The future of the VAT compliance
As you may be aware, in July 2017 Spain introduced a new way of VAT bookkeeping that requires taxpayers to electronically report to the tax authorities information regarding invoices issued and received. The information generally has to be reported within 4 days (8 days in exceptional circumstances) of the issuance or receipt of invoices. Under this bookkeeping system, known as the “Immediate Supply of Information” (SII), the tax authorities have a great deal of information about the transactions carried out by taxpayers.
The Spanish tax authorities have announced they are working on implementing a new tool that will enable them to create draft VAT returns that would then be provided to taxpayers for confirmation. This new tool basically represents the second stage of Spain’s digitalisation of VAT compliance.
The tool will automatically generate the draft of periodical VAT returns by gathering all the information available to the Spanish tax authorities through the SII. It is expected that the companies will only confirm or, in some cases, modify the draft already generated, rather than having to internally prepare their periodical VAT returns. In cases where the draft is modified, the taxpayer likely has to explain the reasons for requesting the modification. Allowing modifications will help improve the tax authorities’ internal procedures and avoid discrepancies.
During 2020 the tax authorities intend to set up a pilot program involving some companies that already have a high level of internal digitalisation and process automation and after that, the tax authorities will gradually extend it to the remaining Spanish VAT taxpayers.
The digitalisation project started in 2017 with the launch of the SII. This first milestone was developed not only to digitalise communications with the Spanish tax authorities but also to fight against VAT fraud in Spain, since the huge amount of information uploaded provides the Spanish authorities with a complete overview of the different sectors of the Spanish market. Thus, the SII is a powerful instrument to accurately identify, prevent, and stop VAT fraud in the different sectors of Spanish industry and to reduce the VAT gap.
The implementation of this second stage of the SII is a new evidence of the Spanish tax authorities’ ongoing effort to digitalise the different communications with Spanish taxpayers. It was included in the Spanish Tax Agency’s strategic plan 2019-2022. The plan is aimed at gradually moving toward a new model of comprehensive assistance and ex ante control and aims to facilitate voluntary compliance as well as to tighten control over the transactions carried out by the taxpayers in order to reinforce the fight against fraud.
The Spanish tax authorities already offer individuals fiscal information and draft Personal Income Tax returns. In our opinion, the procedure for the draft VAT returns likely will be similar, but no information is available at this point.
Various other measures were also included in the strategic plan 2019-2022, such as introduction of this tool for other Spanish taxes, such as Corporate Income Tax.
The Spanish tax authorities’ IT team is currently working on the development of a virtual tax unit whose aim will be to respond to, and resolve, tax queries of both entrepreneurs or individuals in order to avoid misinterpretation of the tax regulations. This virtual unit will focus on VAT issues initially and it will then expand to cover other taxes.