Legal and factual restrictions


01 / Aug

The right to deduct VAT only applies to the extent that the goods and services acquired are used in the course of the entrepreneur’s or self-employed person’s profession or business. Therefore, if the acquired goods or services are not of a business nature, the tax authorities may refuse deduction. This is something the inspectorate loves and in practice leads to endless discussions about which good or service is or is not of a business nature. The car is a well-known example of this. In this article we will go a little deeper into the requirements.

Spanish VAT legislation stipulates that the deduction when purchasing or using vehicles is by definition limited. When it comes to passenger cars and their trailers, mopeds and motorcycles, these are considered to be used for 50% for business purposes. If the vehicle is used for more than 50% for business purposes, the entrepreneur will have to prove this.

This restriction has frequently been the subject of discussion when it comes to proving that the vehicle is used for more than 50% business purposes. The burden of proof falls on the taxpayer. The problem is that although the law is on our side and proof to the contrary is possible, the reality is that the Spanish tax authorities do not allow proof to the contrary. Any argument to prove that a car is 100% business is rejected by the tax authorities without justification.

Several Spanish Supreme Courts have already ruled, on the basis of European law, that Spanish regulations are contrary to European law, and that VAT is fully deductible for entrepreneurs who need a vehicle in order to work, even if there is no exclusive use. This means that the entrepreneur only has to prove that the vehicle is used to a greater or lesser extent for the business activity.

However, having arrived at the Spanish Supreme Court, it has taken the opposite position, because:
1. The rule does not stipulate that the 50% rule is an absolute limit, so allows 100% to be deducted.
2. The deduction must be in accordance with the extent to which the vehicle is actually used.
3. The burden of proof of such use of more than 50% lies with the taxpayer.

It is not possible to mention here all forms of proof that a car is used 100% for business purposes, so here are a few tips without any intention of being exhaustive:
– If you do not have a second car, for example, keep a mileage register in which you make a note of the day, the number of kilometres and the business or private reason for using the car, with possible mention of the client or sale;
– If you have a second car that is used privately, keep a clear record showing that the cost of that car is borne privately, which is completely separate from the business car;
– Make sure that the invoices or tickets of costs relating to the car (fuel, repair, maintenance, cleaning) bear the registration number of the business car;