BackIn its ruling of 27 September 2024 (RG 9152/2021), the Central Economic-Administrative Court (TEAC) addresses several aspects concerning the deductibility of VAT on vehicles for employees, security services for former directors, and the inclusion of certain income in the VAT pro rata calculation, including the tariff deficit.
1. Deductibility of rental payments for leased vehicles:
TEAC examines the case of a corporate group leasing vehicles under a rental agreement for its employees, with mixed use (professional and personal). Between 2015 and 2017, the group deducted 50% of the VAT on these payments, while in 2018, it deducted the full amount, considering that 60% of the use was personal. The Tax Inspection, however, determined that 40% of the use was professional and 60% personal for the period 2015-2017, and a predominantly private use for 2018. The Court concludes that although a minimal professional use is recognised, the right to deduct VAT remains. However, the entity must provide clear evidence of the professional use to justify the deduction.
2. Deductibility of payments for security services for former directors:
The Tax Inspection concluded that the security services provided to former directors were not deductible, as they were deemed to be third-party services under Article 96.1.5º of the VAT Law. TEAC agrees with the Inspection’s assessment, ruling that the beneficiaries were no longer employed by the company at the time the services were rendered, thus excluding VAT deduction.
3. Inclusion in the pro rata denominator of income derived from the tariff deficit and financial income, and income from funds transferred to finance the tariff deficit:
TEAC also examines whether certain income, such as financial income (from loans, collection and payment management) and funds transferred to finance the tariff deficit, should be included in the VAT pro rata calculation. The Court concludes that these activities are part of the company’s usual economic activity, and therefore, must be included in the pro rata. Furthermore, although income from financing the tariff deficit is exempt from VAT, it must be included in the denominator of the pro rata, but not in the numerator, since exempt operations do not generate a right to deduct VAT on related expenses.
In summary, TEAC establishes that the financial activities of QR SA, as well as income related to financing the tariff deficit, must be included in the VAT pro rata calculation, even though the income derived from the tariff deficit is exempt from VAT.
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