Data in control and the future of VAT compliance. A Spanish case: Voluntary SII vs homologated invoicing software

I. Transactional data as the new paradigm in worldwide tax compliance

Fighting against tax evasion and tax erosion has traditionally been a main concern for tax authorities no matter the country. The novelty is that, now, there is a consensus that the evolution of technology provides powerful tools to achieve these objectives. 

This is giving rise to a new status quo where the tax administrations make intensive use of technology for the managing of taxes and, through local normative which in many cases accommodates to multinational protocols, a level tax playing ground is created way means of the introduction of homogenized standards and data sharing procedures.

• As far as VAT is concerned, new regulations thrive relating to the use of technology which aim is that local tax authorities may dispose of updated databases of those relevant transactional data required for the automated reporting and auditing of the tax.

So, it has become a “hot” topic for internal IT, financial and tax departments of multinational companies and their professional advisors in the VAT field, which are the possible solutions for keeping ahead of a situation where technology is disrupting the traditional ways of VAT compliance and the role played by the different stakeholders.

When dealing with different jurisdictions, no matter the specific aspects involved, there is a common issue present, namely, the need for the companies of having the relevant transactional data at the fingertips, so they can be retrieved in a real time basis and be shared on demand by the different parties involved in the managing of the VAT compliance.

So, being able to address to this common issue is critical when dealing with any problem which, regardless of the specific country or obligation, may arise in the new VAT compliance scenario, and is central when deciding which is the line of action and, when required, the adequate technical solution to be adopted.

II. European standards on real time reporting and e-invoicing. The ViDA initiative

An example at an European level of what has been said, are the movements producing at the European level so to create a framework of EU standards that homogenize the domestic regulations of the technology involved in the automation of VAT reporting, Given its implications, a special reference must be made to the changes foreseen in the, so called, pillar one of the legislative proposal “VAT in the digital age”(ViDA) which, is expected, will have to be implemented by 1 January 2030.NOTE 1

Such changes, affecting the VAT Directive, will oblige EU member states to introduce digital reporting obligations, to both suppliers and customers, and obligatory e-invoicing as regards non-domestic B2B transactions, namely:

• Intra-community supplies, acquisitions and B2B services.
• Reverse charge when the supplier is a non-established.
•  Supplies of energy to a taxable dealer.
• Triangulations.

Once the changes are introduced, the Vida contemplates that pre-existing domestic regulations introduced by member states on these areas must be harmonized to the new EU standards by 1st January 2035.

III. Real time reporting and e-invoicing regulations in Spain

For the case of Spain, the regulations that govern real time reporting and e-invoicing, are:

a) Digital Reporting Requirements (DRR):

Since 1st July and referring to transactions incurred since 1rst January 2017In Spain introduced a nearly real time reporting obligation of the contains of the VAT registers (the Immediate Information Supply or SII).

This obligation was introduced by Royal Decree 596/2016, of 2 December, and applies to:

• Companies appertaining to a VAT group.
• Companies obliged to file monthly VAT returns, namely: the so called “big companies (those, resident or not, having carried out VAT taxable transactions, regardless of their being exempt, exceeding 6 million Euros the previous year) or having registered at the monthly refund regime register (REDEME).
• Any company having applied for the voluntary application of the SII.

b) Homologated invoicing software:

The software used by companies for their invoicing processes will have to comply the technical standards regulated by Royal Decree 1007/2023, of 5 December (the so called “Veri*factu” ordinance). This rule is to be developed by a pending Ministerial Order which draft which, once having obtained clearance from the European Commission for clearance in July 2024, is pending publication at the Official Gazette. Once published, the producers of existing invoicing software will have 9 months to adapt to the technical standards of the Veri*factu Ordinance.

The technical specifications and functionalities contained therein - i.e. structure of the required invoicing records for entries and cancellations, voluntary reports to tax authorities, hash and time stamping, QR to be included in the invoices, etc.- are meant to reduce the existing fraud based in what is known as “double use software”, which allows manipulating the invoice registers.

It is to me mentioned that the following companies are excluded from the obligations regulated in the Verif*actu ordinance:

• Non-resident companies which do not operate through a permanent establishment for Non-Resident Income tax purposes in Spain.
• Companies within the scope of the SII, either because they are obliged to comply with it because they are with its scope or because they decided to its voluntary application.

According to the Veri*factu ordinance companies will be obliged to use invoicing software that complies with its technical standards before 1^st July 2025 (although it is not to be dismissed a postponement till 1^st January 2026).

c) E-invoicing:

The already existing e-invoicing obligation in public procurement, the same is extended to all B2B transactions by article 2bis of La w 56/2007 of 28 December of Measures to Promote de Information Society, as modified by Law 18/2022 of 28 September regulating the creation and growth of enterprises).

