Place of supply of advertising services for IGIC purposes considering the use and enjoyment rule


Advertising services supplied to an entrepreneur or professional follow the same place of supply rule for both, VAT and IGIC purposes, which establishes that the services shall be deemed to be placed in the territory where the recipient thereof is established.

Together with this rule must be considered, however, the rule contained in article 70.Two of the Spanish VAT Act which works as closure rule to locate the tax within the VAT territory for advertising services (among others) supplier to an entrepreneur or professional not established in the Community but having effective use or a final consumer in the VAT territory. This rule is also lay down in the Act 20/1991, article 17.Three.Two, of the IGIC, which will not consider the IGIC territory as the place of supply for advertising services (among others) when they are deemed as placed in the IGIC territory but their use or effective exploitation is done in an EU Member State, excluding the Canary Islands.

We can therefore find a conflict of location if not clear on what territory takes place the use and enjoyment of the service supplied.

On this matter is pronounced the General Tax Directorate (DGT) of the Canary Islands through binding tax ruling of April 11th, 2016, where a non-established supplier provides advertising services to the Tourist Board (public body) to promote tourism in the Canary Islands through advertising in press, radio, internet, billboards and advertising events services, for example.

In this case the service, following the rules of location of VAT and IGIC, is deemed to be placed in the Canary Islands, subject to IGIC, given that the recipient is a taxable person established in that territory (sets the IGIC Law that a public body shall be deemed as taxable person for the purposes of the location of the service as far as it is a legal entity).

However, since the advertising service is listed within the type of services over which could apply the rule of effective use, DGT is pronounced in this regard on the basis of resolutions already raised by DGT itself as well as the criterion of the European Commission, by which the aspects that must be taken into consideration to determine the effective recipient of the service are:

–          Not to admit a criterion of interpretation based on the material performance of the service by the supplier. Effective use must refer to an activity of the service’s recipient who consumes it in a certain place, but never the place where the activity of the supplier is. It rejects the idea that the mere fact that the supplier provides the service in a Member State means the automatic application of effective use in such place.

          It should take into account the activity that performs the recipient of the service in the Member State where materially carried out. Thus if the recipient is engaged in transactions that are subject to VAT in that Member State, we could establish a link with the clause of effective use.

Consequently, considers the DGT that, in this case, where advertising services acquired are used for transactions subject to IGIC (although not directly by the Tourist Board but indirectly by taxable persons who will benefit from them, such as hotels and restaurants), the Canary Islands is this territory of effective use, rather than in an EU Member State. Therefore, it is necessary to consider only the general place of supply rule and not the use and enjoyment clause for IGIC purposes.

Attached is a copy, in Spanish, of the binding tax ruling number 1771 and dated April 11th, 2016.

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