CONTRIBUTION OF THE SPANISH SII TO THE INTERNAL VAT MANAGEMENT FUNCTION

 I. A change of paradigm of the internal VAT management function

It is common that multinational companies which operate globally incur VAT reporting obligations in more than one country. When this happen, because of the different reporting parameters and technologies required by each jurisdiction, being able to remain compliant is a complex task and requires a flexibility which may not always exist, especially where the ERP, IT, financial and VAT reporting functions are centralized at group level.

This problem may be aggravated if there are not common technology standards for the different areas of the company (i.e. lack of an integrated ERP for administration, finances, logistic, etc.) or, even if this is not the case, the modules or instances of ERP have not been updated consistently and different versions co-exist within the company or the group.

In any case, the complexity of the task should not be in prejudice of adopting a “holistic” approach on every occasion that it must implement changes in its VAT compliance, in the sense that, when deciding the line of action to adopt, the company needs to consider:

a) The specific aspects involved in the origin of the changes (i.e. a new reporting obligation introduced in a certain jurisdiction, an update of technology, etc.).

b) Besides, it also evaluates how such a decided line of action contributes to and improvement of the internal VAT compliance function as a whole, and to its evolution towards the new role it is to play both within the company, where it must contribute to the creation of synergies in the different areas of its operative (i.e. financial, logistic, supply chain, etc.), and within a VAT management scenario disrupted by:

• The intensive use of technology, not only by the private sector but, also, by tax administrations, focused on the automation of their processes and on the building of updated databases of transactional data which can be exploited in the fight against fraud and tax elusion.

• The global changes towards harmonization at an international level and its impact in the domestic reporting standards (i.e. an outstanding example being the European Commission project ViDA and its future reshape of the e-invoicing and real time reporting regulations).

Within this new scenario, companies are expected to keep internal updated records and, eventually, provide the tax authorities in electronic format and at short time notice, detailed information related to their transactions in the different jurisdictions they operate.

This objective can hardly be achieved unless the internal VAT management function becomes a multidisciplinary hybrid task, requiring transversal skills from the professionals involved and the collaboration, in a higher or lower degree, of all the areas of the company.

II. Contribution of the Spanish SII to a holistic approach of the internal VAT management function

The “Suministro Inmediato de Información” SII (“Immediate Information Supply” is the Spanish e-reporting obligation to file the contains of the VAT registers at the website of the Spanish Tax Agency, almost real time, in a structured XML report that contains the data and metadata related to the transactions therein registered, as detailed at the corresponding SII regulation.

The SII, as happens with other similar obligations that may be introduced by the domestic jurisdictions of a country when regulating fields such as e-invoicing or, what are known as, continuous transaction controls (CTC) or real time reporting (RTR); has basically to do with being able to identify and retrieve from the company ERP the relevant transactional data and, subsequently, report it to the authorities according to the standards introduced by the applicable domestic jurisdiction,

So, the problems to be solved when implementing the Spanish SII will be similar, when not the same, to those arising in a similar scenario with any other transaction-based e-reporting obligation, regardless of the jurisdiction. Accordingly, the experience with the SII can significantly contribute and create synergies for any of those similar scenarios or, if a holistic approach is adopted, for the necessary evolution of the internal VAT management function as has been commented above.

From this point of view, it is worthwhile sharing the methodology we follow when implementing the Spanish SII in a company, which involves:

a) Step 1. Analysis of the change: The company needs to analyze which are the implications from a VAT reporting point of view of the changes taking place (in this specific case, the SII near “real time” reporting obligations).

b) Step 2. Master data and reporting status: The impact of such implications in the company business flows and the related ERP transactional data is to be evaluated, so to conclude as to their adequacy for the required reporting purposes.

c) Step 3. Checking of the existing VAT compliance process: Based on the outcome of these previous analysis, the company must evaluate if any action is required so to adapt any aspect of the existing VAT compliance process to new status quo, namely:

• The master data parametrization,

• The data extraction and reporting,

• The business flows involved in VAT reporting, and the persons responsible (internal and external),

• The VAT reporting technology.

d) Step 4. Deciding on the line of action: As the outcome of this process, the company is to decide:

• Which is the best alternative to adopt for adapting to the new VAT reporting scenario and the line of action for its putting into practice.

This should involve a calendar of actions, not only at short term but, ideally, also at medium and long term, that is consistent with the policy of the company concerning VAT compliance and the expected changes of the VAT legal framework (i.e. the intended amendments to the VAT directive contemplated in the plan ViDA).

• Which are the IT and human resources required, which areas of the company should be involved (i.e. IT, financial, logistic). and which should be the role of the external VAT advisors.

III. A conclusion and a suggestion. Voluntary application of the Spanish SII

The approach when implementing the Spanish SII which has been described above can be applicable to any similar scenario where the company is required to comply with a new transactional e-reporting obligation, regardless of the country involved,

Besides, for the case of companies which operate is Spain and are obliged to comply with the SII, much of the work that is required for implementing this obligation, if properly structures (i.e. the analysis of the business flows of the company’s operative and of the related transactional data, the parametrization of the master data, the data reporting configuration, etc.) can be of use, not only for implementing any new e-reporting obligation in any other jurisdiction, but can also contribute to the necessary update of the internal VAT compliance function , as has been commented above.

These synergies resulting from implementing of the Spanish SII should make companies which are not included within its scope (i.e. big companies with a turnover exceeding 6,001K Euros the previous year, companies appertaining to a Spanish VAT group or companies registered at the REDEME), to contemplate the advantages of its voluntary application.

In case of Spanish subsidiaries, branches or Spanish Non-Resident Personal Income Tax permanent establishments, this option for a voluntary application of the SII would have the collateral benefit of liberate them from the obligation to use an invoicing software that complies with the standards regulated by the, so called, Veri*factu Ordinance.

This obligation, applicable since July 2025 (unless postponed), may not always be easy the comply with in case multinationals when, as is not unusual, the Spanish subsidiary, branch or permanent establishment does not use an invoicing application conformed to the Spanish standards.