Spain’s Tribunal Económico Administrativo Central (TEAC) issued a resolution on 27 September 2024 (RG 9152/2921) on the deductibility of VAT on vehicle leasing by business entities (for prior coverage, see the article in the April 2024 issue of Indirect Tax News). The resolution focuses on vehicles leased to employees, executives and sales personnel and that are used for both professional and personal purposes (i.e., mixed use vehicles).
During the period 2015-2017, entities were allowed to deduct 50% of the VAT on leased vehicles; the deduction was increased to 100% in 2018, although there is a presumption that 60% of the vehicle use is for private purposes. Spain’s tax authorities challenged these deductions, arguing that vehicles were mainly used for private purposes. The tax authorities have taken the position that where mixed use vehicles are provided to employees, the value of the benefit in kind provided to the employee should be determined based on the availability of the vehicle for private purposes, i.e., the period of time that does not correspond to the employee’s working hours.
In the case before the TEAC, a company provided vehicles to its employees for business and personal use, with the company deducting 50% of the VAT on the leasing of the vehicles based on the presumption in article 95.3.2 of Spain’s VAT law that 50% of vehicle use is for business purposes. The tax authorities challenged the deduction. Tangible evidence, such as fuel consumption records and professional use logs, is required to demonstrate actual business use. The tax authorities determined the business use of the vehicles based on their availability outside working hours, setting professional use percentages between 20% and 40%, depending on the circumstances of each entity during the fiscal year.
The distinction between vehicles provided for a fee and those provided for free impacts the VAT treatment. In the case before the TEAC, the lack of compensation for use of the vehicle was crucial in determining the business use. The Tax Authorities used indicative evidence, such as voluntary acceptance of the vehicle without any salary impact and the lack of fuel consumption records to argue against business use. However, TEAC emphasised that such evidence must be coherent and supported by proven facts.
In its resolution, the TEAC stated that VAT deductibility should match the actual business use of vehicles. If insufficient evidence is provided, the general presumption of 50% business use applies. Fiscal adjustments based only on the availability of a vehicle outside work hours are inappropriate without additional proof.
The TEAC resolution emphasises the importance of solid and consistent evidence to determine VAT deductibility in similar cases. The right to deduct VAT is available if mixed use can be clearly demonstrated. The lack of evidence may justify applying the general presumption but not a complete disallowance of the deduction.
Álvaro Gómez-Elvira
Ana Acero
BDO in Spain
During the period 2015-2017, entities were allowed to deduct 50% of the VAT on leased vehicles; the deduction was increased to 100% in 2018, although there is a presumption that 60% of the vehicle use is for private purposes. Spain’s tax authorities challenged these deductions, arguing that vehicles were mainly used for private purposes. The tax authorities have taken the position that where mixed use vehicles are provided to employees, the value of the benefit in kind provided to the employee should be determined based on the availability of the vehicle for private purposes, i.e., the period of time that does not correspond to the employee’s working hours.
In the case before the TEAC, a company provided vehicles to its employees for business and personal use, with the company deducting 50% of the VAT on the leasing of the vehicles based on the presumption in article 95.3.2 of Spain’s VAT law that 50% of vehicle use is for business purposes. The tax authorities challenged the deduction. Tangible evidence, such as fuel consumption records and professional use logs, is required to demonstrate actual business use. The tax authorities determined the business use of the vehicles based on their availability outside working hours, setting professional use percentages between 20% and 40%, depending on the circumstances of each entity during the fiscal year.
The distinction between vehicles provided for a fee and those provided for free impacts the VAT treatment. In the case before the TEAC, the lack of compensation for use of the vehicle was crucial in determining the business use. The Tax Authorities used indicative evidence, such as voluntary acceptance of the vehicle without any salary impact and the lack of fuel consumption records to argue against business use. However, TEAC emphasised that such evidence must be coherent and supported by proven facts.
In its resolution, the TEAC stated that VAT deductibility should match the actual business use of vehicles. If insufficient evidence is provided, the general presumption of 50% business use applies. Fiscal adjustments based only on the availability of a vehicle outside work hours are inappropriate without additional proof.
BDO Insight
The TEAC resolution emphasises the importance of solid and consistent evidence to determine VAT deductibility in similar cases. The right to deduct VAT is available if mixed use can be clearly demonstrated. The lack of evidence may justify applying the general presumption but not a complete disallowance of the deduction.Álvaro Gómez-Elvira
Ana Acero
BDO in Spain