In a decision dated 2 February 2026, Spain’s Supreme Court examined the interaction between VAT and the Canary Islands General Indirect Tax (IGIC) and clarified the application of the refund procedure for undue payments where double taxation arises, in this case between two taxes that cannot apply simultaneously to the same transaction as they correspond to different territorial indirect tax systems. The Canary Islands are part of Spain and the EU but are excluded from the Spanish VAT territory. The Canary Islands’ IGIC is similar to Spanish VAT but there are differences, including in the rate of the tax: 7% IGIC compared to Spain’s 21% standard VAT rate.
The case concerned a travel agency that had applied the special VAT scheme for travel agencies and initially charged IGIC at 7% to its customers. Following an audit, the Spanish Tax Agency determined that the place of supply of the transactions was considered to be in the VAT territory. As a result, the company was required to pay VAT at 21% but could not pass this additional tax on to its customers.
This led to the company effectively paying both IGIC and VAT on the same transactions. When the company sought a refund of the IGIC unduly paid, the Canary Islands tax authorities rejected the request, taking the position that only the final consumer—who had borne the tax—could claim a refund under article 14 of the Administrative Review Regulations.
The Supreme Court disagreed and carved out an exception to that rule in cases involving taxes that cannot be applied simultaneously. The court held that the company could not be treated as a mere intermediary in transferring the tax burden because the VAT ultimately paid was not passed on to customers. In economic terms, the business itself bore the burden.
The court also noted that, because the transactions were deemed to occur in Spain’s VAT territory, the IGIC paid had no legal basis. Denying the refund would violate the principle of tax neutrality and result in unjust enrichment of the tax administration. The court therefore upheld the taxpayer’s right to recover the IGIC paid in error.
Alvaro Gomez-Elvira
María González
BDO in Spain
The case concerned a travel agency that had applied the special VAT scheme for travel agencies and initially charged IGIC at 7% to its customers. Following an audit, the Spanish Tax Agency determined that the place of supply of the transactions was considered to be in the VAT territory. As a result, the company was required to pay VAT at 21% but could not pass this additional tax on to its customers.
This led to the company effectively paying both IGIC and VAT on the same transactions. When the company sought a refund of the IGIC unduly paid, the Canary Islands tax authorities rejected the request, taking the position that only the final consumer—who had borne the tax—could claim a refund under article 14 of the Administrative Review Regulations.
The Supreme Court disagreed and carved out an exception to that rule in cases involving taxes that cannot be applied simultaneously. The court held that the company could not be treated as a mere intermediary in transferring the tax burden because the VAT ultimately paid was not passed on to customers. In economic terms, the business itself bore the burden.
The court also noted that, because the transactions were deemed to occur in Spain’s VAT territory, the IGIC paid had no legal basis. Denying the refund would violate the principle of tax neutrality and result in unjust enrichment of the tax administration. The court therefore upheld the taxpayer’s right to recover the IGIC paid in error.
Alvaro Gomez-Elvira
María González
BDO in Spain