The Contents of Highlights & Insights on European Taxation, Issue 4, 2026

Please find below a selection of articles published this month (April 2026) in Highlights & Insights on European Taxation, plus one freely accessible article.

Highlights & Insights on European Taxation (H&I) is a publication by Wolters Kluwer Nederland BV.

The journal offers extensive information on all recent developments in European Taxation in the area of direct taxation and state aid, VAT, customs and excises, and environmental taxes.

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Year 2026, no. 4      

TABLE OF CONTENTS 

GENERAL TOPICS

– P16-2026-001, Request for advisory opinion from Ukraine on proportionality of tax penalties. European Court of Human Rights

(comments by Edwin Thomas) (H&I 2026/105)

DIRECT TAXATION, LEGISLATION

– CBAM: Council signs off simplification to the EU carbon leakage instrument

(comments by Tatiana Falcao) (H&I 2026/99)

INDIRECT TAXATION, LEGISLATION

– EU actions to tackle fossil energy crisis. European Commission

(comments by the Editorial Board) (H&I 2026/121)

– EESC opinion on the revision of the Carbon Border Adjustment Mechanism (CBAM)

(comments by Tatiana Falcao) (H&I 2026/106)

– Commission Implementing Regulation (EU) 2025/2621 as regards the establishment of default values CBAM

(comments by Tatiana Falcao) (H&I 2026/104)

– Commission Delegated Regulation (EU) 2025/2551 on accreditation and verification CBAM

(comments by Tatiana Falcao) (H&I 2026/103)

INDIRECT TAXATION, CASE LAW

– Digipolis (T-575/24). Telematics services supplied within a commissioning association are subject to VAT. General Court

(comments by Herman van Kesteren) (H&I 2026/122)

– Randstad Espana (C-515/24). Exclusion from input VAT deduction upon accession. Court of Justice

(comments by Fernando Matesanz) (H&I 2026/108)

CUSTOMS AND EXCISE

– A GmbH (T-589/24). No partial import duty relief where goods are exported via an unauthorised customs office. General Court

(comments by Giorgio Emanuele Degani) (H&I 2026/120)

– Tabako lapai (T-190/25). Classification of smoking tobacco. General Court

(comments by Giorgio Emanuele Degani) (H&I 2026/118)

– Recast Tobacco Taxation Directive. Report European Parliament

(comments by Giorgio Emanuele Degani) (H&I 2026/116)

MISCELLANEOUS

– Toska ehf. and Lyf og heilsa hf. v EFTA Surveillance Authority (E-31/24 and E-32/24). Application ne bis in idem principle. EFTA Court

(comments by Edwin Thomas) (H&I 2026/113)

FREE ARTICLE

– Randstad Espana (C-515/24). Exclusion from input VAT deduction upon accession. Court of Justice

(comments by Fernando Matesanz) (H&I 2026/108)

Introduction

The right to deduct input VAT is one of the essential structural mechanisms of the common VAT system. That explains why the Court of Justice of the European Union (hereinafter: ‘CJ’) has consistently held that restrictions on the right to deduct must be treated as exceptions and, accordingly, interpreted strictly.

However, the harmonised architecture of VAT has long coexisted with an important exception in the form of the standstill clauses contained in Article 176 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; hereinafter: the ‘VAT Directive’). That provision allows certain historical national exclusions to remain in force until a harmonised list of non-deductible expenditure is adopted.

Limitations on the right to deduct under Spanish legislation

The starting point must be Article 95 of Law 37/1992, of 28 November 1992, on Value Added Tax, BOE n. 312, 29 December 1992, p. 44247 – 44305 (hereinafter: the ‘Spanish VAT Law’), which sets out the general rule governing the right to deduct in Spain. In essence, this reflects the logic of Article 168 of the VAT Directive and the principle of neutrality in domestic law.

However, alongside Article 95, Article 96 of the Spanish VAT Law sets out objective exclusions from the right to deduct for certain categories of expenditure. Among them are entertainment and recreational services and goods or services intended for clients, employees, or third parties. In such cases, the deduction may be denied because of the very nature of the expenditure, even where a connection with the business activity exists.

For that reason, the controversial issue in Spain lies in the scope of the mentioned exclusions. The issue, therefore, is whether a limitation of this kind can be regarded as compatible with the structure of the right to deduct and as falling within the scope of the standstill clause in Article 176 of the VAT Directive.

