VAT is a tax that is characterised by its neutrality, i.e. the tax is borne by the final consumer and does not represent a cost for entrepreneurs. This neutrality is achieved by two mechanisms: deduction and refund.
The controversy lies in the fact that, while entrepreneurs established in the territory in which the tax applies (“TAI” in Spanish), i.e. the mainland and the Balearic Islands, can recover VAT through both mechanisms, entrepreneurs not established in the TAI can only use the refund route. In addition, this route is subject to material and formal requirements, the latter including the existence of a nine-month deadline for requesting a refund.
This difference in treatment between established and non-established entrepreneurs (but established in the EU, the Canary Islands, Ceuta and Melilla) has been the subject of numerous judgments. The most recent, STS 3926/2024 of 15 July 2024, has established criteria by ruling on the possible infringement of the right of establishment and the principles of fiscal equality, non-discrimination and equivalence that may be implied by the existence of a nine-month limitation period for non-established businesses.
The novel approach of the appeal is noteworthy, as the appellant focuses the weight of the argument on the fact that taxable persons established in the TAI have a period of four years in which to deduct or claim a refund of VAT, after which, if they maintain the claim against the administration, they have a further four years in which to claim a refund. Non-established taxpayers, on the other hand, have only until 30 September of the year following the year in which they incurred the tax liability to claim a refund, which is a preclusive period, i.e. once this period has expired, the right to claim a refund is lost.
However, the Supreme Court concluded that there was no such infringement and upheld the nine-month period. The reason for the decision is that the existence of different time limits for exercising the right to a refund is not based on whether the applicant is a foreigner or not, but on the fact that he or she is established in the TAI or not. It also argues that these are two different cases to which it therefore applies different rules and that there is therefore no discrimination, which is the basis of all the appellant’s claims. It also points out that, in the interests of legal certainty, the ECJ favours the establishment of reasonable time-limits of a preclusive nature and that the time-limit laid down in the Spanish legislation corresponds to the time-limit laid down in the Directive applicable to the case.
It is clear from the Supreme Court’s ruling that it is important to obtain quality tax advice to ensure strict control of deadlines, as the consequences of not doing so can be significant, such as the loss of input VAT refunds.
Author: Montserrat Carol (tax advisor)
