The preliminary question referred by the Spanish Supreme Court (TS) regarding the deduction of VAT on expenses related to customer hospitality has now been resolved by the Court of Justice of the European Union (CJEU). The judgment, issued on 12 March 2026 (case C-515/24), Randstad Spain SLU), sheds light on one of the most relevant debates on indirect taxation in recent years.
As I discussed in my previous article from September 2024, the controversy revolved around whether Spanish legislation—specifically, Article 96 of the VAT Law—was compatible with the European Directive, given its limitation of the right to deduct input tax on certain expenses, such as those related to customer hospitality or recreational activities. In light of the recent ruling by the Court of Justice of the European Union (CJEU), we revisit this issue in this article to analyze its implications.
The key: the clause stand still
The CJEU has concluded that Spanish regulations do not contravene European Union law. The determining factor in its analysis was the application of the so-called clause stand still, which allows Member States to maintain certain restrictions on the right to deduct VAT provided that these restrictions originate at the time of their joining the Union.
The Court considers that the Spanish system of limitations on deductions falls within this framework. In this regard, it is relevant that, prior to the introduction of VAT in 1986, the Spanish tax system did not include a general mechanism for deducting consumption tax. This leads the CJEU to conclude that the restrictions introduced by the VAT legislation do not constitute an extension of previous limitations, but rather form part of the initial design of the tax in Spain.
This reasoning allows us to validate the formal compatibility of the Spanish standard with the Directive, thus ruling out any possible obligation to modify the current legal framework.
The role of the neutrality principle and the nature of spending
One of the most relevant aspects of the ruling is how the principle of VAT neutrality is reconciled with the limitations analyzed. Although this principle is one of the pillars of the system, the CJEU introduces an important nuance: not all business expenses automatically generate the right to deduct VAT.
In particular, the Court emphasizes the nature of the expenses, noting that those linked to personal or private consumption may be excluded from the right to deduct them. From this perspective, the restriction applied to certain representation or entertainment expenses is considered consistent with the logic of the tax, insofar as these can be considered equivalent to final consumption.
This approach reinforces the idea that VAT deductibility depends not only on the formal relationship with business activity, but also on the real economic purpose of the expenditure.
Practical implications and open questions
Despite upholding Spanish regulations, the ruling does not resolve all the issues that had generated controversy. It remains necessary to define more precisely which types of expenses can be considered linked to business use and which correspond to private needs.
This distinction is particularly relevant for frequent business expenses, such as promotional activities, advertising materials, or point-of-sale (POS) advertising in the hospitality sector. Specific cases, such as that of Heineken España SA, which the Supreme Court has yet to resolve, related to terrace equipment or advertising displays, demonstrate that many expenses included under the concept of "customer hospitality" have a clearly business or intermediate purpose and are not linked to private consumption. Therefore, the automatic application of the exclusion of the right to deduct input tax may not be appropriate in these types of cases, and a detailed, case-by-case analysis will be crucial.
Consequently, it is foreseeable that the interpretation of these assumptions will continue to generate debate both in the administrative and judicial spheres, reinforcing the need for a solid and coherent criterion on the part of the Administration and the courts.
The next step: the Supreme Court
Following the CJEU's ruling, it is now up to the Supreme Court to resolve the pending appeals that prompted the preliminary ruling. All indications suggest that it will uphold the validity of Spanish legislation as established by the European court.
However, the practical application of this criterion will remain key. The specific definition of the concept of "customer services" and its actual scope in each case will determine the degree of effective restriction on the right to deduct.
Conclusion
The CJEU ruling marks a milestone in the interpretation of VAT deductions in Spain, confirming the compatibility of national regulations with European Union law.
However, the ruling does not completely close the debate, but rather shifts the focus to the interpretation of the different types of expenses and their true economic nature.
In this context, companies will need to pay special attention to the justification and classification of their expenses, while the evolution of administrative and jurisprudential doctrine will be decisive in specifying the scope of this limitation.
The issue, therefore, does not disappear: it evolves towards a terrain where case-by-case analysis acquires an essential role.
Leticia Minero Macías
Tax Area Manager
