Spain Introduces Changes in the Application of the Use and Enjoyment Rules

Following the approval of the Spanish State’s Budget Law for 2023 (Ley 31/2022, de 23 de diciembre, de Presupuestos Generales del Estado para el año 2023), significant changes related to the manner, criteria, and conditions under which the provisions covering the use and enjoyment rules, deriving from the EU VAT directive (Article 58) can be applied in Spain.

The Use and Enjoyment rules give EU countries the possibility to charge domestic VAT, instead of the non-EU one-based on the general place of supply rules, in specific cases through the deviation of the place of supply rules following where the service is “factually exploited.” The indispensable criterion is that the customer is not Member State based.

These rules when applied are transferring the taxability from the non-EU state to the EU state if the specific EU and national indirect tax criteria are met.

The EU legislation is giving the Member States the “freedom” to decide will these rules be used, under which conditions, and to what extent.  

Timeline

The changes as mentioned earlier, related to the usage, applicability, and interpretation of use and enjoyment rules by Spanish Tax Authorities in the new scope should be taken into account starting from January 1, 2023.  

Legal framework before the latest changes

The Spanish VAT use and enjoyment rules which were in force before the promulgation of State Budget Law for 2023 and accompanying changes, defined that specifically indicated services (deriving from Article 56 in conjunction with Article 59 of the EU VAT directive), are treated to be supplied within the Spanish territory – following the place of supply rules if these services are deemed to be provided outside the EU territory, the Canary Islands, Ceuta or Melilla if the exploitation and/or effective use can be attributed to being processed within the Spanish territory. These services were predominantly covering the B2B transactions, such as:

• Transfer of copyrights and similar services, supply of staff, financial and banking services, data processing, consultancy services, advertising services, hiring of moveable property, and access to electricity and gas;
• Intermediary services.

Besides above mentioned services exclusively covering B2B transactions, the use and enjoyment rules were enforceable also within B2C and B2B in the following cases:

• The hiring of means of transport;
• Telecommunications, radio and television broadcasting, and electronically supplied services.

Impact of the changes

The enforcement of State Budget Law for 2023, as well as accompanying legislation, i.e. Ley 13/2023, defines with more clarity how the use and enjoyment rules should be treated and applied.

The legislative change was necessary for many reasons. One of the reasons was that the initial interpretation and applicability of the rules created a sort of distortion within national companies which have been at an unfair disadvantage, that Spanish VAT was applied by the suppliers, and they couldn’t apply the input VAT on these transactions.

The changes were welcomed, because they have brought more clarity on when the rules can be applied, what it “actually” means that the service is exploited/consumed within Spain, and that the Spanish VAT must be charged.

The new scope of services and their extent – as regards the type of transaction and status of the recipient, following the promulgated changes is the following one:

Concerning B2B transactions, the use and enjoyment rule will apply to the:

• Finance and insurance services;
• Leasing of means of transport.

Concerning B2C services, it should be noticed that there has been a broad extension of the scope of the services where the applicability of use and enjoyment rules is taken into account. These services are:

• Intangible services, including the following list of services – transfer of copyrights and similar services, supply of staff, financial and banking services, data processing, consultancy services, advertising services, hiring of moveable property, and access to electricity and gas.