The Supreme Court confirms that businesses cannot deduct input VAT on tickets to sporting events and recreational activities given to clients, even when they prove a business purpose

Inviting a client to a football match, a golf day or another show may form part of a company’s commercial strategy. That business purpose, however, is not enough to deduct the input VAT.

The Supreme Court has confirmed that VAT charged on tickets to sporting events and recreational services provided free of charge to clients is expressly excluded from the right to deduct.

In its judgment of 16 July 2026, the Court dismissed Randstad España’s appeal and reiterated the position set out only days earlier in its judgment of 13 July 2026, appeal 5250/2022. The Chamber thus closed a dispute that had reached the Court of Justice of the European Union.

The practical consequence is significant: even if a business proves that an invitation was intended to attract or retain clients, or generate future transactions, the VAT remains non-deductible if the expense is classified as a recreational show or client entertainment.

How the dispute began: Randstad’s invitations to clients

The dispute arose from invitations Randstad España purchased for existing and prospective clients.

The expenses examined included tickets to Real Madrid and FC Barcelona football matches, golf activities and, in a related case, hospitality services connected with Formula 1 and other recreational events.

The company provided the invitations free of charge to strengthen commercial relationships, attract new clients and retain existing ones. Randstad argued that the expenses were exclusively business-related and directly connected with earning income.

The Tax Agency rejected the VAT deduction. It considered proof of a commercial purpose insufficient because Article 96 of the VAT Act expressly excludes the following from the right to deduct:

• Shows and services of a recreational nature.

• Goods and services provided as gifts or entertainment for clients, employees or third parties.

The National Court upheld the VAT adjustment, although it annulled the penalty imposed on the company. The case then went to the Supreme Court.

What does the VAT Act say?

Article 96(1) of Law 37/1992 provides that input VAT on certain goods and services cannot be deducted “in any proportion”.

The exclusions expressly include:

“Shows and services of a recreational nature.”

They also include:

“Goods or services intended for gifts or entertainment for clients, employees or third parties.”

This is not simply a requirement that the expense be used for the business. The law contains a specific prohibition on deduction.

In other words, showing that an expense is connected with the business is not enough. Even where a promotional or commercial purpose is established, the deduction may still be prohibited because of the nature of the expense.

The company’s argument: VAT neutrality

Randstad argued that invitations were common practice in its sector and were necessary to compete, maintain commercial relationships and generate income.

On that basis, the company considered that denying the deduction infringed the principle of VAT neutrality. Under that principle, VAT incurred on expenses used to carry out an economic activity subject to VAT should generally be deductible.

The argument had an understandable economic basis: if a company incurs an expense to attract or retain clients, and that expense helps generate transactions subject to VAT, allowing a deduction might seem reasonable.

The Supreme Court nevertheless concluded that the right to deduct is not absolute. EU legislation allows Member States to retain certain exclusions for expenses with a recreational, representation or third-party entertainment element.

The Court of Justice of the European Union’s ruling

Before finally deciding the appeal, the Supreme Court referred a question to the Court of Justice of the European Union for a preliminary ruling.

The issue was whether the Spanish exclusion could be protected by the so-called standstill clause in Article 176 of Directive 2006/112/EC.

This clause allows Member States to retain certain exclusions from the right to deduct that existed when they joined the European Union, until harmonised EU rules on those expenses are adopted.

The dispute arose because the Spanish rules introducing these restrictions took effect on 1 January 1986, the same day Spain joined the then European Economic Community.

In its judgment of 12 March 2026 in Case C-515/24, Randstad España, the Court of Justice held that EU law does not preclude a national rule that takes effect on the date of accession and excludes deduction of VAT incurred on tickets to shows and recreational services provided as client entertainment. (Official EU judgment)

The Supreme Court brings the dispute to a close

Following the Court of Justice’s ruling, the Supreme Court confirmed that the Spanish restriction is valid.

The Chamber concluded that paragraphs 4 and 5 of Article 96(1) of the VAT Act are covered by the standstill clause and are compatible with EU law.

Accordingly, VAT incurred on tickets to sporting shows or recreational activities provided free of charge to clients cannot be deducted.

The conclusion does not change even if:

• The company proves that the invitation had a commercial purpose.

• The expense formed part of a client-retention strategy.

• The attendees were existing or prospective clients.

• Transactions or contracts followed the event.

• The practice is common in the relevant industry.

The connection with the business may help justify the expense for other taxes, but it does not remove the specific exclusion in the VAT Act.

Not every business event is affected

The judgment does not mean that VAT on every event organised or booked by a business is automatically non-deductible.

A distinction must be made between a recreational activity provided free of charge to clients and a genuine professional, training, commercial or promotional event.

The prohibition clearly applies to examples such as:

• Tickets to football, tennis, Formula 1 or other sporting events.

• Concerts, performances or recreational shows.

• Golf days and leisure activities.

• Corporate hospitality packages linked to shows or sporting events.

• Free invitations whose main purpose is to entertain the client.

By contrast, input VAT on the following should be assessed separately:

• Professional conferences and seminars.

• Courses and training activities.

• Trade fairs.

