Deduction of the VAT paid by the acquisition of assets prior to the start of the business activity


Judgment of the Spanish Supreme Court of 19 July 2017, in response to an appeal in cassation for the unification of doctrine.

The company El Tesón de Castropol (hereinafter the Company) was founded on March 5, 2010, being its activity the construction and real estate development. In addition, on March 8, 2010, the Company requested the corresponding Spanish Tax Id number, and on April 16, 2010 it proceeded with its inclusion into the Spanish Census of entrepreneurs.

The Company acquired a parcel of land on March 29, 2010 and on 8 April of the same year it requested to an architect the preparation of a study on the urban use of the acquired parcel. Finally, in February 2015, the urbanization project of the acquired parcel was done.

The Company included in its Spanish VAT returns corresponding to 2010 the VAT quotas paid by the acquisition of the aforementioned parcel, requesting the refund of the same in the last VAT returns of the tax year.

The Spanish Tax Authorities denied the deduction of the VAT paid for the acquisition of the parcel of land. The Company claimed against this decision before the Regional Economic Court of Madrid, but the appeal was rejected. Then it appeal again before the High Court of Justice of Madrid, which also dismissed this appeal.

Both the Spanish Tax Authorities and the mentioned instances of the Spanish jurisdiction, considered that such elements of proof, cannot be considered that the Company has proved that the acquisition of the parcel of land was a real starting of the Company’s business activity, which never has been justified by subsequent acts, since a simple plot development project carried out by an architect, that is endorsed by the College of architects of Asturias, may not justify by itself the beginning of the activity.

Finally, the Company appealed this decision to the Spanish Supreme Court by an appeal in cassation for the unification of doctrine.

At this point it should be clarified that the issue to be solved is not if the Company had or not started the effective exercise of its business activity, but if it intended to exercise effectively this activity.

At this point, the Spanish Supreme Court refers to EU case law in similar cases, establishing the following points that allow to know the intention of the taxable person:

– The nature of the goods or services purchased.

– The time period between the acquisition of the same and its use in these activities.

– Compliance with the administrative and accounting requirements to entrepreneurs and professionals with the regulatory rules of the tax.

Based on these points, the Spanish Supreme Court indicates that previous decisions did not take into account these parameters since the initial intention of business involvement could not be refused after taking into accounts the actions done by the Company (included in the first paragraphs of this writ) which are objective elements that prove such intention.

The Spanish Supreme Court understands that the contested judgment was basically focused on the time elapsed until the start of the business activity, even if this is only one element of judgment more, said previous judgments should also keep in mind that it comes from a promotion activity real estate whose period of maturation is inevitably long.

For these reasons, the Spanish Supreme Court accept the appeal lodged by the Company and cancels the refusal to the deduction of the VAT quotas issued by the Spanish Tax Authorities.

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