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International VAT Meeting 2010

International VAT Meeting 2010. Implementation of the VAT Package SPAIN Düsseldorf 04.03.2010. Preliminary remark (1/2). Status of the transposition At the date of the preparation of this presentation (21.02.10) Spanish legislator has not transposed yet the VAT package.

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International VAT Meeting 2010

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  1. International VAT Meeting 2010 Implementation of the VAT Package SPAIN Düsseldorf 04.03.2010

  2. Preliminary remark (1/2) Status of the transposition At the date of the preparation of this presentation (21.02.10) Spanish legislator has not transposed yet the VAT package. The Spanish Tax Authorities have issued Resolution 23.12.09 in which they recognize the non-fulfillment of the Spanish legislator, the direct effects of the relevant VAT Directives (basically 2008/8 2008/9 and 143/2008) and try to justify that they are simply interpreting such directives.

  3. Norms on which the following comments are based Our comments are based therefore on the following norms: Wording of the mentioned Directives Spanish Resolution dated 23.12.09 (Resolution 23.12.09) Draft of the Spanish Law of transposition of such Directives (draft of transposition law) Proposal for the Council Regulation laying down implementing measures for Directive 2006/112 of the common system of VAT (Proposal of Council Regulation) Preliminary remark (2/2)

  4. Questions of interpretation The Status of the recipient Definition of permanent establishment Involvement of a permanent establishment Supply of services connected with immovable property Supply of “professional services” Supply of services connected to events Penalties with respect to the reverse-charge procedure Prepayments and final invoice Agenda (1/2)

  5. New formal demands EC Sales and Acquisition Listing Confirmation and explicit use of VAT ID No Input VAT refund procedure Other relevant changes not foreseen in the VAT package Increase of VAT rates Electronic filing of VAT registers Information on speaker Agenda (1/2)

  6. The status of the recipient (1/3) • Problem: Supply of a service which partly falls upon the entrepreneurial area and partly upon the private area of an entrepreneur • VAT judgment: • Same judgment as Germany regarding entrepreneurs: Not VAT registration obligation • Legal entities are always considered taxable subjects for the reverse-charge procedure. The German Holding-problem does not arise in Spain. However, in general, holding entities are only allowed to deduct input VAT as far as they carry out an entrepreneurial activity. Does the pure holding activity together with an entrepreneurial activity limit the deductibility of the input VAT? • Attention: • Last sentence of 4th whereas of Directive 2008/8/EC: “These provisions, in accordance with normal rules, should not extend to supplies of services received by a taxable person for his own personal use or that of his staff”

  7. The status of the recipient (2/3) • This rule has not been included neither in the following wording of the Directive nor in the Spanish draft of transposition Law or in Resolution 23.12.09 → Checking of VAT ID No should be enough. However Proposal of Council Regulation requires in article 23 the confirmation that purchased services are used for business purposes. • Since January 1st 2010 any entrepreneur undertaking intracommunity deliveries or acquisitions in Spain or rendering or receiving intracommunity services must have an EU-VAT ID No. • Obtainment of an EU-VAT ID No in Spain lasts long and is always profusely checked before by the Tax Authorities.

  8. The status of the recipient (3/3) • - Services considered exempt until December 31st 2009 could be considered not subject to VAT as per January 1st 2010 • Example: • Entrepreneur A resident in Spain renders services to legal entity B, resident in Germany. According to Spanish VAT Law and EU Regulation such services are exempt of VAT (e.g. services rendered to NATO). • Assuming entity B does have a VAT ID No does the exemption or the reverse charge rule apply? • →Different formal invoicing requirements. • →In case of reverse charge, obligation to include such services in the EU Sales and Acquisitions list. • Solution: Analysis of the rule that can be considered lex superior, posterior or lex specialis

  9. Definition of Permanent Establishment (1/2) • Problem: Determination of the place of supply of service in case of a PE; definition of PE and a construction site might differ in EU-countries. • Definition according to Spanish law: • Any fixed place of business from which taxable subjects undertake their entrepreneurial activity. • Spanish particularity: • No personnel means are needed according to the present wording of Spanish VAT Law nor following the draft of transposition law. E.g. the mere lease of a warehouse or immovable property implies a PE for VAT purposes.

