Value Added Tax (in Spanish: Impuesto sobre el Valor Añadido – IVA), is a harmonised throughout the European Union through different community directives enacted over this tax.
Value Added Tax is governed by several fundamental principles, among which are (i) the principle of primacy and direct effect of European Union law over the domestic law of the Member States; (ii) the substantive principle of autonomy of European Union law and its interpretation; (iii) the principle of legal certainty and protection of legitimate expectations; (iv) the principle of neutrality; (v) the principle of rejection of formalism; (vi) the principle of proportionality in the establishment of measures for the collection and prevention of tax fraud; (v) the principle of prohibition of abusive practices in EU law.
Extensive and sometimes complex regulations govern VAT. In fact, in several conventions or legal transactions, it is used in conjunction with other taxes, such as the Tax on Onerous Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas) or the Stamp Duty (Impuesto de Actos Jurídicos Documentados). However, in its pure application, it is a tax that is levied on final consumers so that entrepreneurs, as long as they are not final consumers of a good or service, cannot obtain a profit by applying tax incentives – as is the case with the direct taxes of corporate income tax or personal income tax. However, we still need to understand this tax thoroughly to avoid problems arising from the correct application, its correct impact and deduction.
On the other hand, there are also circumstances in which the exercise of an option gives the recipient of the transaction a tax saving, as could happen with the request to waive the exemption on the acquisition of a property that allows the application of this institution, to subject the transaction to VAT, which is deductible and refundable, instead of another tax, such as Transfer Tax, for which a refund cannot be requested. This example would give the recipient of the transaction the possibility of obtaining a refund of the tax paid, or even, by applying the reverse charge, of not having to pay the amount of VAT to the transferor to deduct it later, thus creating a need for cash flow.
In any case, Value Added Tax applies to the vast majority of economic transactions. Therefore, VAT tax law must be complied with, as failure to comply with them could cause serious damage to companies. Our firm will advise you on VAT and will represent you in the necessary procedures in its application.