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Source: Labeabogados 16 June 2011

New tax treatment of benefits in kind: should you charge VAT?

The recent publication of the binding ruling issued by the Directorate General of Taxes (DGT) of March 23, 2011 marks a significant change of opinion on the doctrine of the body in relation to indirect taxation of benefits in kind.

To date seemed peaceful as remuneration in kind paid by companies to their workers fell outside the scope of VAT, being the consideration of operations in that the end was the businessman, who could not deduct fees VAT paid in connection with the goods and / or services provided to employees as compensation in kind, to be configured as operations gratuitously.

The above change of approach has been carried out by the DGT as a result of doctrine issued by the Court of Justice of the European Union, according to which, if there is a direct relationship between compensation in kind and cash reduction in pay or waiver to receive a part of it should be understood that these are operations 'for consideration'. This means the obligation to pass on the tax value to the work in the supply of goods or services arising from payments in kind made in the context of an employment relationship.

Parallel to this, explicitly recognizes that if the employer is obliged to charge VAT to the employee is also entitled to practice for the deduction of input VAT on the purchase of goods or services for payment in kind , provided you have the invoice issued in his name, and that it meets all statutory requirements.

In those cases where there is no direct relationship between compensation in kind and cash amount of the worker's compensation, compensation in kind will continue to be shaping up as "operations gratuitously" not subject to VAT.

Of course the employer will not in this case the right to deduct input VAT. The assumptions on which pronounces the DGT in the Resolution are as follows, although we understand that it is applicable to any payment in kind:

1. Transfer the employee use of vehicles whose rent is hired and paid by the company.

At this point the DGT insists on payment in kind to the computer is in relation to the availability of the vehicle for a particular purpose of the worker and that can be implemented in the total number of hours a year, less hours of use of the vehicle needs business, against the prevailing doctrine of the Audiencia Nacional, which serves a criterion of actual use, not its availability.

Therefore, the basis on which l employer must charge VAT to the employee shall be in the previous paragraph, with the shades indicated.

2. Grant of use of equipment purchased or leased by the employing company.

The aforementioned payment in kind will be quantified in terms of the consideration paid to the provider.

3. Transfer the use of housing worker whose rent is hired and paid by the employer.

The assignment to a home worker previously employed by the company will rise to the obligation to charge VAT, in clear contradiction with previous resolutions of the DGT itself, whereby the subsequent use by the employee should be exempt from VAT in any case .

We conclude that the change of position operated by the DGT binding resolution of March 23, 2011 (V0745-11) requires companies to rethink their policy of payment in cases where they have established Flexible Compensation Programs in which workers have the potential to reduce or waive a portion of their cash compensation in exchange for certain benefits in kind, provided that there is a direct relationship between the reduction in pay and increase cash compensation in kind .

1l change of criteria mentioned should not be a net increase in VAT collection for this concept to the extent that before the employer would not have been entitled to deduct VAT on the purchase of goods and services then transferred to workers under the provisions of Article 96, a, 5th, of the VAT Act, as it is gratuitous transactions.

On the contrary, we understand that the change of position can affect an increasing percentage of withholding or payment on account of income tax (and therefore the final taxation for the tax), provided that the VAT amounts due by reason of payment in kind are taken over entirely by the company, in which case it will be a greater compensation in kind for the employee.

From our point of view, the change of position must exclude the application of sanctions for tax fees that could have been earned in the remuneration in kind prior to March 23, 2011, while the later will be the corresponding regularization in view of that doctrine, the Court of Justice of the European Union now adopted by the Directorate General of Taxes.

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