VAT in the Digital Age. Preparing for the future of VAT compliance with the Spanish SII test version

VAT and technology. Prepare for the future now

On 8 December 2022, as part of its VAT action plan, the European Commission launched the “VAT in the Digital Age package” (“ViDA”) that includes proposals to modernize the EU VAT system to address to the challenges of digitalization.

These proposals relate to 3 main topics or pillars:

• Pillar one on Digital Reporting Requirements (DRR) and e-invoicing
• Pillar two on Platform Economy
• Pillar three on Single EU VAT Registration

Although the initial deadlines for implementation have been postponed, in the case of Pillar one from 2028 to 2030 or even 2032, the fact that there is not yet a common EU regulation in these areas does not mean that member states cannot issue internal regulations as regards Digital Reporting Requirements (DRR) or e-invoicing.

This has already been done in some countries such as Italy, Portugal, Poland and, also the case, Spain with the introduction in July 2017 of the SII and the expected obligatory B2B e-invoicing by 2025.

The impact of the new technologies in the management of VAT obligations has been an important issue in these latter years and is to become critical in a very near future with the implementation of ViDA, especially for those companies operating in EU jurisdictions.

Adapting to a new VAT compliance scenario. The three stages

So, adapting to the new scenario resulting from the ViDA and the already increasingly expanding regulations on digital reporting and B2B e-invoicing must be a priority for companies and their Internal IT, financial and tax departments, a task that, we understand, should involve:

• A preliminary stage, where the company:

• Analyzes its business flows and identifies the implications in the same of the existing and expected future regulations in the mentioned areas.
• Evaluates the adequacy of the ERP to produce the data required for the compliance with the VAT obligations, according to the applicable and foreseen expected regulations, resulting from the operative of the company in the different member states.

• A decision stage, where the company the company must decide as to the possibility to, ideally, automate as far as possible the management and control of such obligations. This may involve:

• Implementing the required specialized software, either:

• integrated within the ERP (native solution).
• Connected to the ERP (bolt-on solution).
• SaS solution.
  • Outsourcing the compliance with an external service provider who offers the possibility to automate the traffic of the required data for the completion of the VAT obligations.

• An implementation stage, where the option decided is put into place.

How well is the company prepared?

As mentioned, the adaptation to a scenario where the company is confronted with multiple local regulations that introduce digital reporting/B2B e-invoicing obligations requires that the different business flows and countries involved in its operative are identified so to determine the implications in terms of VAT compliance obligations.

Only then the company will be able to conclude about the sufficiency of its IT and personal resources for the completion of the tasks involved and ascertain that it will be able to comply in due time with said obligations, ideally with the higher level of automation.

At this stage it is critical the implication of all the parties involved within the company, normally the internal IT, financial and tax departments, as well as, if a group, the corresponding central departments of these areas. It may be also important the support of external IT and specialized VAT advisors that may provide feedback related to the local jurisdictions involved.

How the use of Spanish SII test version can help in the process

A key issue when diagnosing if a company is prepared to adapt to a scenario where VAT becomes digital is its ability to produce the data required for complying with the VAT obligations in may incur in the different jurisdictions. To answer this question, the ERP and software solutions implemented by the company must be tested and evaluated.

Until a common standard exists at an EU level, these data may differ from one country to another, however, this does not mean that the company cannot carry out the proposed evaluation diagnose:

• Either obliged by an existing obligation to comply with any of the already existing DDR systems.
• Either using the technical standards of any of such systems, regardless of being outside of their scope, as a term of comparison as, in practice, depending on the DDR chosen as a reference, most of the data which may be necessary in other jurisdictions or, likely, in the future EU standards, for complying with digital reporting or e-invoicing obligations should not significantly differ.

For this latter case, given the extend of the data and metadata its requires and the possibility to use a test option where consistency of data can be checked, the Spanish SII can be such a touchstone to evaluate if the company is ready to adapt to an scenario where it may be obliged to comply with the obligations arising from a DDR/e-invoicing scenario With the support of our solution PlatformVAT SII, we can help the company should it decide to carry out the diagnosis that has been proposed.

Furthermore, besides a step for preparing for the future, those companies operating in Spain which are not within the scope of the SII, should consider the possibility of opting for its voluntary application. In this way, they would be training their IT, financial and accounting systems for a not so far situation where digital reporting and e-invoicing generalize. Additionally, this option would involve significant advantages it terms of improving internal controls, keeping VAT registers and their reconciliation with VAT returns easily accessible in case of tax reviews, possibility to apply to the Import VAT deferral regime, etc.