Is the reduced VAT rate applicable on supplies of tourist apartments? Judgment of the Supreme Court of April 25th, 2016
As it is known, article 91.One.1.7º of the Spanish VAT Act provides the application of the reduced rate for the supply of buildings or parts thereof fit for use as housing. However, frequently has been discussed about the requirements that must be met for qualification of the delivery of the property such as housing, since otherwise the general rate of VAT will apply.
The most recent case arises from the Supreme Court in connection with the delivery of tourist apartments that, by application of the legislation of the Autonomous Community of Madrid on Tourism Management, cannot be used for the habitual residence of a family or individual. Therefore, questions arise for the interpretation of article 91.One.1.7º as to whether should be taken into account only the conditions of the property for use as housing, as it is stated from the literal wording of the Act, or if the conditions for the application of the reduced rate by its use for housing entails implicitly a habitually in residence.
The appellant argues that the reduced rate is applicable to “the buildings or parts of them suitable for use as housing (…)“, without pointing if they are first, second or subsequent housing or if the destination is usual or occasional residence.
However, the Supreme Court does not share this view. In his view, reduced rates are set for reasons of social policy and as an aid to consumption to promote the principle of redistribution, so these are exceptional. In addition, regarding the interpretation of the terms of the law, under article 12 of the General tax law and 3.1 of the Civil Code, when these are not defined by the tax law have to be understood according to its legal, technical or common sense.
Therefore, the following requirements must be met for the application of the reduced rate:
- It must be a completed House.
- It applies to transactions that have the consideration of delivery of housing and not for the provision of services.
- It must be apt for room or housing of an individual or family, being their home or place of domestic housing.
- It is not enough that if fits for housing depending on the objective features of design and construction, but it has to be taken into account the possible legal destination.
In conclusion, given that tourist apartments may not be used for the habitual residence of a family or individual, shall not apply the reduced rate of VAT on the delivery of these.
Attached is a copy, in Spanish, of the Supreme Court’s Judgment, with resource number 2870/2014.