Indirect Tax News - January 2023

Changes made to use and enjoyment rule, reverse charge and VAT recovery on bad debts

Spain’s General State Budget for 2023, published in the official state gazette on 23 December 2022, contains several important modifications to the VAT rules, including the introduction of a limit on the application of the use and enjoyment rule, bringing the reverse charge rules into alignment with EU rules and relaxing the rules on the recovery of VAT on bad debts. The revisions apply as from 1 January 2023.

  • Use and enjoyment rule: The use and enjoyment rule determines the place of supply of services for VAT purposes based on where the services are used and enjoyed. To ensure tax neutrality and enhance the competitiveness of Spanish companies, the number of cases in which the rule applies has been limited. Specifically, the use and enjoyment rule will now apply exclusively to B2B supplies of insurance, reinsurance and capitalisation services, financial services and the hiring of means of transport.

    In addition, the provision of professional services, advertising, etc. and the hiring of means of transport will fall within the scope of VAT where the recipient is a private consumer outside the EU but uses or exploits the services in Spanish territory.
  • Reverse charge: Changes are made to the reverse charge rules to bring them in line with EU rules, specifically by extending the application of the reverse charge to the supply of plastic and textile waste and scrap. Further, the rules relating to a “taxable person” are modified so that the reverse charge is applicable to the supply of these materials to entrepreneurs and professionals. However, certain supplies are specifically excluded from the application of the reverse charge:
    • The provision of real estate leasing services that is subject to and not exempt from VAT; and
    • The provision of intermediation services in the leasing of real estate carried out by non-established companies.
  • VAT recovery on bad debts: The bad debt relief rules for VAT purposes are revised as follows:
    • Where the defaulting customer is a private consumer, the minimum claimed taxable amount is reduced from EUR 300 to EUR 50;
    • The rules requiring the creditor to demonstrate that it requested payment from the debtor are relaxed. Previously, the creditor had to rely on a court claim or prior notarial demand but now the creditor may use these or any other reliable evidence showing it demanded payment;
    • A creditor may recover amounts even if a customer declares insolvency/bankruptcy in another EU member state; and
    • The period for recovering VAT on a bad debt is extended from three months to six months (from the date the payment was due) or one year, depending on the existence of insolvency proceedings, and must be communicated to the State Tax Administration Agency within the term established by regulations.

Álvaro Gómez-Elvira

Jaime Ventosa de Bonilla