The Supreme Court accepts the State’s position: recharging costs without a profit margin does not, by itself, prevent VAT deduction

The Spanish Supreme Court has upheld Porcelanosa Grupo AIE’s appeal after the State Attorney’s Office accepted that a transaction can be for consideration even when invoiced exactly at cost. The case is relevant to economic interest groupings, shared service centres and business cost-recharge arrangements.

A company may centralise services for group entities, contract with suppliers, incur input VAT and recharge costs to the beneficiary companies without adding a commercial margin. The question is whether the Spanish Tax Agency (AEAT) may deny the input VAT deduction merely because the intermediary makes no profit.

The State Attorney’s Office accepted that EU case law does not require a profit for a transaction to be treated as one for consideration. The Supreme Court therefore upheld Porcelanosa Grupo AIE’s appeal, annulled the Valencia High Court judgment and set aside the contested economic-administrative decision.

Important procedural point: the Court resolved the case after the State accepted the claim. It did not establish new Supreme Court case law on the certified question. The interpretation comes from established Court of Justice of the European Union (CJEU) case law.

1. The background: centralising and recharging group costs

Porcelanosa Grupo AIE is an economic interest grouping that carried out activities for companies in its structure, including marketing, commercial intermediation, media relations, trade fairs and events, logistics coordination, and acquiring goods and services for member companies.

The grouping centralised certain costs and recharged them to members under its statutes. Instead of each company contracting for those services separately, the grouping acquired them and allocated the costs to beneficiaries. It did not add a commercial margin: the amounts recharged matched the costs incurred. This shared-services model is common, and the absence of a margin became the central issue in the dispute.

2. The tax adjustment

On 18 November 2019, the AEAT’s Large Business Management Unit in Valencia began a limited review of VAT for the first three quarters of 2018. It treated certain input VAT as non-deductible because the purchases related to goods and services for customers, employees or third parties, relying on Article 96(1)(5) of Spanish VAT Law 37/1992.

A provisional assessment of €105,622.84 was notified on 13 July 2020. The grouping’s administrative challenges were unsuccessful on its main claim. The Valencia High Court dismissed its appeal on 14 October 2024, and the matter reached the Supreme Court.

3. The exception in Article 96 of the VAT Law

Article 96 contains exclusions and restrictions on input VAT deductions, including certain goods and services intended for customer or employee hospitality. Article 96(2), however, provides exceptions where goods are intended for onward supply or use for consideration, or where services are acquired to be supplied as such for consideration by businesses that habitually carry out those transactions.

The distinction is between acquiring something for a free benefit and acquiring it to make a subsequent transaction for consideration. The dispute turned on what “for consideration” means.

4. Why the lower court denied the deduction

The Valencia High Court viewed the grouping as a cost centre that acquired goods and services linked to hospitality for its members’ customers and then recharged those costs without earning a profit. It concluded that a recharge at cost was not “for consideration” for the statutory exception.

That reasoning risks confusing two concepts: receiving consideration for a supply and earning a commercial profit. Under the EU VAT system, a transaction does not cease to be for consideration simply because it is unprofitable.

5. The question before the Supreme Court

The Supreme Court admitted the appeal on 4 February 2026. The certified question was whether Article 96(2) requires an economic profit or margin, or whether it is enough that there is consideration for the onward transaction even when the recharge exactly equals the cost.

Put simply: if a company buys a service for €100 and recharges €100 for providing it to another company, is the later transaction for consideration? The relevant analysis is whether there is a legal relationship and a direct link between the service and the amount received, not whether the price produces a profit.

6. CJEU case law: profit is not required

The concept of a transaction for consideration is an autonomous concept of EU law. The CJEU focuses on a direct link between the supply and the consideration received; a separate profit requirement does not apply.

Hotel Scandic Gåsabäck (C-412/03, 20 January 2005)

The case concerned catering services to employees at a price below cost. The CJEU held that charging more or less than cost does not, by itself, determine whether a transaction is for consideration. What matters is actual consideration directly linked to the goods or services. A transaction can therefore be for consideration even if it generates a loss.

Lajvér (C-263/15, 2 June 2016)

The absence of a profit motive does not automatically prevent an entity’s activities from being economic activities subject to VAT. The actual supply, consideration and circumstances must be assessed.

Ryanair (C-249/17, 17 October 2018)

The CJEU reiterated that the right to deduct is a core part of the VAT system, intended to relieve businesses of VAT incurred in taxable economic activity, subject to legal conditions. Deduction does not depend on each transaction making a profit.

7. The State Attorney’s Office accepted the claim

After reviewing CJEU case law, the State Attorney’s Office accepted the grouping’s claim. It acknowledged that a transaction for consideration requires consideration but not necessarily economic profit. The absence of a commercial margin is not, on its own, enough to deny that a recharge is for consideration.

This does not mean that every recharged expense is automatically deductible. The outcome must be read in the context of the case and the statutory conditions.

8. The decision and its limits

In its judgment of 21 September 2026, the Supreme Court accepted the State Attorney’s Office’s position, upheld Porcelanosa Grupo AIE’s appeal, annulled the Valencia High Court judgment and set aside the contested administrative decision.

