Differences in the VAT assessment of “work supplies” in German VAT; supplies with installation under European Union and Spanish law (part 3)

This article is the third and final part of a joint blog series written by our colleague Rainald Vobbe alongside María Teresa Deltell, and Carlos Gómez Barrero from Garrigues in Spain. For background and context, see Part 1 of this series and the discussion in Part 2 on Work Supplies under German VAT Law.

Spain has implemented Art. 36 of the VAT-Dir. through Art. 68.Two. 2^nd of Law 37/1992 (“Spanish VAT Law”) which foresees that supplies of goods to be installed or assembled before they are made available to the acquirer, shall be taxable when the installation is completed within Spanish VAT territory and insofar as the installation or assembly results in the immobilisation of the goods.

Accordingly, the supply of goods with installation by a German supplier would be taxable in Spain both when the goods are shipped from other member states to the extent the goods are immobilised in Spain or where, according to the general place of supply rules foreseen under Art. 68 of the Spanish VAT law, they are dispatched within the Spanish territory.

In this regard, it should be noted that when taxable persons carry out activities through a fixed place of business in Spain, a fixed establishment (“FE”) may be considered to exist.

According to the ECJ criterion (amongst others in case C‑605/12, Welmory) and to Art. 11 of EU Implementing Regulation 282/2011 for a FE to exist it must be characterised by a sufficient degree of permanence and an adequate structure in terms of human and technical resources to enable it to receive and use the services supplied for its own needs.

However, the Spanish VAT Law contains under point Three of Art. 69 a list of specific circumstances under which a FE is deemed to exist, which expressly includes, among others, construction or installation works lasting more than twelve months.

Based on the above, construction supplies in Spain may trigger a FE of a German entity performing them provided that:

• The works carried out are not limited to the supply of components and/or supervision services, but that the German supplier carries out the delivery, installation, and supervision of the construction.
• The on-site works in Spain are expected to last more than 12 months.

As a general rule, in case of B2B supplies of goods VAT has to be reverse charged by the recipient when the supplier is a non-established taxable person. Instead, if a FE existed, the foreign supplier would be liable for the tax.

Nonetheless, reference must be made to the possible application of the reverse charge mechanism on the works, even if a FE existed. In particular, under Art. 84 of the Spanish VAT Law it is foreseen that in the case of works on real estate, the reverse charge mechanism would apply to the recipient (regardless of such recipient being previously VAT registered or not in Spain) if the following requirements are met:

• The recipient acts as a trader or professional.
• The transactions are carried out within the framework of the construction or renovation of a building.
• The transactions carried out qualify as “construction works” with or without the supply of materials, including the assignment of personnel necessary for their execution. The supply of goods that must be assembled and installed in the building by the supplier is generally considered as “construction works”.
• Such transactions derive from contracts formalised directly between the developers and/or the main contractors.

If the above requisites are met, the German supplier would not need to register in Spain for the performance of the supply with installation (since VAT would be reverse chargeable by the recipient).

No VAT registration obligations may arise either as regards the introduction in Spain of the goods to be assembled if sent by the supplier from other Member States, as such deemed intra-community acquisition would not be a taxable event in accordance with the provisions of Art. 9 and 16 of the Spanish VAT Law.

Likewise, if goods (other than the components to be installed) are shipped from other Member States for its temporary use in Spain, provided they are returned out of Spain after such temporary use no VAT registration obligations would arise. Indeed, in such a case, according to Art. 16 of the Spanish VAT Law (in line with Art. 17 and 21 of the VAT-Dir.) no deemed intra-community acquisition would exist. Instead, if such goods used for the performance of the construction works remain in Spain (for a subsequent use, or for its disposal to a Spanish trader), registration obligations may arise for the intra-community acquisition performed.

Certain registration obligations may arise too if the German supplier were to perform in Spain domestic acquisitions from other non-established traders, intra-community acquisitions or import of goods (even if such intra-community acquisitions or imports may benefit from an exemption, as, for instance, those provided for under Art. 26 of the Spanish VAT law or those under Art. 66).

This article was the third and final part of a joint blog series written by our colleague Rainald Vobbe alongside María Teresa Deltell, and Carlos Gómez Barrero from Garrigues in Spain. For background and context, see Part 1 of this series and the discussion in Part 2 on Work Supplies under German VAT Law.