Article 176 of the VAT Directive and the standstill clause

Article 176 of the VAT Directive entrusts the Council of the European Union (hereinafter: the ‘EU Council’) with the power to determine the expenditure in respect of which VAT is not deductible. On the other hand, pending such harmonisation, it authorises Member States to retain the exclusions laid down in their national legislation on a relevant reference date. For the original Member States of the European Community (‘EC’), that date is 1 January 1979. For Member States that acceded later, such as Spain, the relevant date is their accession date.

The standstill clause is a provisional tolerance of pre-existing historical exclusions. That is why the CJ's case law has consistently held that this mechanism neither permits the introduction of new limitations after the reference date nor the extension of those already in force. In addition, the excluded categories must be defined with sufficient precision.

The Spanish peculiarity

Before 1 January 1986, Spain did not have a consumption tax comparable to VAT, nor a general deduction mechanism. VAT was introduced precisely upon accession to the EC and, on that same date, the limitations relating to certain expenditure, now reflected in Article 96 of the VAT Law, also entered into force.

That is where the central difficulty lies. The standstill clause allows pre-existing exclusions to be ‘retained’, but previously in Spain, there had been no VAT system to which those exclusions could be attached. The general rule and its exception came into existence simultaneously. The question was whether ‘retaining’ necessarily requires a restriction that was already in force in a comparable prior system or, whether it may also cover an exclusion introduced at the very moment when the harmonised system itself is implemented.

The Court’s case and the request for a preliminary ruling

The underlying dispute concerns the deduction by Randstad España, S.L.U. of VAT incurred on certain expenditure related to customer relations, client entertainment, and recreational services. The Spanish tax authorities denied the deduction under Article 96 of the Spanish VAT Law. The dispute ultimately reached the Spanish Supreme Court (Tribunal Supremo), which considered it necessary to refer questions to the CJ for a preliminary ruling (Request for a preliminary ruling from the Tribunal Supremo (Spain) lodged on 24 July 2024 – Randstad España, SLU v Administración General del Estado, (Case C‑515/24, Randstad España), (C/2024/6406), ELI: http://data.europa.eu/eli/C/2024/6406/oj).

The questions referred were, in substance, twofold. First, whether a national provision excluding entirely the deduction of VAT incurred on such expenditure is compatible with Articles 168 and 176 of the VAT Directive, even where the taxable person demonstrates its connection with the business activity and the expenditure was deductible for the purposes of direct taxation. Second, whether a limitation that entered into force on the day of Spain's accession to the EC may fall within the standstill clause laid down in Article 176 of the VAT Directive.

The Opinion of the Advocate General

In her Opinion delivered on 23 October 2025 (Opinion of AG Kokott 23 October 2025, C‑515/24, Randstad España SLU and Administración General del Estado, ECLI:EU:C:2025:824), Advocate General Kokott (hereinafter: the ‘AG’) expressly acknowledged the Spanish peculiarity. She recognised that, before accession, Spain did not have a VAT system comparable to the EC model and therefore, there could not have been partial exclusions from a right to deduct that had not yet technically come into existence.

A first relevant element of the AG's Opinion is her reliance on the idea of the foreseeability of the Spanish exclusion. In essence, her reasoning is based on the fact that the first Spanish VAT Law, which introduced the limitation on the right to deduct, had been published in the Official State Gazette months before accession (BOE n. 190, 9 August 1985, p. 25214 to 25243), even though it entered into force exactly on 1 January 1986, that is to say, on the day of Spain's accession to the EC. From that perspective, the exclusion would not appear as a restriction introduced unexpectedly after accession, but as a normatively anticipated element in the process of implementing VAT in Spain. Even so, this is a debatable line of reasoning because it shifts the discussion away from the requirement that the restriction existed and was applicable on the reference date, towards a mere idea of prior knowledge of the rule.

The AG also considered that an excessively rigid interpretation of Article 176 of the VAT Directive would lead to an unreasonable outcome. In her view, to require an acceding State to have had an exclusion effectively in force before accession would, in a case such as Spain's, amount to imposing an impossible condition. Member States that already had systems equivalent to VAT were able to preserve their historical limitations; denying that possibility to a State that lacked such a system would create an inequality that would be difficult to justify.

Her reasoning also included a relevant substantive consideration. Representation expenses, recreational expenditure, and expenditure on attention to clients fall within an area close to private consumption and, for that reason, Article 176 of the VAT Directive itself treats them as expenditure naturally capable of being excluded.

