Often doubts arise when quantifying the taxable base for VAT on the financial consideration in contracts between unrelated parties, where said consideration does not exist in monetary form.
In this regard, Article 79 of Law 37/1992, of 28th December, on Value Added Tax, was expressly amended by Law 28/2014, of 27th November, for the purposes of adapting to Council Directive 2006/112/EC, of 28th November 2006, on the common value added tax system. Thus, it went from establishing that the price must be that agreed under normal market conditions to determining that the amount expressed in money that had been agreed between the parties shall be considered as a tax base, so that the possibility of applying the market valuation rule was limited to specific situations of relationship between the parties, a rule which is only applicable, moreover, when a series of requirements established by the Directive itself are met.
Likewise, the Supreme Court, in a judgment of 23rd April 2019, reaffirms the literal terms of said article, ruling on the case of land handed over as a consideration in kind in a contract for the provision of urban services.
In the case dealt with in said judgment, the Tax Administration reviewed the tax base of the delivery, indicating that the market value of the land should be taken as such and for this purpose it used the value of a subsequent transfer, a criterion that endorsed the first instance judgment, but was subsequently corrected by the Supreme Court.
This correction clarified that, in any case, although it should be at market value, in a market subject to fluctuations as is the case of the real estate market, the value of goods changes constantly without this necessarily affecting the tax base of tax paid in the past. It also states that, in any event, the market value that should have been taken as a reference would have been the market value of the services provided, since the good handed over is equivalent to those services. As stated in said Directive, the tax base is the total consideration which the supplier or service provider obtains or is going to obtain.
It is recalled by the court that, if the parties are not related by any circumstance, from a regulation and jurisprudential perspective, the subjective criterion of valuation may be abandoned for the sake of the objective estimation of the consideration, taking into account, for example, the market value. And this is the main factor to be taken into account in this case.
The doctrine is therefore established in the sense that, for the purpose of quantifying the VAT tax base of the provision of services, between unrelated parties, where there is no monetary consideration (handing over of land), the Tax Administration must take into account the value or amount agreed between the parties as consideration for the services, without it being possible, in this case (a lack of relationship between the parties, and the value of the consideration not being expressed in money), to take as a reference the market value of said land, taking into account a subsequent transaction.
Andreas Terán
Vilá Abogados
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13th September 2019
