B Law & Tax
05 September 2023

Tax advisor: Do subsidies to intercity public transport affect the VAT taxable base?

The contested ruling concluded that when a public service is offered or an activity of general interest is carried out that does not have specific recipients identified in advance, but is aimed at the community in general, transactions subject to VAT are not generated because the legal link in which reciprocal supplies are exchanged is missing. Consequently, subsidies granted by a public entity for the provision of these services or the performance of these activities are not relevant for VAT, since they are not considered as consideration under Article 78.2.3 of the VAT Law, which must be applied retroactively. The State Attorney filed an appeal in cassation against this judgment, arguing that it deliberately departs from existing case law and considers it to be erroneous.

The question of interest is to determine whether the subsidies granted by public entities to finance the management of public interurban passenger transport services, especially those provided before the amendment of Article 78.2.3 of the VAT Law by the LCSP, are subject to VAT in accordance with Article 73 of the VAT Directive and the Community case law interpreting it. In order to resolve this appeal, it is necessary to determine whether the new wording of article 78.2.3 of the VAT Law can be used as an interpretative criterion of its previous version. According to this new wording, the subsidies that do not form part of the VAT taxable base are those that do not generate a significant distortion of competition or those whose beneficiaries are not identifiable and do not receive any consideration. These requirements do not appear to be cumulative since the former applies to the management of public services and the latter to activities of general interest. In this context, it should be analyzed whether or not the subsidies received by the provider of intercity public transport services distort competition, which is related to the legal framework for the provision of such service. In addition, it must be determined whether the users are not identifiable and do not receive consideration, as suggested in the contested judgment.

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