mortgages over a property situated in the Canary Islands, as far as if they follow the rule of location of the property it is important to remember that the Canary Islands, although belonging to the customs territory of the Community, not to the territory of application of VAT.
For the resolution of this query, the Tax Agency uses the Case-Law of the EU Court (Case-Law C-166/05) which believes that for this standard is essential that the services keep a sufficiently direct relationship with the property, for which the property “must be a central and indispensable element of that provision“.
Likewise, this doctrine is reflected in the Implementing Regulation 282/2011 (redaction of Regulation 1042/2013), which provides, in his article 31.bis:
“Services shall be regarded as having a sufficiently direct connection with immovable property in the following cases:
| (a) | where they are derived from an immovable property and that property makes up a constituent element of the service and is central to, and essential for, the services supplied; |
| (b) | where they are provided to, or directed towards, an immovable property, having as their object the legal or physical alteration of that property. |
2. Paragraph 1 shall cover, in particular, the following:
| q) | legal services relating to the transfer of a title to immovable property, to the establishment or transfer of certain interests in immovable property or rights in rem over immovable property (whether or not treated as tangible property), such as notary work, or to the drawing up of a contract to sell or acquire immovable property, even if the underlying transaction resulting in the legal alteration of the property is not carried through”. |
Therefore, since the services of notarial management cancellation of mortgages intended precisely the legal modification of the property, it is an indispensable element of the transaction and there is a direct link between the service and the property and, accordingly, this service must follow the rule of Article 70.One.1º of the Spanish VAT Law, i.e., where the property is located.
Since in this case the properties are located in the Canary Islands, this service is not subject to VAT but to the IGIC (Canary General Indirect Tax).
Attached is a copy in Spanish of the Binding tax ruling number V2012/2015.
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