Reproduced with permission from Tax PlanningInternational Indirect Taxes, 15 IDTX 21, 1/31/17. Copyright� 2017 by The Bureau of National Affairs, Inc.(800-372-1033) http://www.bna.com

JANUARY 2017

‘‘Immediate Supplyof Information:’’ NewVAT E-ComplianceReport ApprovedJavier Galvan Falcon and Ignacio Sandino EgeaDiligens Tax Consulting SL, Spain

The ‘‘Immediate Supply of Information’’ project, intended to helpin the fight against VAT fraud, has now been approved by theSpanish Government. This article discusses the implications forbusinesses.

The Spanish tax authorities have been workingfor a long time on the development and imple-mentation of an advanced online report of in-

formation to help in the fight against tax fraud in VAT.The project, entitled ‘‘Immediate Supply of Informa-tion’’ (or ‘‘SII’’ according to its Spanish acronym), hadbeen started by 2015 and was initially scheduled tocome into force by the beginning of 2017, with a tran-sitional and testing implementation period during2016.

However, due to the unusual policy circumstancesraised by the 2016 elections to the Spanish Govern-ment, which led to the failure to form a government,all legislative proposals were left on standby for awhile, the SII among them. Finally, with the govern-ment elected in mid-2016, this project has been re-started, to be definitively approved by the end ofDecember 2016.

Considering the important technological develop-ment that this project means for companies, the firstdraft of the legislation (end of 2015) was proposedwith a one-year transitional period in order to giveenough time for taxpayers to adapt their IT systemsand to implement the necessary resolutions to complywith the reporting obligations, so that by January2017 it would be mandatory to follow the onlinesystem. However, this is when the first controversyarises, since, in the definitive wording of the lawwhich approves the SII, the one-year transitional

period has been amended to a shorter six-monthperiod: in other words, taxpayers have been surprisedby a coming into force date of July 2017, instead of theexpected date of January 2018.

There is no doubt that the Spanish tax authoritieswish to be in the forefront of European Union (‘‘EU’’)countries in connection technological developmentfor VAT compliance, in line with the digital transfor-mation of the global economy, no matter what conse-quences or difficulties taxpayers may face to meetthese new requirements. Based on the fight againstVAT fraud, and arguments for global digital transfor-mation, the tax authorities request the provision ofdetailed information for all transactions carried outby taxpayers almost in real time—which is the innova-tive aspect of the SII project.

I. Content and Implications of the SII

What is the basis of the SII and what are the implica-tions for taxpayers? At present, as is usual in any EUMember State, taxpayers are obliged to keep VAT re-cords, separately from the accounting records, wherethey must register all the transactions carried outfrom a VAT perspective, which must support the fig-ures reported in the regular VAT returns. In Spain,these VAT records comprise the VAT ledgers of outgo-ing and incoming invoices, VAT ledger of capitalgoods and VAT ledger of specific intracommunity

Javier GalvanFalcon and IgnacioSandino Egea arePartners with Dili-gens Tax Consult-ing, Spain

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transactions, which must be kept by taxpayers andprovided to the tax authorities upon request.

However, with the implementation of the SII the in-formation related to these VAT ledgers (not the invoices)must be electronically registered online on the web-site of the Spanish tax authorities, either through adirect communication between the taxpayer’s systemand the tax authorities’ website or through an .xmlform submitted. Therefore, the immediate effect ontaxpayers is that VAT ledgers will be directly providedto the tax authorities without any request from them.The purpose of the e-submission is that the tax au-thorities can be in possession of all the informationrelated to the transactions affecting VAT carried outby taxpayers, with enough time to audit the VAT re-turns submitted and, if applicable, to proceed with therefund of the VAT credit.

In this regard, even though all taxpayers are obligedto keep VAT ledgers as provided by law, this new re-quest of submission does only affect taxpayers whoare making monthly filings. The Spanish VAT Act es-tablishes the natural quarter as the settlement periodfor VAT, except for certain cases where the settlementperiod changes to mandatory monthly filings—fortaxpayers deemed large entities (those whose yearlyturnover exceeds six million euros), taxpayers whichare under the voluntary monthly VAT refund schemeand taxpayers which are part of a VAT group. How-ever, although this new e-reporting obligation is man-datory for these taxpayers, any taxpayer who isinterested in following this e-compliance system isalso entitled to voluntarily opt for it, in which casemonthly VAT filings will be mandatory.

Why may a taxpayer be interested in voluntarilyopting for this e-reporting system? It must be notedthat the purpose of the new regulation is to facilitatethe VAT settlement to taxpayers, so at the moment ofproducing the VAT return they will find in the tax au-thorities’ website two type of VAT ledgers: on the onehand, a declared VAT ledger according to the informa-tion reported by the taxpayer, and on the other hand achecked VAT ledger according to the information re-ported by other taxpayers. The two types of ledger willhave been compared by the tax authorities, finally re-sulting in a VAT settlement that can be accepted by thetaxpayer and which will speed up the VAT refund pro-cess in each case.

