SPAIN: An Introduction to Tax: Indirect Tax

Chambers Europe 2022 - Spain: Indirect Tax, Spanish VAT Services

The global situation generated initially by the COVID-19 crisis and afterwards by the very sad and unacceptable situation in eastern Europe has shaken the foundations of economies around the world, putting even the world's most solvent economic systems to the test. The severe economic recession that practically every country has suffered in the past years has generated very high levels of stress in fiscal systems all over the world. Unfortunately, just when the situation seemed to be starting to improve, the world economy entered a period of great uncertainty. Spain, of course, is no stranger to all this. Indeed the impact of the current economic uncertainty on the Spanish economy is particularly significant with inflation and energy prices at levels not seen in recent years.

In order to make good on the famous phrase "we will emerge stronger", there is still time to do things right. In this sense, we strongly believe that VAT is an important tool to overcome the current global situation. VAT is a fast-moving and constantly changing tax that requires VAT professionals (advisors, in-house and VAT officials) to make a major effort to adapt thereto. Therefore, VAT can have an exciting and promising future ahead.

Spain, as a member state of the European Union, has a privileged position in this regard. Our common VAT system—with all its room for improvement—is replicated by a large number of countries in the world. We have many years of experience and extensive knowledge that we can export to these countries, which undoubtedly generates major business areas encouraging a large number of activities such as institutional relations between different countries, trading goods and services between economic operators or expanding upon existing VAT reciprocity agreements.

Notwithstanding the above, our current VAT system can be improved and must be adapted to the new economic reality. In our view, the following areas must lead the modernisation of the current European VAT system.

(i) Digital economy and delocalisation of activities

The sharing economy has entered our lives with force and all signs indicate that it is here to stay. This type of economy will certainly continue to grow in the future. The current VAT systems worldwide has proven to be old-fashioned when it comes to the digital economy. Our current rules do not solve the main issues and problems regarding the taxation of this type of activities that, unlike other traditional business, are carried out with minimal interaction between the parties involved in the transactions. Nowadays, a huge number of services are supplied electronically and in an automated way (finance, learning, insurance, medical, events, healthcare etc). The fact that all these services are provided in an automated way through information technologies cannot make us ignore the nature of the service itself and how it should be taxed for VAT. The role of all the parties involved in this new type of economy must be very well clarified. We are referring not just to marketplaces but also to persons offering goods and services on the internet in exchange for money or for other goods or services

Moreover, nowadays it is possible to carry out all kinds of services in a delocalised way. With the simple help of a computer and an internet connection it is possible to offer the world all kind of services.

Spain with its privileged location and natural conditions can clearly benefit from this trend of delocalisation of activities. There should therefore be a debate on how to deal with this new way of operating in the field of VAT. The debate should be moderate but rigorous, providing legal certainty for operators and, of course, ensuring fair and reasonable taxation of the parties who carry out this type of activity.

(iii) Modernising VAT reporting 

Spain has been at the forefront of real-time declarations with the implementation of the so-called SII back in 2017. Although the measure can represent an excessive administrative burden for certain taxable persons, Spain has managed to reduce its VAT Gap in recent years. It is difficult to determine with certainty whether this reduction refers only to real-time declarations. In any case, Spain has been a pioneer in this type of reporting and our companies and advisors have been able to adapt in record time to this new way of sending information to the tax administration. We believe that in the coming years this will be the trend in other countries.

Any such measures must always be duly considered and respectful of the principles of proportionality and neutrality of VAT. We must accept that the way we interact with tax administrations must change. Nevertheless, this change must not become an overly burdensome, unjustified and disproportionate requirement. Otherwise, the supposed efficiency that we hope to achieve will turn into an insurmountable barrier especially for smaller companies.

In this respect, we cannot forget that VAT is a tax, which is governed by a number of complex regulations that need to be interpreted in a proper manner. Therefore, while we must admit that automation and real time reporting is the future, we remain convinced that not all aspects of VAT can be part of such automation. For this reason, we strongly continue to call for the fundamental role of the VAT professionals as a crucial part for a correct an proper interpretation of the existing VAT rules.

(iii) Tackling fraud 

At the heart of all measures taken in the field of VAT must always be the idea of stamping out VAT fraud. The level of VAT fraud is still too high. It is everyone’s duty to tackle this problem. We must assume that fraudsters are smart, true multinationals whose sole aim is fraud. For this reason, measures must be rigorous but at the same time reasonable.

All measures must go in the direction of encouraging co-operation between organisations and administrations. The easy way of overburdening the taxpayer with additional obligations can never be the general rule.

(iv) Helping our businesses through a fairer and more efficient VAT system

VAT has tools to help businesses in economic difficulties. Although VAT is a tax that should be neutral, an incorrect VAT management can create cash flow difficulties.

We therefore encourage the authorities to continue to take measures or to improve the existing ones to help companies in this unprecedented economic situation. We are referring to lowering VAT rates on energy, the use of VAT cash accounting schemes, improving recovery of VAT on bad debts or implementing deferment mechanisms on VAT on importations. All this is a possibility according to the VAT regulations. However, the Authorities either do not make use of all of them or do not do so in the most efficient way possible.

We strongly believe that VAT has a great future ahead and it can be a game changer to the current global economic situation. Spain cannot miss this train and, as one of Europe's leading economies, its businesses and advisors must be at the forefront of all changes in the VAT field that will take place in the coming months and years.