VAT treatment of the transmission of a plot by a private individual
Binding tax ruling V3126-15 issued by the Spanish General Tax Directorate on October 16, 2015.
In response to this consultation, the Spanish General Tax Directorate clarifies the circumstances that must match in order to consider the transmission of a plot by a private individual as a transaction subject to VAT.
The tax event of VAT is included in article 4.One of the Spanish VAT Law, which establishes that shall be subject to VAT the supplies of goods and of services carried out in the Spanish VAT Territory by entrepreneurs or professionals for consideration, on a regular or occasional basis, in the development of their business or professional activity, even if carried out on behalf of the members, partners, members or partners of entities performing them.
Then, article 5.One.d) of the Spanish VAT Law clarifies the concept of entrepreneur or professional to establish that for the purposes of the provisions of this law, it shall treat as entrepreneurs or professionals, among others, who carried out the urbanization of land or the promotion of buildings for sale, procurement or transfer for any title, even occasionally.
In terms of what is to be understood by business or professional activity the article 5.Two of the Spanish VAT Law states that shall be considered as business or professional activities those which involve management on their own factors of production materials and human or one of them, in order to intervene in the production or distribution of goods or services.
Then it must be determined if the land to be transmitted is considered as rural or as a plot available for building. It must be took into account that the transmission of a rural land would be exempt from VAT (art. 20. One. 20º of the Spanish VAT Law). The exemption does not apply to the transmission of urbanized lands or in course of urbanization.
At this point, it must be clarified what an urbanization of land is. The Spanish General Tax Directorate considers as an urbanization of land those actions that are performed to provide such land to the elements provided by the planning legislation, as road access, water supply and drainage, power supply, etc. However, the concept of development excludes those previous stages which, although they are required to carry out the work of development, not strictly meet the stated definition.
The transferor of the plot, which previously did not have the status of entrepreneur or professional, shall be considered as promoter and, therefore, the transmission of the plot shall be subject to VAT if the transferor assumes the costs of urbanization of the land. On the contrary, if the acquirer assumes these costs, shall not be deemed that the transferor has urbanized the plot, so that the transmission of the plot would not be subject to VAT.