One of the issues that is generating greater concern in the midst of the health crisis and confinement in which we are immersed, is the tax impact that exists for the temporary cancellation of the lease, the non-payment, reduction, cancellation or deferment of rental fees in commercial premises. Although it is not a peaceful issue, we will try to provide, below, a series of clarifications so that you can take them into account when renegotiating the rental situation during this period.
In order to analyze the tax treatment applicable to premises leases, for VAT purposes, we must start from the basis that they are considered as a successive supply of services; that is, they are continuous operations in which VAT is due at the time when the part of the price of each collection during the term of the contract becomes chargeable.
The taxable base is calculated from the amount agreed as the rental fee.
For the purposes of our notes, we assume that the accrual of the tax is monthly, and therefore the special rule of the successive period does not apply to those cases in which the chargeability has not been established or is greater than one year, in which the VAT is due on 31 December.
Therefore, based on the above premises, we understand that the following cases may arise:
- Temporary suspension of the obligation to pay the rent
Without prejudice to the validity and consequences that could be generated for civil purposes of this agreement, it could be considered that the suspension of the contract on a temporary basis, but with the maintenance of possession of the property by the lessee, involves the taxable event and the accrual of the tax, since the use would not be interrupted. In other words, this situation could be reclassified as a situation of non-payment (which will be discussed below).
Consequently, the tax authorities could dispute the validity of the agreement, demanding that the lessor must, in any case, charge VAT even if no payment has been made for the lease.
A different issue is that the obligation to pay rent is temporarily suspended. In this case, the doctrine and even the Administration (through the publication of frequent questions on the fiscal impact of Covid-19) consider that since the amount of the quotas is not payable, VAT is not due either.
- Non-payment of rental payments without agreement
In this case, we understand that the rule in force before the situation of Covid-19 would apply, i.e. non-payment does not prevent either the existence of the taxable event or the accrual of the tax, so the lessor should settle the VAT with the Tax Administration, using the mechanisms established by the rule for the recovery of unpaid VAT payments and included in article 80 of the LIVA.
- If the lease
payments are temporarily reduced, by agreement of both parties, VAT will accrue at the time when the payments are due on the agreed taxable amount. The doubt arises in cases where it is agreed that the reduction will be recovered in the future, since in that case it could be understood that there is no real reduction in the price but merely a deferral of payment, which could mean the obligation to settle all the VAT due on the taxable amount before it is reduced.
In any case, as we have said, it is advisable that the parties agree clearly on the enforceability of the payments in order to be able to determine and defend the lack of accrual of VAT during that period.
- Postponement/fractionation of the rental
payments We refer to the previous point. In other words, both the deferment and the fractioning of the payment of the quotas, even if there is an agreement between the parties, may mean that the Administration considers that VAT has been accrued on the total of the taxable base stipulated in the initial contract.
We reaffirm what has been stated above, i.e. the need to agree in writing on the conditions to defend the absence of chargeability and, consequently, the accrual of the tax.
Finally, we understand that all the above is applicable to the latest measures introduced in Royal Decree-Law 15/2020, of 21 April, with respect to the moratorium or fractionation of the rental tax. In this regard, we would like to comment that the law only refers to the obligation to pay the rental fee, which is transferred to a later date. Thus, in the case where it can be defended that VAT is not payable due to the application of the moratorium, VAT would not be due. Otherwise, the administration could interpret, albeit in a debatable manner, that the repercussion of the VAT due on the use of the property is required.
In line with the above, we recommend that all the agreements proposed by the parties be studied in order to assess and limit the fiscal impact at the level of Value Added Tax. In this respect, AddVANTE remains at your disposal to help and advise you in order to defend your interests.