The ruling answers when a contractor can recover the ICIO paid for public works that are cancelled before construction starts.
The dispute began with a cancelled hospital refurbishment
The case arose from the planned internal refurbishment of the paediatric intensive care unit at Madrid’s La Paz University Hospital. In 2017, the Madrid Health Service awarded the works to Ferrovial Construcción. Acting as the substitute taxpayer, a contractor that pays the tax in place of the work’s owner, Ferrovial self-assessed and paid 103.617 euros provisionally before obtaining the urban-planning licence. Administrative delays then held up the licence for almost a year. As the works could not begin, the hospital and contractor signed negative setting-out records and mutually terminated the contract in September 2018, declaring that no work had been carried out.
A second tender did not settle the first payment
The refurbishment was later put out to tender again and awarded to OHL under a new project and a new licence. The tax was assessed again for that arrangement. Madrid’s municipal tax inspectorate found that Ferrovial’s works had not started, but the city refused to return the first payment. Its position was that the original licence had not formally been declared expired and that the owner had not previously submitted a formal waiver. On that basis, the council considered the payment not to have been unduly made. A first-instance court backed Ferrovial, while the Madrid High Court of Justice supported the municipality, leading to the appeal on points of law.
The tax arises from physical construction
The Supreme Court’s Administrative Litigation Chamber has now established a binding interpretation of the issue. It says the taxable event for the Tax on Construction, Installations and Works, known as ICIO, is the material execution of the work, and that the tax becomes due when construction starts. A provisional payment can be collected when a licence is issued, but it remains linked to the work taking place. If the project never begins, the main tax obligation does not arise and the initial payment becomes an undue payment eligible for repayment. The court held that the contract’s termination provided sufficient evidence that the works had been abandoned and would not be carried out by that contractor.
Licence expiry is not a precondition for repayment
The ruling means a local authority cannot retain the provisional ICIO payment simply because the planning licence remains formally in force. The Supreme Court said that making repayment depend on a separate procedure to declare the licence expired would place the taxpayer’s rights at the mercy of administrative willingness and delay. For contractors bidding for urban works, the decision clarifies the effect of their legal status as substitute taxpayers: they may seek recovery once the contract has been rescinded and it is clear that the work will not proceed, without waiting for the licence to lapse. The judgment also closes the route by which a municipality could retain money for construction that never took place.
IN NUMBERS
The judgment in Ferrovial’s case sets the procurement-relevant boundary between a provisional tax payment and a tax obligation: the latter depends on the material start of the works.
Reported from expansion.com, 2026-11-03. The Tender Wire is published by Otnox.
