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Thursday 29 June 2017
With effect from 1st July 2017, Spain is introducing some ground breaking requirements in a European context, where they require nearly real time reporting of invoicing details in the form of VAT registers.
This means that IT systems and data flows have to be in place to enable the high volumes of transactions to be processed and transmitted to the Spanish Authorities systems, within very tight filing deadlines.
The overall ultimate objective being; that all data is filed within 4 days from the date sales invoices are issued / purchase invoices are recorded in the taxpayer's ERP system. (For the period between the 1st July and the 31st December 2017 the details of invoices issued and received need to be filed with the Spanish VAT Authority within 8 working days as oppose to 4 working days).
Note: The application of the four and eight calendar day terms referred to above exclude Saturdays, Sundays and national holidays.
Even though the SII will be implemented from 1st July 2017, it is affecting transactions incurred since 1st January 2017. Details of invoices issued/ received need to be provided to the Spanish VAT Authority by 31 December 2017.
These changes will impact more than 62,000 businesses, and is causing major concern to businesses, due to the complex IT additional requirements and the very short implementation period allowed.
The principle aim is that the authorities will have almost real time information to cross check data, which is considered as an effective tool to manage vat compliance and combat the widespread fraud that currently exists in the vat system.
Which Tax payers are affected:
- SII is mandatory for all taxpayers that file monthly VAT returns, including large companies with annual turnover in Spain in excess of €6,000,000.
- Entities that are part of a VAT group.
- Taxpayers that have opted for the special monthly VAT refund regime.
SII will be voluntary for any other taxpayer who wishes to apply it by submitting the corresponding application in the month of November prior to the beginning of the calendar year.
The information required is as follows
The SII file that is required to be filed consists of five registers:
Register of invoices Issued (LRFE), which is required to be submitted by companies to report their sales transactions such as domestic sales, intra - community sales, export
Register of Invoice Received (LRFR), which is required to be submitted by companies to report their purchase transactions such as domestic purchases, intra - community acquisitions, import
Register of certain intra-Community operations (LRDOI), which is required to be submitted by companies that are engaged in the movement of goods from another EU member state in to Spain temporarily for work to be carried out on such goods and for same goods to be returned to member state in which the goods originated nor does it temporarily import goods from outside the EU for a period not exceeding 24 months
Register of investment goods (LRBI), which is required to be submitted by companies that hold investment goods for which it would not have full entitlement to recover VAT on same and would be subject to a pro rata.
Register of cash collections from the same individual or legal entity exceeding 6,000 Euros (LRPM), which is required to be submitted by companies that receive cash payments exceeding €6,000 from the same customer on an annual basis
Certain Intra EU transactions
Below is the data that will be required to be reported on the Register of Invoices Issued / Register of Invoices received:
All data must be uploaded as an XML file to the website of the Spanish tax authorities. This can include a plug-in to the ERP system or software adapting ERP data to the XML requirements of the authorities´ system. Manual input is also possible in those cases where there are only a few invoices to be reported. In these cases, a form available in the website of the authorities must be completed and submitted manually.
Planning and Practical implications for the new system
All businesses impacted will need to make a significant investment to comply with the new rules, especially given the complexities involved.
Time will be required for testing the solution used to produce the XML file necessary to interface with the Spanish Tax administration systems.
Advantages of the system
Voluntary completion is made easier: in the electronic office of the Tax Agency, taxpayers will have a 'declared' register book and a 'verified' register book with the information provided by third parties that are part of the group using this system or from the Tax Agency's database. These tax details will be a useful tool to assist in preparing the return as they will reduce errors, make things easier and enhance legal certainty.
Indirect load reduction: formal obligations are reduced, as taxpayers will no longer be required to file the information returns form 347 (third-party information), form 340 (transactions in register books) and form 390 (VAT annual summary).
Longer period to pay VAT: the period to file self-assessments is extended by 10 days.
More selective and quicker verification: since transaction information is obtained nearly in real time, the Tax Agency can conduct verification ahead of time, thus streamlining control and refunds of the tax. This streamlining will be more pronounced when both the customer and the supplier belong to the group using this system, since information about transactions between them will be immediately crossed. This new system provides complete information regarding receipts will make it possible to control invoicing, especially in the higher risk sectors where cash transactions and cash registers are involved.
Particular problems for non-established businesses:
The new requirements pose particular challenges for non-established businesses as follows:
- Clients are not established in Spain and not familiar with the requirements
- Clients do not understand the language
- Very short implementation time granted by the authorities
- Having to adapt global software to configure to specifications of data required by SII requirements
- In house IT availability is limited with many competing requirements for necessary IT changes
- Software companies only just bringing out products that are compatible with SII configuration.
- The costs of software is currently prohibitive for businesses and are trying to source providers who have products at a more reasonable cost
Despite repeated requests from businesses to allow more time, the authorities have not delayed the implementation of the new system and it goes live in just a few days’ time.
Penalties for non-compliance:
Late reporting of real-time electronic VAT ledgers will trigger a penalty of 0.5% of the missed amounts, with a minimum of €300 and a maximum of €6,000 per quarter.
This could also raise compliance concerns with the Spanish Authorities, resulting in audits as well as damaging the business reputation with the Spanish Authorities.
Unofficially the Authorities have stated that they would not seek to raise penalties during the first six months for businesses that were actively making efforts to comply with the new reporting requirements.
Electronic on line filing is definitely the way forward for tax administrations as based on actual results where it is used; there is a dramatic improvement in tax compliance.
Brazil has the one of the most extensive real time reporting tax systems from 2006, and the system is now fully operational and gradually expanding to new tax areas.
Although real-time tax reporting imposes major compliance costs on businesses, particularly for medium and small sized companies, the benefits for the tax authorities are considered to outweigh the disadvantages for the private sector. These are some of the lessons learned from the Brazilian example:
European Experience to date of real time reporting
Real time data is increasingly being required by more and more jurisdictions and this is expected to increase significantly in the near future. Spain is the first country in Europe requiring such reporting of tax data, although several jurisdictions like Poland, Portugal or Czech Republic have introduced the SAF-T requirement on a periodic basis, but none of them has requested real-time information yet.
Hungary is also considering such a real time system from 2018, The split payment method is being considered , in Poland, The UK and in Italy for certain transactions .
The introduction of such systems, have proven benefits in impacting on tax payer behaviour , and especially is higher risk sectors, such as the hospitality sector, taxes have increased by as much as 70%, since the new systems have been in place.
Global VAT Updates