• Product launches.

• Commercial demonstrations.

• Events organised to promote goods or services directly.

• Business meetings whose main content is not recreational.

In these cases, a deduction is not automatically guaranteed, but it cannot be rejected merely because an event took place. The company must show that the service was directly and exclusively connected with its business and was not, in reality, free client entertainment or a recreational activity in disguise.

Where an event combines professional and recreational elements, it is especially important that the supplier itemise each service correctly on the invoice.

Meals and restaurant services are treated differently

The judgment mainly concerns recreational shows and client entertainment. It should not automatically be extended to every business meal.

Article 96(1)(6) of the VAT Act establishes a specific rule for transport, travel, hotel and restaurant services. In these cases, VAT may be deductible when the corresponding expense is deductible for personal income tax or corporate income tax purposes.

A business meal therefore requires its own assessment. The company must substantiate that the expense was incurred, its connection with the business, the attendees’ identities or business relationships, and the supporting documentation.

However, if the meal forms part of a recreational package or is merely personal entertainment without a genuine business justification, the Tax Agency may challenge the deduction.

Can the expense be deducted for corporate income tax?

One of the judgment’s most important points is that non-deductible VAT does not necessarily mean that the expense itself is non-deductible for corporate income tax purposes.

These are different taxes, and they apply different rules.

For corporate income tax purposes, client or supplier entertainment expenses may be deductible up to 1% of the company’s net turnover for the tax period.

To qualify, the expense must also:

• Be recorded in the accounts.

• Be correctly accrued.

• Be supported by an invoice.

• Relate to a genuine transaction.

• Be connected with the business activity.

• Not be disproportionate or unrelated to normal business practice.

For example, if a company has turnover of €2,000,000 and incurs client entertainment expenses, the specific tax limit will be €20,000 per year.

Any amount above that limit will not be tax-deductible, even if it has been recorded in the accounts. (Official Corporate Income Tax Act)

What happens to VAT that cannot be deducted?

Non-deductible input VAT is not recorded as a tax credit against the Spanish Treasury. Under the Spanish General Accounting Plan, it is generally included in the acquisition cost of the goods or services.

Therefore, if a company buys tickets for €10,000 plus €2,100 VAT and gives them to clients free of charge:

• It cannot deduct the €2,100 on its VAT return.

• The accounting cost of the service will normally be €12,100.

• The full amount may be assessed as an expense for corporate income tax purposes.

• If classified as client entertainment, it is subject to the 1% of turnover limit.

Practical consequences for businesses

The judgment means that businesses should review how they treat corporate hospitality expenses for tax purposes.

At a minimum, businesses should take the following steps:

1. Identify the true nature of the event

Do not rely solely on the description used on the invoice. The Tax Agency will examine the actual substance of the service.

Calling a football ticket a “commercial activity” or “corporate event” does not turn a recreational show into an advertising service.

2. Separate professional and recreational elements

Where an event combines a commercial presentation, catering and a leisure activity, ask for separate invoices or, at a minimum, an itemised breakdown.

A single bundled invoice makes it harder to defend deduction of the genuinely business-related part.

3. Do not deduct VAT automatically

Having a complete invoice and recording the expense in the accounts is not enough. If the transaction falls within Article 96 of the VAT Act, the VAT cannot be deducted.

4. Document the corporate income tax deduction

Even if the VAT cannot be recovered, the expense may still matter for corporate income tax purposes.

Keep:

• The invoice.

• Proof of payment.

• A list of attendees.

• Each invitee’s company or business activity.

• The commercial purpose of the meeting.

• Related communications or invitations.

• Related contracts or commercial transactions.

• The annual calculation of the 1% limit.

5. Review previous tax periods

Businesses that have deducted VAT on sports boxes, tickets, leisure activities or hospitality packages should assess their exposure for tax periods that remain open to review.

The judgment considerably strengthens the Tax Agency’s position in future audits.

A debatable judgment, but a clear legal ruling

From an economic perspective, the outcome may be open to criticism.

In some sectors, invitations to events are a genuine commercial tool rather than the business owners’ private consumption. Denying the deduction even when a connection with taxable transactions is proven partially disrupts the neutrality that characterises VAT.

The Supreme Court does not necessarily deny that business connection. It says that the legislature may exclude certain expenses because of their recreational or representation nature, even when they also pursue commercial aims.

The decisive question is therefore no longer whether the expense helped generate income, but whether it falls within one of the express exclusions in Article 96 of the VAT Act.

Conclusion

The Supreme Court has closed the route many businesses used to defend deduction of VAT incurred on invitations to clients.

Tickets to football matches, Formula 1, golf and other shows or recreational services do not give a right to deduct VAT when provided free of charge as client entertainment.

A business purpose, common industry practice or the possibility of generating future income does not override the statutory prohibition.

However, the judgment does not prevent deduction of VAT on every business event. Conferences, training, trade fairs, product presentations and genuine promotional activities must be assessed according to their actual content.

The main lesson for businesses is clear:

For VAT purposes, it is not enough to show that an expense is business-related; you must also check that the law does not expressly exclude it from deduction.