TAX LAW DIVISION
Inviting clients to sporting events, shows, or recreational experiences is a common business practice, generally linked to customer loyalty and business development strategies. However, the tax treatment of these expenses for Value Added Tax (VAT) purposes has traditionally been restrictive, a position that has recently been confirmed by the Court of Justice of the European Union (CJEU) in its judgment of 12 March 2026 (Case C-515/24).
In that ruling, the CJEU concluded that Spanish legislation may exclude the right to deduct input VAT incurred on these types of expenses, even when the taxpayer proves that they are connected to the business activity. In this way, the Court upheld the compatibility of Article 96 of Spain’s VAT Law 37/1992 with European Union law, reinforcing an interpretation already established in administrative practice.
The dispute arose from a common commercial practice consisting of purchasing tickets for sporting events and other recreational activities to be offered free of charge to clients as part of business relationships. The company had deducted the input VAT on the grounds that these expenses were directly related to its economic activity. However, the tax authorities denied the deduction based on the aforementioned Article 96, which expressly excludes VAT incurred on goods and services intended for client entertainment, as well as on shows and recreational services. The matter was brought before the Spanish Supreme Court, which referred a preliminary question to the CJEU to determine whether this limitation was compatible with the harmonized VAT system.
The CJEU’s analysis focused on the so-called “standstill clause” contained in Article 176 of the VAT Directive, which allows Member States to maintain certain exclusions from the right to deduct VAT insofar as those exclusions already existed in their domestic legislation at the time they joined the European Union. On that basis, the Court concluded that the Spanish rules are protected by that clause, even though the VAT system itself was only introduced in Spain in 1986, coinciding with Spain’s accession to the then European Economic Community on 1 January of that year. In this context, the Court considered that the decisive factor was not the absence of a VAT-like tax before that date, but rather the fact that the Spanish legislature had already contemplated excluding these types of expenses and that the scope of the exclusion had not been substantially expanded afterwards.
The judgment also includes substantive reasoning reinforcing this conclusion by highlighting that these expenses are clearly connected to the satisfaction of private needs, which justifies their exclusion from the general deduction mechanism. European Union law itself allows Member States to deny deduction rights for expenses that do not serve a strictly professional purpose, such as luxury, entertainment, or representation expenses. From this perspective, allowing the deduction could blur the distinction between business consumption and final consumption, thereby undermining the principle of neutrality that characterizes the common VAT system.
From a practical standpoint, the judgment significantly strengthens the position of the tax authorities. Although the restrictive approach had already been applied consistently, the CJEU ruling confirms its compatibility with EU law, leaving little room to challenge this type of adjustment in administrative or judicial proceedings.
The ruling also highlights the necessary distinction between the treatment of these expenses for VAT purposes and their treatment under direct taxation. The fact that certain expenses may be tax-deductible for Corporate Income Tax purposes does not determine their deductibility for VAT purposes, as the two taxes operate under different principles. This point is particularly relevant in practice, where there is often a tendency to automatically apply the treatment of one tax to the other.
In conclusion, the judgment does not introduce a substantial change, but it does provide a high degree of legal certainty by confirming the compatibility of the Spanish system with EU law. This ruling requires businesses to reassess the treatment of expenses associated with client entertainment—such as event tickets, invitations, or corporate experiences—and to accept their non-deductibility for VAT purposes, thereby consolidating a position whose general debate is now practically settled.
