Total Control: Three Ways Global Tax Administrations Are Cracking Down on VAT Liability (Part I: Spain)

Ramón Frias
March 21, 2017

In part I of this three-part blog series, we examine how Spain is implementing electronic invoicing to better control the VAT return process.

Over the course of the last decade, there has been a huge shift in the way countries collect value-added tax (VAT). Tax revenue agencies are no longer waiting for taxpayers to fill out their VAT returns. Instead, they are finding new ways to complete tax returns for taxpayers, including the payments or refunds expected. With this “sign here and send the check” model, taxpayers simply need to click “accept” and transfer due funds. Because this approach leaves less room for error and manipulation and gives governments greater control, it has been expanding steadily around the world.

Governments are turning to three primary approaches to better control the VAT process:

  1. Ex-post remittance/validation
  2. Ex-ante and real-time invoice validation
  3. Transitional systems

Classification depends on how tax administrations capture invoice information from taxpayers.  Below is an example of how one government is using ex post remittance/validation to curb VAT fraud.

What is Ex-Post Remittance/Validation?

Under this system, electronic invoices are submitted after a transaction concludes in periods established by the tax administration. These periods can occur on daily or weekly bases or within some other predetermined increment. The information required may include the entire invoice or summaries sent in batches.This model is the least aggressive of those we will break down.

Spain Launches Ex-Post Remittance E-Invoicing

The newest example of this process is Spain’s Immediate Information System (SII), effective July 2017. Spain taxpayers must submit relevant information regarding each invoice issued or received to the Spanish tax authority (AEAT). While whole invoices will not be required, relevant information from each transaction should be gathered on a daily basis and sent to the AEAT electronically using the standard XML format. The deadline for submitting information will be four days from when the invoice was issued (sales), recorded in the accounting ledgers (purchases) or the transportation began (intra-community transactions).

Despite this four-day window, businesses will need to prepare their systems as if they were going to make that remittance in real time to ensure accurate and on-time transmissions. The logistics involved in automating invoice data transferrals will force taxpayers to deliver invoice information almost as soon as it is generated, making Spain a “de facto” real-time remittance system.

To enforce compliance, the AEAT has established a number of hefty penalties for errors or missed deadlines, including fines of 1 per cent of the amount of the invoice reported incorrectly, with a minimum of €150 and a maximum of €6000.

At launch, more than 60,000 taxpayers will be required to comply with Spain’s SII mandate, including multinationals, reaching around 80 per cent of the country’s invoice volume.

Following Mexico’s Lead

Mexico has implemented a similar system in which information regarding invoices issued to final consumers that do not provide a tax ID, such as retail sales, are summarized and submitted to the Mexican tax administration (SAT) on a daily, weekly or monthly basis. Spain chose Mexico as a model because of its rousing successes with this system – the country increased tax revenues by 34 per cent under its e-invoicing system without raising tax rates.

Take Action

Armed with data from these ex post remittance submissions, Spain, and governments with similar systems in place, have greater visibility into VAT owed, allowing them to improve collections and curb fraud. Errors have no place to hide in this process, making intelligent compliance critical to avoiding penalties.

To learn more, watch our on-demand webinar Spain Launches Real-Time Transactional Reporting (SII)

See part 2 and part 3 of our blog series, “Total Control: Three Ways Global Tax Administrations Are Cracking Down on VAT Liability.”

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Ramón Frias

Ramon is a Tax Counsel on the Regulatory Analysis team at Sovos. He is licensed to practice law in the Dominican Republic and is a member of the Dominican Bar Association. He has a Certificate Degree from Harvard University as well as a J.D. from the Universidad Autonoma de Santo Domingo. Ramon has written a number of essays about tax administration and has won the first prize in the international essays contest sponsored by the Inter American Center of Tax Administrations (CIAT). Prior to joining Sovos, Ramon worked for more than 10 years in the Department of Revenue of the Dominican Republic where he served as Deputy Director. He is proficient in French and Spanish.
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

ShipCompliant
September 24, 2020
Ask Alex: Your Bev Alc Compliance Questions Answered (September 2020)

Do you have questions about the rules, regulations, and compliance requirements of the beverage alcohol industry? This series, Ask Alex, is a perfect opportunity to get those pressing questions answered straight from one of the industry’s regulation and market experts, Alex Koral, Senior Regulation Counsel, Sovos ShipCompliant.  To take advantage of this opportunity and get […]

EMEA VAT & Fiscal Reporting
September 24, 2020
Oman to Introduce VAT

Oman is on its way to introduce VAT. After the approval of the State Council and the Shura Council the draft law was sent for final approval to Sultan Haitham Bin Tariq Al Said. If the draft law is approved, VAT is expected to be implemented in 2022. Background Gulf Cooperation Council (GCC) member states […]

EMEA VAT & Fiscal Reporting
September 23, 2020
Three Key Reasons to Appoint a VAT Compliance Managed Service Provider

With a VAT gap across EU countries estimated at €140 billion in 2018, tax authorities are continuing to take steps to boost revenues, increase efficiency and reduce fraud.  As a result, VAT compliance obligations are becoming more demanding and failure to comply can not only result in significant fines but also reputational damage. Many multinational […]

Tax Compliance Tax Information Reporting United States
September 22, 2020
2020 GCS Speaker Spotlight Series | KPMG & Zions Bancorporation

Sovos’ Global Compliance Summit – Intelligent Reporting “Speaker Spotlight” Series kicks off with the introduction to two brilliant women in the world of tax, Kelli Wooten of KPMG LLP and Susie Jensen of Zions Bancorporation, who will be attending & presenting at our upcoming conference in early October. These two professionals are particularly well-versed in […]

EMEA IPT
September 22, 2020
The Benefits of Insurtech to Captive Insurers

Tax filing, wherever you are in the world, is becoming increasingly complex, with regular rate updates and governments eager to close tax gaps via new mandates that demand real-time reporting. Despite this, many captive insurers still rely on resource-heavy, manual procedures to capture, validate and process large volumes of data. As well as taking significant […]