Spanish Supreme Court allows VAT recovery on costs linked to an exempt or non-business transaction under certain circumstances.

The recoverability of input VAT paid by a VAT taxable person on the acquisition of goods or services in relation to non-business or exempt transactions may be allowed if such goods or services have resulted in an economic benefit for the general activity of the company.

In the case at hand, the Supreme Court analysed the recoverability of input VAT paid on advisory services in the context of an expropriation procedure with the purpose of obtaining a higher price than the one initially recognised by the administration.

The Supreme Court considered that such VAT was deductible, considering the nature of the property that was subject to expropriation and its direct link with the activity of the company at large. The costs, if they are of a general benefit for the taxable person, may be treated as general overhead costs and the corresponding VAT may be recovered in accordance with the general activity of the company. Although the expropriation as such is not an economic activity, the costs related to it were recoverable on the basis that they were incurred in the general interest of the company (i.e., obtaining a higher compensation against the expropriation).

The Supreme court considers that this conclusion is aligned with the principle of VAT neutrality and CJEU case-law.

Key takeaway

This judgment is binding on the Tax Authorities. Consequently, businesses may use this criterion when assessing their input VAT recovery position and apply it in the context of a tax audit or litigation.