With implementation of technology-enabled tax compliance and reporting initiatives, Spain is leading the way throughout Europe not only in closing the VAT gap but also in obtaining visibility into business data. As more and more countries move toward requiring transactional data in real-time, most notably Italy and Hungary, it’s important for companies to consider lessons learned in the initial implementation of Spain’s SII to prepare for the expected wave of VAT compliance and reporting change.
Spain's SII mandate took effect in July 2017, requiring businesses to adapt their processes and technological infrastructure to support quasi real-time transaction reporting. The results were almost immediate. Within three months, the Spanish government reported that approximately 50,000 businesses met the mandate - a 90% compliance rate - with transmission of more than 700 million invoices totaling €630 billion in value. Since the launch, companies have learned several key lessons:
Government Needs Take Priority Over Business Needs
While the Spanish government views its VAT compliance and reporting requirements a success, many businesses have a contrary opinion. Companies have voiced concerns that the platform was designed for tax authorities and did not take into consideration businesses' point of view, requiring adoption of new technology and significant changes to common practices.
Endless Change Is the Name of the Game
In the first few months after launching SII, Spain implemented several modifications to the mandate. In February, the Spanish tax authority announced even more changes, updating the technical documentation for implementation of version 1.1 of the SII. This updated version will go into effect July 1, 2018, pending the ratification of an order governing this process. Version 1.1 corrects problems identified during the initial implementation of the SII, and includes changes designed to make compliance easier for taxpayers.
Given the initial results of SII, Spain is expected to roll out the mandate to remaining businesses not currently required to participate as early as 2019.
Errors Must Be Avoided
Given the dramatic business impact of the compliance and reporting rules, Spain has been initially tolerant of missed deadlines and errors. But the government will soon become more stringent, assessing penalties and fines, as well as denying companies the right to deduct VAT if they don't comply. That’s one of the reasons the tax authority is moving toward version 1.1; changes are designed to facilitate taxpayer compliance.
Thus far, Spain’s Ministry of Finance reports only an 84% correlation between reporting transactions and the corresponding VAT returns. That means 16% of transactions would have resulted in fines and penalties should the government be enforcing them. Companies must take a hard look at their compliance and reporting efforts and eliminate such errors as the government moves swiftly to start cracking down.
For more details about the initial Spain SII implementation and how your company can prepare for what's on the horizon, download our white paper, "Key Lessons Learned from Spain's SII Rollout."
About the Author
Jeroen Wensveen is Solution Principal at Sovos Compliance and is based in Amsterdam, the Netherlands. He has more than 20 years of international indirect tax experience and is currently responsible for the strategy of the Sovos VAT Reporting global indirect tax software application. He works closely with Sovos clients and partners to facilitate sales, software implementations and international compliance process transformations. Before joining Sovos, Jeroen was one of the founding partners of VAT Resource, a leading European VAT services organization, where he focused on building out the European VAT compliance outsourcing practice and the development of VAT software solutions. He has worked on several indirect tax automation projects for large multinational clients. Jeroen is a Tax Lawyer and has a L.L.M. in Taxation from Leiden University in the Netherlands.More Content by Jeroen Wensveen