This new obligation will not be in force until 12 months - 24 months for companies with a turnover under 8 million Euros - are elapsed from the date when the required developing ordinance is published in the Official Gazette, which draft has already been submitted for clearance to the European Commission in January 2024).

Transactions where the client has not its business site or a permanent establishment to which the invoicing is addressed in the Spanish territory or, failing that, its domicile or habitual residence therein, are excluded from the scope of said B2B e-invoicing obligation.

IV. Spain. A decision to be made: Adapting the invoicing software to the Veri*factu Ordinance vs voluntary application of the SII

As commented, companies within the scope of the Veri*factu Ordinance will have to use homologated invoicing software by the 1^st July 2025 or, if the expected postponement occurs, by the year 2026.

So, adapting to the Veri*factu Ordinance becomes a pressing matter of concern for the companies affected, which will have to take the following steps in the short term:

a) If the company uses its own internal invoicing application:

• A review of the existing the master data parameterization and internal business flows is required, which allows concluding as to the capability of the company to retrieve the transactional data which will be requested so to adapt to the Veri*factu Ordinance.
• The changes to be introduced in the invoicing application so to be compliant with the new regulations and the resources necessary to meet the expected deadline.

b) If the company uses an external invoicing application:

For this case, the software provider must me contacted so to confirm that it will make available on time an updated compliant version, which implantation efforts will be required from the company and the costs involved.

As regards multinational companies which operate in Spain, it is important to mention that here will not be the obligation to comply with the Veri*factu Ordinance:

• When they do not operate either through a subsidiary, a branch, or a permanent establishment for Non-Resident Income tax purposes (a VAT fixed establishment would not be enough).
• In any case, if they are within the scope of the SII and so obliged to maintain its VAT registers at the website of the Spanish Tax Agency (AEAT) in a real time basis (so, big companies - turnover higher than 6 million Euros the previous year-, companies forming part of a Spanish VAT group, or those registered in the REDEME). 

• Also, as already mentioned, there is the option to apply for the voluntary application of the SII, which would exclude from the obligation to adapt the invoicing software used by the company to the Veri*factu Ordinance.

In practice, exercising this option can be an interim of definitive alternative to contemplate when the adaptation to the Veri*factu Ordinance is very costly or unworkable by the required deadline, due to the circumstances involved. This may especially be the case in companies appertaining to a multinational group where the invoicing is centralized or where an internal common ERP is used, as it needs not necessarily be conformed to the specificities of every country where the group operates.

V. Conclusions

a) There is a global trend for the introduction of standards at a multinational level which facilitates the use of technology in the management of taxes and eventually help the fight against fraud.

b) In the VAT field, besides the ongoing and existing domestic regulations of member states setting up such standards and electronic VAT obligations, the so-called Vida initiative (“VAT in the digital age”) is an example at the EU level of the mentioned trend.

c) The obtention of an updated database of relevant transactional data that can be shared by administration in real time is central in these new regulations.

d) Focusing on Spain, multinational Companies which operate in the Spanish market may be obliged to comply with its domestic regulations related to the automation of VAT compliance and data reporting, namely:

• Real time reporting: The so-called SII (“Immediate Information Supply”).
• Homologated invoicing software: Adaptation by 1^st July 2025 (unless extended to 1^st January 2026) to the standards introduced by the so-called Veri*factu Ordinance.
• E-invoicing: Obligatory B2B e-invoicing by 2028.

It is to be borne in mind that these regulations may be affected by the expected changes in the VAT Directive as at 1^st January 2030 as a result of the Vida initiative.

e) Adapting to the Veri*factu Ordinance should be a priority to subsidiaries, branches or permanent establishments of multinational companies which operate in Spain.

f) For the case of companies which do not use a software that is specifically designed to comply with Spanish standards (such as companies appertaining to a multinational group which policy is to impose the use of a centralized ERP), adapting to the Veri*factu Ordinance by 1^st 2025 (if not extended to 2026) can be a problem.

g) Besides, there could be other cases different from the one described above, where such an adaptation may also represent a problem in terms of time and resources. For all these situations, a voluntary option for the application of the SII could be an alternative, since this would exclude from the obligation to adapt to the Veri*factu Ordinance.

NOTE 1  The Vida is part of the 25 initiatives foreseen in the European Commission’s action plan for fair and simple taxation supporting the recovery