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

Why It Matters

The decision clarifies how the stand‑still clause applies to newer EU members, giving businesses greater certainty on VAT recoverability and shaping future cross‑border tax planning.

Key Takeaways

• CJ upheld Spanish VAT exclusions under Article 96 as stand‑still compliant
• Functional reading of Article 176 favours later‑acceding EU members
• Exclusions must remain unchanged; no post‑accession extensions allowed
• Decision strengthens tax certainty for businesses claiming input VAT on client entertainment
• Sets precedent for other states lacking pre‑accession VAT systems

Pulse Analysis

The right to deduct input VAT is a cornerstone of the EU’s value‑added tax system, but the EU Treaties allow limited exceptions. Article 176 of the VAT Directive creates a "stand‑still" mechanism that lets member states preserve historical exclusions until a harmonised list is adopted. For countries that joined the Community after the 1970s, the reference date is their accession day, raising questions about how newly introduced exclusions are treated when a VAT regime is launched simultaneously.

In the Randstad España case, the Spanish tax authority rejected input‑VAT recovery on client entertainment under Article 96 of the Spanish VAT Law. The Spanish Supreme Court referred the matter to the Court of Justice, which, echoing Advocate General Kokott’s opinion, adopted a functional reading of the stand‑still clause. The Court concluded that because Spain had no pre‑accession VAT system, the simultaneous introduction of the deduction right and the exclusion does not violate Article 176, as long as the exclusion’s scope is not later broadened. This approach shifts the focus from a strict chronological test to the practical continuity of the rule.

The ruling carries weight for multinational firms operating in Spain and other later‑acceding states. It confirms that existing exclusions on entertainment, recreation, and client‑related costs remain valid, reducing the risk of retroactive tax adjustments. Moreover, the judgment offers a template for other EU members with similar historical gaps, potentially limiting future disputes over the compatibility of national VAT quirks with EU law. Tax advisors will need to reassess the durability of such exclusions, while policymakers may consider updating the harmonised list to reflect evolving business practices.