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Agreements To Reduce Or Forgive The Amount Of the Leases And Their Effects On The Value Added Tax

One of the most obvious effects of the state of alarm generated by COVID-19 has been the renegotiation of current rents, and specifically the forgiveness or reduction agreed between the property and the lessee of the amounts to be paid.

In the face of doubts that this situation may have generated in the area of ​​indirect taxation, the Tax Administration has issued binding consultation V1467-20 through the Subdirectorate-General for Consumption Taxes, which attempts to clarify possible doubts and especially simplify tax operations to the effects of the VAT affected by the modification that has been agreed.

To better understand the solution provided by the Administration, it divides the cases in which those affected can be found into two:

  • The agreement is prior to the tax accrual date.

As it is well known, the lease is a legally qualified operation of successive tract. The peculiarity of these operations from a point of view of the accrual in VAT is that it occurs at the time of its enforceability as long as it does not exceed one year.

Therefore, if, as usually happens in leases, the enforceability is monthly, the accrual occurs every month.

In this first case raised, in which the forgiveness / reduction agreement, total / partial, reached between owner and lessee is prior to the date of accrual of the Tax, the new rent is automatically decreased and the invoice must already be collected directly and immediately the new amount, and with it the VAT charged corresponding to the new negotiated amount.

  • The agreement is after the tax accrual date.

However, in the event that what is produced is a cancellation / reduction agreement, total / partial at a time after its accrual (for example if the negotiations have been prolonged and the agreement occurs in June, but it affects the incomes of the months of April and May, among others) what should be done is a modification and consequent reduction of the tax base that will entail a rectification of the full and original amount of VAT that was passed on in April and in May.

For this, formally, it will be mandatory to issue a corrective invoice, in which the fees originally passed on in time are modified or canceled.


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Salvador Balcells i Iranzo's picture

One of the things Mr. Balcells like most about his job is when you get a safe, legal and fair tax situation for the sake of the taxpayer's tranquility and economy, both in previous structuring and planning, and when certain criteria have to be defended before Tax administration.

As a lawyer, he always try to put himself in the place of the one who asks for advice, so that all the options or alternatives that are considered as solutions, are those that would adopt at a personal level if the interested party is himself.