Deductibility of VAT in the acquisition of property not linked to an economic activity. Binding tax ruling of June 27th, 2016
The VAT Act, through article 111, allows the deduction of the VAT borne in the acquisition of goods or services by this who is not developing a business or professional activity but with the intention, confirmed by objective elements, to allocate these to a business activity i.e. it is allowed the VAT deduction in advanced at the beginning of the activity when the objective elements demonstrate that the goods or services purchased will be aimed to a business activity that will generate the right to deduct.
In this sense, in the present case the General Tax Directorate (DGT) is pronounced regarding the query raised by a business entity that acquired a plot in 2006, for which he did not deduct the VAT nor was registered for economic activity tax purposes, and without developing any promotion activity with the plot. At present the entity intends to either transfer the plot or promote the construction of housing, thus he wants to know the treatment for VAT purposes and the possibility of deducting VAT quotas borne in the acquisition.
DGT begins by establishing the definitions of entrepreneur or professional referred to in the VAT Act, as well as resorting to the settled doctrine of the ECJ which excludes from this definition to those entities whose sole purpose is the acquisition of participations without making any economic activity, i.e. pure holding entities, either entities merely holding of real estate. According to it, it is considered by DGT that the consultant entity does not have the status of entrepreneur or professional insofar as the property is not allocated to an economic activity, which seems to be the case, so the transfer of the plot would not be subject to VAT, without allowing the VAT deduction neither. On the contrary, if it carries out any economic activity with these properties, the transfer to the plot would be subject to VAT.
With regard to the deduction of VAT, according to the background it seems that the entity not intended to allocate the property acquired to an economic activity so it had no entrepreneur or professional status and the subsequent delivery would not be subject to VAT, which would not allow the deduction of VAT either. Besides, as regards the possibility of deducting VAT quotas once the goods are allocated to an economic activity, article 93 of the VAT Act excludes such a possibility when goods were acquired without intention of allocating these to an economic activity even though in the future this is the case.
Finally, in the case of performing a housing promotion activity this will grant the condition of entrepreneur or professional, being such activity subject to the VAT.
Attached is a copy, in Spanish, of the binding tax ruling number V2980-16.