VAT and non-payment: VAT requirements do not violate EU law

In March 2025, the Supreme Court ruled on the compatibility between Spanish legislation modifying the VAT taxable amount in the event of non-payment and the legal framework established by EU law, in its judgment No. 371/2025. The High Court analysed whether the loss of the right to such a reduction due to non-compliance with formal requirements infringes Articles 90.1 and 273 of Council Directive 2006/112/EC — also known as the VAT Directive — as well as the principle of fiscal neutrality.

Article 80 of the VAT Law provides for two cases in which a reduction in the taxable amount is permitted: when the debtor is declared bankrupt after the tax becomes chargeable and when claims become totally or partially uncollectible. In the latter case, certain conditions must be met: at least one year must have elapsed since the tax became chargeable without payment having been received, and payment must have been claimed by reliable means (such as a notarial or judicial demand). The amendment must be made within six months of the uncollectibility conditions being met, and within 18 months of the tax becoming chargeable.

The crux of the legal debate is whether these requirements, particularly the time limits and evidentiary formalities, constitute an undue restriction on the taxpayer’s right to recover unpaid VAT charged, in contravention of Article 90 of the Directive, which permits a reduction in the taxable amount when payment has not been received in full or in part. However, the Supreme Court considers that there is no such infringement. It emphasises that the Directive itself recognises, in Article 273, that Member States have a margin of discretion to lay down the formal conditions necessary to ensure the effective collection of tax and prevent fraud.

In this context, the High Court emphasises that the formalities imposed by Spanish law, such as providing reliable proof that the invoice was dispatched or acting within a specific time limit, are not mere formalities, but rather necessary safeguards. These mechanisms make it possible to verify non-payment and uncollectibility. Furthermore, the aim is to protect the principle of tax neutrality by preventing entrepreneurs from bearing a tax cost for VAT that has not been collected without this resulting in unjust enrichment on the part of the administration.

In short, the Supreme Court reinforces the legitimacy of the Spanish regulatory framework for modifying the VAT tax base due to non-payment, which does not violate European Union law. Not only does the national regulation comply with the equivalence and effectiveness principles required by the CJEU, it also strikes a balance between the rights of taxpayers and the need to guarantee control of and integrity in the tax system.

Author: Andrea Fernández (fiscal)