Are all loaves equal before the (VAT) law?

Applicable regulations

The VAT Law (LIVA) provides for three tax rates, the general rate of 21%, the reduced rate of 10% and the super-reduced rate of 4% depending on the type of good or service supplied.

The supply of foodstuffs is generally subject to the 10% rate. However, basic foodstuffs will be taxed at the rate of 4%, inter alia on the supply of:
(a) common bread, as well as frozen common bread dough and frozen common bread intended exclusively for the production of common bread’.

As a result of the measures taken by the Government to alleviate inflation, from 1 January 2023 until 30 September 2024, the rate applied was 0%. From 1 October 2024 until the end of the year, the rate will be 2%.

But what is meant by ordinary bread?

The VAT regulations do not define it; it is the quality standard for bread approved by Royal Decree 308/2019, of 26 April, which establishes the basic quality standards for the production and marketing of bread in Spain, which contains the definition of common bread and special bread.
 

Criteria of the tax authorities

The tax authorities' interpretation of the concatenation of these rules is to tax at a rate of 4% the bread that meets the definition of common bread and 10% the bread that falls under the definition of special bread.

The definition of ordinary bread includes ordinary gluten-free bread.

Within the category of special bread are multigrain breads, ciabatta, toast, biscotti, picos, sliced bread or breadcrumbs, and therefore the rate of 10% applies to these and not 4%.
 

Criteria of the Supreme Court

The Court considers that there is no reason to make the application of the reduced rate subject to the application of the reduced rate to categories of bread established by rules which are not of a fiscal nature and that to do so would be an infringement of EU law.

It insists that the interpretation of the VAT rules must comply with the principles of neutrality, competition and equality, which means that similar goods or services must be taxed at the same rate, since favouring certain similar products at different rates may undermine free competition and discriminate in favour of some products over others.

In order to determine whether goods are similar, the Court, on the basis of EU case law, establishes that the general perception of the average consumer must be taken into account, so that if the consumer does not distinguish between one type of bread and another, both types of bread must be taxed at the same VAT rate.
 

Does this mean that all bread should be taxed at the reduced VAT rate?

Consumer organisations and certain media have been quick to respond positively to the question. We will see how the DGT deals with this setback and how it interprets the guideline indicated by the Supreme Court regarding ‘the general perception of the average consumer’ referred to in the Judgment.

In any case, if this rate reduction is passed on to the consumer, this will undoubtedly be good news.