SPAIN: An Introduction to Tax: Indirect Tax
The following Overview featured in Chambers Europe 2023 and is awaiting update from the firm.
Present and Future Challenges of EU VAT
Towards a digital VAT management
The years ahead are going to be exciting for all of us who are involved in VAT, whether as lawyers, tax advisers, in-house advisers or as VAT academics. On 8 December 2022, the European Commission published its long-awaited proposal called "VAT in the Digital Age" (ViDA), which proposes to introduce significant changes to the way in which the tax will be managed, especially in international transactions. The proposal aims to bring about one of the most ambitious and internationally far-reaching VAT reforms in the last 30 years. It aims to adapt VAT management to new technologies and to make it easier for taxable persons to operate internationally with fewer administrative barriers. It also aims to make the most of the vast amount of information generated daily in the digital economy.
Although the European Commission's proposal must be confined to the EU level, it is no less true that our common VAT system has always been the mirror in which other regions of the world have looked (currently some 170 countries in the world have a VAT or a similar tax) so it is more than likely that what is done in Europe in these years will be replicated in the future in many other jurisdictions.
What is proposed for the future of VAT management is to generalise electronic invoicing, so that it ceases to be the exception and becomes the general rule. Printing and sending invoices in an envelope by post will become a thing of the past (it already has in some countries). In addition, a near real-time digital transaction reporting system is proposed. Taxable persons will have very few days to inform tax administrations of their cross-border transactions. Information will be reported on a transaction-by-transaction basis. This will most likely mean that, in a gradual way, the traditional VAT return will languish until it disappears.
The tax authorities seem to have realised that in order to manage VAT more efficiently, to increase collection and to reduce fraud, it is much better to have vast amounts of information that they can manage as they see fit than to wait for taxable persons to make their own VAT return at the end of a month or a quarter. The ultimate aim seems to be that the administration should be able to prepare VAT returns on the basis of the data provided by taxpayers. This is contrary to what is currently done today, except in specific cases in certain countries.
At this point, I would like to mention the case of Spain, which has proven to be a pioneer in these types of measures, being the first country in Europe to implement a system based on providing real-time information, operation by operation, to the tax administration. This system has been in place in Spain since 2017 and although it had its difficulties at the time of its implementation, we have to say that it works correctly. The Spanish administration is also able to generate VAT returns on behalf of the taxpayer according to the information provided by the taxpayer in real time. Finally, Spain will soon approve a generalised electronic invoicing system similar to that proposed for the rest of the EU countries. We can say with some pride that the measures proposed to be implemented at EU level are similar to those that have been in force in Spain for several years.
The proposal for the future of VAT also includes other interesting aspects that seek to make life easier for taxable persons by reducing the administrative burden for those who want to operate in different countries. For example, it is intended to increase the cases of reverse charge rule and to introduce a special regime to avoid multiple VAT identifications of the same taxable person. The latter has been particularly highlighted as a major obstacle for companies seeking to expand their sales in different countries. The cost associated with this administrative task was something that many small businesses could not afford.
Another relevant aspect is the introduction of certain cases in which digital platforms facilitating the provision of short-term accommodation and passenger transport services will be responsible for paying VAT to the administration, instead of the underlying service provider. We all know that these types of activities nowadays generate huge amounts of business that in some cases escape the tax control of the administrations. This measure is in line with those already introduced in 2021 to regulate the VAT on e-commerce operations and, in the words of the law maker, it has been a success.
We can therefore say that we are entering a new era for VAT in which the traditional management of VAT will be replaced by the obligation to provide transactional information in very short periods of time in which the administrations will have time to react if necessary. In addition, the aim is to adapt the reality of the tax to the new ways of doing business in which digital platforms play a fundamental role. VAT management must be able to take advantage of the leading role that these actors play today in the economy.
It could be said that the future of VAT is heading towards an integrated digital management. This seems to be the way of the times and there is not much room to escape the process of digitisation and automation. However, the process generates certain doubts. It is important to define how far the administration can go in its digitalisation process and to oblige all of us in this process. Large corporations will probably not have too much of a problem with this, but we must remember that the European business environment is mainly made up of small and medium-sized enterprises. In some countries (Spain is one of them) they account for more than 99% of the total number of companies. This is surely not a sufficient excuse to put the brakes on this seemingly unstoppable process, but these companies must be helped so that they are not left behind. However, this is not always the case. It is not the first time that we have seen courts annulling decisions of the tax administration for having made excessive and abusive use of new technologies without the taxpayer having adapted to them. The latest case has occurred in Spain. The digital notifications that the tax administration decided to send massively to a certain taxpayer (small business) instead of sending them on paper have been declared unconstitutional since the taxpayer in question had no way of accessing these notifications electronically. This type of situation should be avoided as it sends a contradictory message to society. The rush to adapt VAT to the new digital reality must never undermine taxpayers' rights.
VAT must not remain on the sidelines of the digital revolution. We are heading towards a new era in the management of this tax. However, the lawmaker must reflect on everyone in this dizzying process of digitalisation. Increasing revenue collection is a huge incentive to accelerate this process, but no one should be left behind.