Spanish Supreme Court Confirms the Scope of the Ten-Year Verification Period for Carried-Forward VAT Credits

The Spanish Supreme Court has confirmed that the Spanish Tax Administration may verify carried-forward VAT credits originating in periods for which its right to issue an assessment is already time-barred, where those credits are used in subsequent periods that remain open to assessment and their verification is necessary to determine the correct tax position for those later periods.

In its judgment of 23 July 2026, delivered by the Contentious-Administrative Chamber of the Supreme Court in cassation appeal no. 5852/2023, with Justice Rafael Toledano Cantero as reporting judge, the Court addresses the scope of Articles 66 bis and 115 of Law 58/2003 of 17 December, the Spanish General Tax Law (Ley General Tributaria, “LGT”), in relation to VAT credits carried forward for offset. The issue admitted for cassation specifically concerned excess deductible input VAT over output VAT generated in periods that were already time-barred for assessment and subsequently carried forward into later periods.

The question before the Court was whether, following the reform of the LGT introduced by Law 34/2015, the Tax Administration may verify carried-forward VAT balances generated in periods for which the right to assess has expired when those balances are subsequently used in periods that remain open to assessment.

The Supreme Court answers this question in the affirmative. The Administration may verify the existence and amount of those VAT credits where their use affects a subsequent non-time-barred period, subject to the substantive, temporal and procedural limits laid down in the LGT.

The distinction between the Administration’s right to assess a tax liability and its powers of verification and investigation is central to the judgment. Under Article 66(a) LGT, the Administration’s right to determine a tax debt by issuing the corresponding assessment is, as a general rule, subject to a four-year limitation period.

Once that right has become time-barred in respect of a particular period, the Administration cannot issue a new assessment for that period. This does not, however, necessarily prevent it from examining facts or tax attributes originating in that period where they continue to have tax consequences in a subsequent period that is still open to assessment.

Article 66 bis.2 LGT establishes a specific limitation period for certain verification powers. It provides that the Administration’s right to initiate the verification of tax bases or tax credits that have been offset or remain available for offset, as well as deductions that have been claimed or remain available for future application, is subject to a ten-year limitation period.

The ten-year period runs from the day following the end of the statutory filing period for the return or self-assessment corresponding to the tax year or period in which the right to offset the relevant tax base or credit, or to apply the relevant deduction, arose.

Accordingly, it would be legally inaccurate to state in general terms that the Spanish Tax Agency has ten years to “audit VAT”. The ten-year rule specifically concerns the Administration’s right to initiate verification of the tax attributes falling within Article 66 bis.2 LGT. It does not replace the general four-year limitation period applicable to the right to issue a tax assessment.

Article 115 LGT allows the Tax Administration to verify and investigate facts, transactions, activities, businesses, values and other circumstances relevant to a tax obligation. These powers may extend to periods for which the right to assess has become time-barred where the examination is necessary in connection with a tax right or obligation that has not yet become time-barred, subject to the specific limitation established in Article 66 bis.2.

In VAT terms, where a company uses in an open period a VAT credit generated in an earlier period, the Administration may examine the origin, existence and amount of that credit in order to determine whether its use in the open period is correct. The purpose is not to reopen and reassess the earlier period, but to determine the correct tax treatment of a balance that continues to have effects in a period that may still lawfully be assessed.

The application of Article 66 bis LGT does not depend solely on whether the ten-year period has elapsed. The nature and scope of the particular verification or inspection procedure must also be considered.

Article 66 bis.2 contains specific rules governing how the verification of carried-forward tax bases, credits and deductions is incorporated into inspection proceedings. Consequently, in any particular tax audit it is necessary to examine not only the relevant limitation periods but also the formal scope of the proceedings and the tax periods and items included in the Administration’s review.

The judgment also highlights the practical importance of maintaining adequate traceability for VAT credits carried forward over several periods. The fact that the Administration’s right to assess the period in which a credit originated has expired does not necessarily eliminate the need to substantiate an item that continues to affect later tax periods.

Article 70.3 LGT provides that the obligation to substantiate the origin of information arising from transactions carried out in time-barred tax periods continues for the limitation period applicable to the tax debts affected by those transactions and, in any event, in the circumstances covered by Article 66 bis.2 and 66 bis.3 LGT.

For businesses, this makes it important to maintain a clear link between the VAT credit, the VAT returns in which it was generated, the later returns in which it was carried forward or offset, and the accounting and tax documentation required to substantiate its origin.

This should not be interpreted as establishing a general obligation to retain all tax documentation for ten years. The applicable retention period must be assessed by reference to the nature of the documentation, the tax obligations it supports, any tax attributes that continue to have effects in later periods and any other applicable tax or commercial record-keeping requirements.

The ruling is particularly relevant to businesses that regularly accumulate excess deductible input VAT. This may arise, for example, in companies making significant investments, businesses with substantial levels of input VAT, or companies whose activities or cross-border transactions result in VAT credits being carried forward over several filing periods.

In these circumstances, a VAT credit should not be regarded as beyond verification merely because four years have elapsed since the period in which it arose. It is necessary to establish when the right to offset the credit was generated, when the ten-year period under Article 66 bis.2 began to run and in which subsequent periods the credit was used.

A preventive review of long-standing VAT balances may therefore help businesses identify potential tax exposures and confirm that sufficient evidence remains available to substantiate the credits in the event of a future inspection.

The Supreme Court’s judgment of 23 July 2026 clarifies an important issue under Spanish tax law: the expiry of the Administration’s right to assess a particular period does not necessarily prevent it from verifying tax attributes originating in that period where they continue to produce tax effects in periods that remain open to assessment.

In the field of VAT, the Supreme Court confirms that carried-forward VAT credits fall within the specific regime established by Article 66 bis.2 LGT. The Administration therefore has a specific ten-year period within which to initiate verification of those credits, without this granting it the power to reassess a VAT period for which the right to issue an assessment has already become time-barred.

ILIA ETL GLOBAL advises Spanish and international businesses on Spanish tax matters from both a preventive and contentious perspective, including tax audits and inspection proceedings, with particular attention to limitation periods, the scope of the Tax Administration’s verification powers and the tax treatment of credits originating in earlier periods.

Article prepared by our colleague Xavier Vilalta.

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