Spain has been warned by the European Commission that its move to slash VAT on fuel could breach EU law, in a fresh clash between Madrid and Brussels over emergency economic measures.

According to European sources cited by El Pais, the Commission sent a formal letter to the Spanish government at the end of March raising concerns about the decision to reduce VAT on fuel to 10%.

It comes after the measure was approved last week by parliament to soften the economic blow of the Iran war.

EU rules ‘do not allow’ fuel VAT cuts

In the letter, Brussels says EU legislation does not permit reduced VAT rates on fuel.

‘The EU VAT Directive does not provide for the possibility of applying a reduced rate to fuel supplies,’ the Commission states, warning that the move falls outside the limited exceptions allowed under European law.

Instead, Brussels points to an alternative, saying that governments are free to lower excise duties on fuel – a route it explicitly recommends as a legal way to bring down prices at the pump.

Warning shot

For now, the Commission has stopped short of launching a formal infringement procedure.

However, officials stress that the letter should be seen as a clear warning.

If Spain does not amend or withdraw the measure, Brussels could escalate the dispute and demand further explanations, potentially opening the door to legal action.

Government defends measure

Spain’s Finance Ministry has pushed back, insisting the VAT cut is a short-term response to an exceptional situation.

Officials argue the measure is designed to protect households, the self-employed and businesses from soaring energy costs and inflation triggered by the conflict in Iran.

They also stress that Madrid remains in ‘constructive and ongoing dialogue’ with Brussels, and is confident a solution can be found that both complies with EU rules and eases pressure on consumers.

The coming weeks will determine whether Spain backs down, tweaks the policy or risks a deeper legal confrontation with the EU.