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

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.