Taxation of Cash Loans – VAT or PCC?

It is a well-established belief in business practice that cash loans are subject to VAT. Many people assume that if a transaction is subject to VAT, it is automatically not subject to the tax on civil-law transactions (PCC). However, is this always the case? Not necessarily – the key issue here is whether the transaction is actually subject to VAT.

When is a loan subject to VAT and when is it subject to PCC? What considerations determine the correct taxation? It is precisely these issues that give rise to numerous doubts and discrepancies in interpretation. Let us, therefore, take a look at what this looks in practice.

As a rule, activities carried out in the course of business by an entity acting as a taxable person are subject to VAT. Can we conclude on these grounds that a business that grants a loan from the funds obtained in the course of its business, not normally engaged in the provision of financial services, is acting as a taxable person?

In his tax rulings, the Director of the National Revenue Information has been of the opinion that even an incidental, one-off granting of a loan against remuneration by an entity conducting a business activity will be subject to VAT. Consequently, the taxpayer may be entitled to apply the subject-specific VAT exemption. This means that the transaction will not be taxable with PCC.

The administrative courts take a different view, for which the determining factor for considering the granting of a loan as an activity subject to VAT is whether the lender is professionally engaged in providing this type of service. In one of its judgments, the NSA (the Supreme Administrative Court) refers to a ruling of the CJEU, which held that the granting of loans is subject to VAT only if it can be regarded as an economic activity within the meaning of Article 4(2) of the Sixth Directive or if it constitutes a direct, permanent and necessary extension of an economic activity and at the same time is not an incidental activity. This in turn would mean that the loan would have to be subject to PCC.

A business granting or receiving a loan may therefore face the dilemma of VAT or PCC. In such cases, we encourage contact with our tax advisors who will show you how to minimise the tax burden while being in line with the letter of the law.