EU forces Spain to repay over €2bn VAT

Wed 23rd Jan 2013

The European Court of Justice has ruled that Spain incorrectly switched medical supplies to the reduced VAT rate in 2010. The impact is that many Spanish regions will have to refund up to €2.3 billion to suppliers of medical instruments and hospital supplies.

The ECJ is the last Court of Appeal for VAT issues in the European Community. It made the ruling on 17 January 2013. It is based a reassignment of hospital supplies to the Spanish VAT nil VAT or the reduced VAT rates of 10%. This is not permitted under the terms of the EU’s VAT Directive, which Spain is obliged to follow as a member state of the European Union.

Spain loses VAT or suppliers’ margins suffer

It means that that Spanish local governments will have to pay the difference between these reduced rates and the standard VAT rates – 21% today after an increase from 18% in 2012. It will also increase the costs of the overstretched governments going forward. Alternatively, many contracts will have been agreed VAT inclusive, meaning suppliers will have to absorb the rises in VAT.