The application of the pro rata rule is applied in the value added tax (VAT), and arises when a taxpayer develops business or professional activities in which he simultaneously delivers goods and services that give rise to the right to deduction and others that do not attribute such right (article 102.1 of Law 37/1992). To determine which installments supported are deductible, this pro rata rule appears.
Pro Rata Rule Definition
The pro rata is a percentage that will determine the amount of Input VAT that can be deducted, if the employer or obligated professional carries out operations subject to the tax and operations that are not subject or exempt at the same time (for example, an entrepreneur who simultaneously carries out the transport of passengers by taxi and the transport of patients by ambulance).
This percentage is calculated according to certain rules, regardless of the good or service in question.
types of pro rata
• General pro rata:
The general pro rata consists of applying a percentage on all the Supported VAT. It is calculated by means of the quotient between operations that give the right to deduction and the total number of operations that we have carried out, multiplied by 100. The result must be rounded up to the next higher whole number.
Operations that give the right to deduct x 100 / Total operations of the year = Excess
The definitive pro rata percentage may not be calculated until the end of the financial year in the last settlement, applying a provisional percentage (previous year) to quarterly settlements and regularizing its situation at the end.
Example 1
A taxpayer whose pro rata percentage in the previous year was 80% has carried out the following operations in each quarter of 2015:
Subject and non-exempt sales 3,000,000
Subject and exempt sales 2,000,000
Input VAT 400,000
Solution 1
During the first three quarters of 2015, the taxpayer may deduct 80% of input VAT, that is, €320,000.
Settlement of the first three quarters Output VAT (3,000,000 x 21%) 630,000
Deductible input VAT 320,000
To deposit 310,000
Liquidation pro rata of the fourth quarter: Final liquidation of the year 2015 will be 12,000,000/20,000,000 x 100 = 60%
Output VAT (3,000,000 x 21%) 630,000
Deductible input VAT (400,000 x 60%) (240,000)
Regularization: Additional income:
Input VAT deducted (320,000) – VAT deductible (240,000) = 80,000 x 3 = 240,000 12,000,000/20,000,000 x 100 = 60%
Output VAT 630,000
Input VAT (240,000)
Additional income 240,000
Total to deposit 630,000
• Special pro rata:
It will be applied compulsorily whenever the total of the quotas deducted in the year applying the general pro rata, exceeds 20% what would result if it had been applied by the special pro rata.
Pursues the exact deduction of the quotas supported according to the use given to the goods and services acquired or imported, dividing the expenses into three groups:
1. Expenses derived from the purchase of goods and services used exclusively for activities that give rise to the right to deduction (activities subject to VAT): all Input VAT is deducted.
2. Expenses derived from the purchase of goods and services used exclusively for activities that do not give rise to the right to deduction (activities not subject to or exempt from VAT): the input VAT quotas will be deducted.
3. Expenses derived from the purchase of goods or services common to both activities, that is to say that they are used both for the subject activities and for the non-subject or exempt ones: the input VAT quotas will be deducted, in the percentage of the general pro rata.
Example 2
A passive subject performs two activities:
• Activity 1: originates the right to deduct all the fees paid. Sales made amounting to 4,000 euros; Input VAT, 200 euros.
• Activity 2: does not give rise to the right to deduct the fees paid. Sales made amounting to 1,000 euros; Input VAT, 200 euros.
The input VAT on operations common to both activities amounts to 400 euros.
Solution 2
Overall pro rata: 800 x 80% = 640
Special proportion:
Activity 1,200
Activity 2 0
Common fees (400×80%) 320
——————————————
Total deductible 520
Comparison
Overall pro rata 640
Special pro rata 520
The excess amounts to 120 (640-520), greater than 20% of 520 (104). The special pro rata rule will apply.
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