iva bove montero

The application of the “rule of effective use” in VAT has been an issue of great relevance in recent times, ensuring that certain services are considered to be performed in the country where they are used. This rule has generated great debates.

To understand the importance of this rule, it is essential to understand how VAT regulations have evolved. Council Directive 2006/112/EC laid the foundations for the common VAT system in the EU, avoiding tax problems between Member States. In Spain, Law 37/1992 on VAT (LIVA) adopted these guidelines in Article 69, determining the place of taxation of services.

Article 70. Two of the VAT Laws established that some services were considered to be provided in Spanish territory, however according to the general rules, they will not be carried out in the EU, the Canary Islands, Ceuta or Melilla. This applied when they were used in that territory. Among the services covered were those of Article 69. Two, (such as intellectual property rights, consultancy, auditing, etc.) and services provided electronically and via telecommunications.

A relevant case is the Resolution of the Central Economic-Administrative Court (TEAC) 9536/2022, of 25 January 2024. This resolution analyses the case of a Spanish company, “XZ España S.L.”, which provided advertising and marketing services to its parent company in another country, is analysed. These services included: brand promotion in Spain, marketing strategies, market trends and technical assistance to XZ’s customers in Spain.

The TEAC determined that since the effective use of the services took place in Spain, they should be considered as provided in Spain and therefore subject to Spanish VAT. The key lies in the effective use clause of Article 70. Under two of the VAT Laws, services were considered to be provided in Spain if the recipient was a businessman or professional and the effective use or exploitation of the services took place in Spain.

The resolution highlights several essential points: the need to consider where services are used (beyond contracts); the importance of analysing the relationship between the service and the operations carried out in the territory of application of the tax; and the application of determining criteria to know what part of the use of the service takes place in the national territory.

Although Law 31/2022, on the General State Budget for 2023, amended this provision, eliminating the effective use clause in transactions between entrepreneurs except in specific cases, the regulations in force at the time of the provision of the services supported the decision of the TEAC.

It is important to note that the amendment of the rule does not contradict the VAT Directive, but focuses on promoting a global market based on balance and fair competition. In this context, it allows Member States to apply the use clause to avoid double taxation.

CategoryTax updates