VAT refund to non-established taxable persons. Limited verification procedure initiated upon notification request. Judgment of the Central Economic-Administrative Court of July 20, 2017


Pursuant to its articles 119 and 119 bis, the VAT Law establish the option of claiming for the refund of the input VAT borne in the VAT territory by taxable persons not established thereof. This procedure must be initiated by the taxpayer and is regulated according to the rules of the corresponding tax.

In this respect, the article 126 of the Spanish General Tax Law, as regard the refunds derived from the submission of applications, states that “the procedure shall be governed by the rules specific to each tax“, while the article 127 establishes that the procedure for refund will terminate by the refund agreement, by expiration or by the commencement of a data verification, limited verification or inspection procedure.

According to this procedure of refund, an entity initiated the refund claim for not established taxpayers under the provisions of article 119 of the VAT Law, for several periods, within the established deadlines. Subsequently, the Tax Administration notified to the company a request for each of the periods. In these requests were requested the provision of electronic copies of the invoices included in the application supporting the refund, and detailed clarification of the transactions carried out in Spain, as well as destination of the goods and services purchased whose VAT refund was claimed.

Subsequently, the entity filed a request to extend the deadline to meet these requests and, after three months without having met the same, the Tax Administration declared the expiration of the refund procedure, with the termination of it. The entity filed an appeal for reconsideration, providing with the documents, which were denied by the Tax Administration because it considered that, in this phase of review, it is not possible to provide with the documentation that was not provided in the management phase.

The entity submitted an economic-administrative appeal before the Court (TEAC) alleging that, through the request made by the Administration, a limited verification procedure was actually initiated, without giving the taxpayer the audition for allegation phase, thus generating defencelessness.

In response to these allegations, the TEAC examines whether a limited verification procedure was actually initiated with the notification of the request. According to what is established in the General Tax Law, TEAC firstly complies with the provisions of the VAT Law, in article 119, to determine whether an allegation audition process is possible in the procedure of refund to non-established taxpayers, resolving that in said legislation the obligation of that phase of allegations prior to the adoption of the resolution is not contemplated.

However, what is contemplated in these regulations is the possibility that the Tax Administration request to the applicant additional information necessary for the procedure, not only in relation to formal aspects but also material, to verify the origin of the requested refund, which implies the development of a real audit activity. In the present case, through the notification issued, not only the invoices are requested, but also a detailed clarification of the transactions carried out in Spain, which is why the Court considers that such request exceeds the scope of the refund procedure itself considered, and must be understood to be like acting within a limited verification procedure. In addition, this verification procedure cannot expire due to the inactivity of the company, but due to the inactivity of the Administration, since this is a procedure initiated ex officio by the latter.

In conclusion, the Court considers that expiration decisions raised are not valid and that, with the termination of the refund procedure because of the initiation of a limited verification procedure, the settlement proposal must be communicated prior to the provisional settlement, so that the taxpayer alleges what it deems necessary.

Attached is a copy, in Spanish, of the judgment of the TEAC, dated July 20th, with appeal number 758/2014.

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