The Court also made clear that it was not establishing a new case-law doctrine on the certified question: once the State accepted the claim, the issue was not resolved through adversarial argument. The distinctions are:

• Outcome: the taxpayer’s appeal succeeded.

• Position accepted by the State: consideration does not require a profit margin.

• New Supreme Court doctrine: none was established in this judgment.

The legal reasoning rests principally on established CJEU case law and the State Attorney’s Office’s express acceptance.

9. Example: a group company recharges shared services at cost

Suppose a parent company buys event-planning and marketing services for €100,000 plus €21,000 VAT, then allocates the services to three subsidiaries and recharges the €100,000 cost without a margin. Assuming the transactions are subject to Spanish VAT, it charges €21,000 output VAT.

Transaction	Taxable amount	VAT
Supplier’s invoice	€100,000	€21,000 input VAT
Recharge to subsidiaries	€100,000	€21,000 output VAT
Commercial margin	€0	—

The parent makes no profit, but the transaction is not necessarily free: it receives consideration for the services. If all statutory conditions are met, the lack of a margin is not, by itself, a valid reason to deny the input VAT deduction. The nature and actual performance of the services, Article 96(2) and all other deduction requirements still need to be examined. An internal invoice alone does not make an expense deductible.

10. Recharges are not the same as disbursements

If a company contracts for a service in its own name, receives the supplier’s invoice and then supplies or recharges that service to another entity, there may be two separate transactions for VAT purposes. It must analyse both the input VAT and the onward transaction.

A disbursement is different: the intermediary pays an amount expressly in the name and on behalf of its client, subject to Article 78(3)(3) of the Spanish VAT Law. A qualifying disbursement is excluded from the intermediary’s taxable amount, and the intermediary cannot deduct as its own the VAT on costs actually incurred on the client’s behalf. The Porcelanosa case does not change those requirements. Identify who contracted for and received the service and whose name appears on the supplier invoice.

11. Non-profit entities can make transactions for consideration

A lack of profit motive does not automatically mean that a supply is free or outside VAT. An economic interest grouping may provide real services to its members for consideration even if it does not seek a profit. The analysis must be made transaction by transaction. An entity may also carry out non-economic, free or exempt activities, so a shared-cost structure does not automatically make all input VAT deductible.

12. Recharging below cost and related-party valuation

A service recharged below cost can still be for consideration if there is actual consideration directly linked to the service. A separate question may arise over the taxable amount: Article 79(5) of the Spanish VAT Law contains special valuation rules for certain related-party transactions where its conditions are met.

It is necessary to distinguish whether a transaction is for consideration from how its taxable amount should be calculated. The judgment does not remove special valuation rules.

13. Relevance to multinational groups

Shared service centres often allocate IT, marketing, HR, administrative, logistics, procurement, event, legal and finance costs to group companies, sometimes with a margin and sometimes at cost. For VAT, no margin does not automatically make the transaction free. Cross-border structures must also consider the place of supply, reverse charge, fixed establishments, partial exemption and transfer pricing. The VAT analysis does not replace corporate tax transfer-pricing rules.

The judgment supports the analysis of consideration; it does not resolve every tax issue in an international cost-sharing arrangement.

14. VAT neutrality and the right to deduct

The right to deduct is central to the common VAT system. Article 168 of Directive 2006/112/EC is intended to prevent VAT from becoming a final cost for businesses carrying out taxable transactions, when legal conditions are met.

Neutrality does not make every business expense deductible. Spanish VAT Law includes restrictions, such as Article 96. The Porcelanosa dispute concerned whether an exception applied and how to interpret “for consideration” under EU law. Treating the absence of a margin as conclusive confuses profitability with consideration.

15. A recharge does not automatically establish a right to deduct

Businesses should still check the reality of the acquisition and onward supply; the entity’s taxable-person status; whether the inputs are linked to transactions giving a right to deduct; Article 96 restrictions and exceptions; the habitual-activity requirement in Article 96(2); and any related-party, cross-border or exempt-activity rules. Keep contracts, invoices, allocation methods and evidence of actual services.

CJEU case law rules out an incorrect profit-margin test for consideration; it does not replace an individual assessment of the right to deduct.

16. Documents for a shared service centre

A business should be able to evidence the commercial and legal reality of its arrangements. Relevant records include service agreements with beneficiaries, original supplier invoices, invoices issued by the central service entity, identification of actual recipients, objective cost-allocation methods, proof of the services performed, place-of-supply analysis, review of Article 96 restrictions and exceptions, related-party documentation where required, and reconciliations between input costs, recharges and VAT returns.

A recharge should not be merely an accounting entry without an identifiable legal supply. The argument that a transaction is for consideration depends on real consideration, not just internal bookkeeping.

17. Can earlier assessments be challenged?

The judgment may be relevant where the AEAT denied deductions solely because recharges did not include a commercial margin. Businesses should review the precise grounds for the adjustment. If the administration equated no profit with no consideration, CJEU case law may support challenging that interpretation.

For ongoing audits, appeals or administrative claims, the position should be assessed in light of the facts and applicable deadlines. If an assessment is final, any route to reopen it depends on the remedies available under law. The judgment does not automatically reopen settled cases.

This article is general information, not individual tax advice. VAT treatment depends on the facts and applicable legislation.

Read the original article in Spanish.