Transmission of a work in progress is not first delivery of building for VAT purposes. Judgment of the national court of July 29, 2015


The case of the national court refers to the transmission of properties by a company that previously acquired the building in course of construction from another company. The peculiarity of the case, however, is that the company that sold them initially pledged to transmit them once finished the construction, once granted by the City Council the first occupation license.

The company who acquired the houses agreed with the final purchaser a lease with option of purchase and, later, the sale of the housing, stating in the deed of sale that it was a first delivery for VAT purposes and was therefore subject to this tax.

Subsequently, the refund of VAT was requested to the tax administration by the claimant, on the basis that the transaction was a second transmission subject but exempt from VAT under article 20.One.22º of the Spanish VAT Law. This treatment of exempt transmission is based on the consideration that the first transmission is the one that took place between both companies, since according to the terms of the contract, it was clear that the developer in any case was the first company, who took all the risks of the transaction. Therefore the transfer of the domain on behalf of the second company should be considered as a first supply for VAT purposes.

However, reminds the Court that, as treated in a similar matter by the Supreme Court, this first transmission has no consideration of first supply since the properties were not finished and was then breached one of the conditions laid down in the article. In this sense, the article providing for the exemption of the second and subsequent supplies of buildings clearly mentions “when taking place after completed the construction or rehabilitation”, so while the building is not completed, the transmission of a work in progress still follow the regulation of supply of land upon which sits, so if it is an urban plot all transmissions shall be levied before the completion of the works.

Finally, mentions the Court that it must not be confused the transmission of a work in course of construction that has to be delivered after completed, with the delivery of a finished building over which the agreement is concluded while still in construction phase.

Therefore, since the building was acquired under construction by the company, this must not be treated as a first supply for VAT purposes, but this will be for the one which took place further by the applicant, thus leaving both transactions subject and not exempt of VAT.

Enclosed is a copy in Spanish of the judgment of the National Court with case number 513/2014.

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