Moreover, taxpayers under this system are nolonger obliged to file the annual VAT summary (Span-ish Form 390), the recapitulative statement of trans-actions with third parties (Spanish Form 347) and(only for taxpayers under the monthly VAT refundscheme) the statement of transactions included in theVAT ledgers (Spanish Form 340). Together with the re-moval of these information forms, the deadline forfiling the regular VAT returns is extended to 30 calen-dar days of the month following the one to which theVAT return refers, rather than the 20 calendar daysdeadline currently in force; that is, ten additional daysare provided for filing purposes.

II. Information to be Provided

Regarding the content of the SII, the second contro-versy arises in connection with the information to beprovided to the tax authorities, in so far as this is not

limited to the data currently provided in the VATRegulation as content of the VAT ledgers, but is ex-tended to further data which makes the process moredifficult. So, besides the information concerning theVAT ledgers, such as invoice number, date of issue,date of transaction, identification of the supplier orthe client, taxable base, VAT rate and VAT quota, thetaxpayer must provide the following information:s type of invoice (regular, simplifying or rectifying);

s rectifying registry (if applies);

s description of the transaction;

s identification of rectified invoice (if applies);

s identification of substituted invoice (if applies);

s special VAT schemes (if applies);

s settlement period;

s non subject or VAT exempt transaction (if applies);

s invoicing by the recipient (if applies);

s reverse charge (if applies);

s agreement with tax authorities for invoicing (if ap-plies);

s transaction with tax relevance (if applies);

s intracommunity transaction;

s VAT quota deductible;

s date of accounting register and import SADnumber for importations.

Consequently, the taxpayer should consider that theinformation currently registered in the accountingsystem will not normally be sufficient to comply withthe requirements set by the SII, leading to significantchanges to be necessarily implemented in order tocover all the information requested. This, in turn,should lead taxpayers to consider an in-depth reviewof the VAT treatment applied to the transactions car-ried out in their business activity, as well as the report-ing process from a VAT perspective, in order to be in asafe position when reporting the transaction in real-time to the tax authorities.

III. Real-time Supply of Information

It is the real-time supply of information that is themost controversial change that the SII introduces fortaxpayers, in view of the fact that taxpayers areobliged to supply the information related to issued in-voices within the following four days as from theissuing date, while as regards received invoices, theinformation must be supplied within the followingfour days as from the date of accounting register.Through this change in the reporting deadline the taxauthorities are passing the administrative burden totaxpayers, who, apart from being involved in the day-to-day difficulties and administrative burdens of thebusiness, must comply with the VAT reporting obliga-tions in real-time, which is almost impossible to un-dertake for small and medium-sized entities with alimited capacity to adapt their accounting system interms of cost, time, human resources and technology.Besides, it should be noted that many companies af-fected by the SII are small and medium-sized export-ers which are under the monthly VAT refund schemewith the purpose of optimizing recovery of the inputVAT—since otherwise under the general regime theywould need to wait until the end of the year to requestthe VAT refund—or nonresident companies without a

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permanent establishment but with only a VAT numberin place, who are not obliged to keep accounting re-cords in Spain.

Basically, there are two ways for taxpayers to meetthe real-time supply of information requirement:either with a technological development of their ownaccounting system which allows the registration of alldata requested, together with a direct online commu-nication with the tax authorities’ website at themoment of issuing an invoice or registering a receivedinvoice, or through a third party service providerwhich can use its own system to communicate thedata on behalf of the taxpayer, which would be prob-ably the approach to be followed by nonresident enti-ties under the monthly VAT refund scheme. However,in the second case, the taxpayer in any event shouldpay attention to the four-day deadline, so perhapswould need to change the invoicing process in order

to meet this deadline by selecting only one day amonth to issue all invoices and to register received in-voices; which definitively is not an appropriate solu-tion from a financial or cash flow point of view, evenwithout considering those taxpayers that cannotfollow this ‘‘issuing day’’ approach due to the limita-tions of their own business.

In any event, with its benefits and difficulties, theSII is already implemented in Spain, and the taxpay-ers involved are obliged to seek solutions in order tocomply with the new requests for information beforeJuly 2017 since, as expected, the law provides for pen-alties in case of failure to comply with this system.

Javier Galvan Falcon and Ignacio Sandino Egea are Partners withDiligens Tax Consulting, Spain.

They may be contacted at: j.galvan@diligens.es;i.sandino@diligens.es

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