The AG concluded that the treatment of such expenditure for the purposes of direct taxation is irrelevant, since those taxes pursue objectives different from those of VAT and, moreover, are not harmonised among Member States.

On the basis of that overall line of reasoning, AG Kokott proposed a functional reading of the standstill clause. In a situation such as that of Spain, the simultaneity between accession and the entry into force of the exclusion should not preclude its coverage under Article 176 of the VAT Directive, provided that the scope of the restriction was not subsequently extended.

The CJ’s judgment

The CJ's judgment of 12 March 2026 essentially confirms AG Kokott's Opinion. The Court begins by reiterating its settled case law on the structural character of the right to deduct and on the strict interpretation of its exceptions. It then accepts, as a central fact, that before 1 January 1986, Spain did not have a consumption tax analogous to VAT or a general deduction mechanism.

On the basis of that premise, the Court concluded that the simultaneity between accession, the birth of the deduction system, and the introduction of the Spanish restrictions does not in itself preclude the application of the standstill clause. For the Court, what matters is not the formal existence of an exclusion already operative within a previous system that in fact did not exist, but rather that the Spanish legislation had not subsequently extended the scope of the restriction and that the exclusion relates to sufficiently defined categories.

The Court added that the entry into force of those limitations did not entail any effective change for economic operators in relation to a previously exercisable harmonised right, because prior to accession that right simply did not exist in those terms. In that way, the Court adopted a functional interpretation of Article 176 of the VAT Directive, adapted to the peculiarity of later-acceding Member States.

It is noteworthy that the argument based on foreseeability, which was present in the AG's Opinion, was entirely ignored by the Court in its judgment. The Court avoids grounding its reasoning on the mere prior publication of the Spanish legislation and therefore dispenses with a justification that could have appeared fragile from the strict perspective of the standstill clause. Instead, it develops a much more solid line of reasoning by placing the emphasis on the fact that, prior to accession, Spain did not have a VAT system comparable to the EC model with a right to deduct and, moreover, that the subsequent legislation does not appear to have extended the scope of the exclusion initially introduced. In this way, the CJ replaces the criterion of foreseeability with one centered on the absence of any subsequent extension of the restriction, which allows it to build a more consistent defense of the compatibility of the Spanish VAT regime with Article 176 of the VAT Directive.

The practical consequence of the judgment is that the Spanish regime of exclusions laid down in Article 96 of the VAT Law is covered by the standstill clause in Article 176 of the VAT Directive. Indeed, the Court considered it unnecessary to rule separately on the first question referred, on the grounds that the answer to the second was sufficient to dispose of the dispute.

Conclusion

The CJ's in Randstad España (CJ 12 March 2026, C‑515/24, Randstad España SLU and Administración General del Estado, ECLI:EU:C:2026:190) resolves the main doubt surrounding the compatibility of the Spanish regime with the standstill clause in Article 176 of the VAT Directive. The Court accepted that in a Member State such as Spain, which before accession did not have a harmonised VAT system with a structural right to deduct, the simultaneous introduction of the deduction system and certain exclusions relating to recreational expenditure and attention to clients does not in itself infringe EC law.

The key to the decision lies in a functional interpretation of Article 176 of the VAT Directive. What matters is not the existence of a restriction already operative within a previous system that did not exist, but rather the absence of any subsequent extension of the exclusion and the sufficient delimitation of the categories concerned. In so doing, the Court strengthens the position of the Spanish VAT Law and establishes a criterion of considerable significance for the interpretation of the standstill clause in later-acceding Member States.

The importance of the judgment is considerable. First, because it establishes a criterion for interpreting Article 176 of the VAT Directive in relation to Member States that joined the EC without previously having a VAT system comparable to the EC model. Second, because it confirms a reading of the concept of retaining an exclusion from the right to deduct that is not purely literal, replacing a strictly chronological approach with a functional one.

That said, the judgment does not fully remove the underlying controversy. The right to deduct remains the structural rule of the coStatesAT system, whereas exclusions remain exceptions. Article 176 of the VAT Directive continues to allow the survival of certain national peculiarities for historical reasons and as part of the balance between Member states. The CJ's decision in Randstad España (C‑515/24), therefore, shows that VAT harmonisation continues to coexist with national remnants whose legitimacy derives from a transitional tolerance that has been prolonged for decades.

From the Spanish perspective, the judgment clearly strengthens the position of its domestic VAT legislation against challenges based on the temporal singularity of its entry into force.

Fernando Matesanz