New Spanish Court resolution on the question of Spanish VAT on fringe benefits

The recent Court resolution of the Central Economic Administrative Court (TEAC) has clarified the criterion previously applied the court itself, which considered that the transfer of vehicles to employees by companies as part of their remuneration package gave rise to the existence of transactions subject to VAT as services.

The TEAC is now in line with the criterion set by the Court of Justice of the European Union (CJEU) according to which a fringe benefit in favor of an employee cannot automatically be considered as an onerous transaction for which the employer should charge VAT.

✔ In the case analyzed, the employer grants the use of companies’ vehicles to its employees. The tax audit considers that such an assignment is an onerous service provision subject to VAT in which the employer must charge VAT to the employees in the percentage that the vehicle is at the employees’ disposal for private purposes, therefore giving rise to a fringe benefit.

✔ Determining whether the assignment made by an employer is made for an onerous cause or free of charge must consider the criteria set by the TJUE according to which transactions are to be considered as free of charge or against payment, depending on whether there is a direct relationship between the product or service delivery and the consideration received in exchange.

✔ Accordingly, a product or service delivery made by the employer to its employees is onerous only if there is a direct link between such provision and the consideration received in exchange by the employee. For example:

• i. If the employee renounces part of his/her cash remuneration in exchange for the fringe benefit;
• ii. The employee pays for the service or product provided;
• iii. Part of the employee’s work, which can be valued economically (that is to say, it can be expressed in monetary terms), can be considered as a consideration for the product or service received from the employer as it so established in the employment contract or ancillary document.

✔ In such cases, VAT will have to be charged by the employer, as the tax auditor indicates in the case analyzed. However and in the rest of cases, a fringe benefit in favor of the employee will not be automatically identified as an onerous transaction with the employee but it will be necessary to be able to prove the existence of a direct link between the service provided and the consideration received in exchange.