  10. The Spanish definition of PE allows the following VAT planning: Constitution of a Spanish PE for VAT purposes in order to deduct automatically Spanish input VAT but avoiding a PE for direct tax purposes. Such definition contravenes EU Court’s Jurisprudence (e.g. Sentence dated 28.06.2007 C-73/06) and article 15 of Proposal of Council Regulation, which require personnel means. Therefore the response of the Spanish General Direction of Taxes to a Consultation dated 26.08.2009 (response V1910-09) also declares the requirement of personnel means. → Certain entrepreneurs could loose their PE for VAT purposes, which in turn would imply problems with regard to VAT refunds. Definition of Permanent Establishment (2/2)

  11. Involvement of a Permanent Establishment ● The so-called vis atractiva of the PE has been abolished as per 1.01.2010 → PE must be involved in order to consider it as place of supply. • Example: An Italian consultancy firm with a PE in Spain renders consultancy services to a Spanish entrepreneur. As per 31.12.09, due to the Spanish PE, the reverse-charge rule did not apply to such services, independently of its involvement or not. As per 1.01.2010 the reverse-charge rule is only excluded as far as the PE is involved. • Problem: Term “involvement”: According to Proposal of Council Regulation the personnel and material means of the PE must be involved. According to Spanish draft of transposition law both personnel and material means or one of them must be involved.

  12. Supply of services connected with immovable property • Example: • DE renders services to ES with regard to a alarm equipment installed in a factory of ES. The alarm equipment is rendered by DE to ES. • Problem: Term “immovable property” • According to Spanish Civil Code goods can be immovable due to their characteristics (e.g. buildings, parcels of land), their incorporation or due to the destination given to them by the owner of the immovable property where they are located. • VAT judgment: • The alarm equipment is considered immovable property due to its destination. • Place of supply of service ES • Since DE leases immovable property it constitutes a PE for VAT purposes in Spain. • DE has to get fully registered in Spain and invoice Spanish VAT to ES

  13. Supply of “professional services” Supply of “professional services” to residents in third countries General rule: Article 44 Directive 8/2008: Place of supply → Recipient's state Exception: If the services are effectively used in Spain the place of supply is Spain. • Problem: Term “effectively used in Spain” • - e.g. tax advise regarding an investment to be undertaken in Spain? • - e.g. filing of a claim before Spanish Courts or of Spanish tax returns?

  14. Supply of services connected to events Fair company DE provides access to a fair which takes place in Germany from 2011 (!) onwards. The person seeking access to the fair is either a Spanish resident entrepreneur or a Spanish private person. ● According to our understanding, the relevant issue with this regard is that as per 1.01.2011 only the services consisting in providing access to cultural, artistic, sporting scientific, educational, entertainment and similar events including access to fairs and exhibitions and ancillary services to such access providing are considered to be rendered where the event takes place. The place of supply of any other service with this regard is follows the general rule (at destination), as far as the recipient of the services is an entrepreneur. ● According to Spanish Tax Authorities (Consultation dated 27.06.2003 V1599/2006) services consisting in the assembling, ornamentation or lease of fair stands are considered services connected with immovable property → Place of supply is where the stand is build.

  15. Penalties with respect to the reverse-charge procedure Example: ES receives a supply of services from FR. FR issues an invoice without VAT. ES forgets to apply the reverse-charge procedure in Spain. - 10% of the VAT quote penalty for forgetting the reverse-charge declaration. - In addition due to forgetting to issue the self invoice (autofactura) the tax auditor could maintain the non deductibility of the input VAT which in turn implies a 50% penalty.

  16. Prepayments and final invoice • Problem: In case of a prepayment invoice in 2009 and a final invoice in 2010 -> which law is applicable ? • Definition according to Spanish law: • VAT accrues when the service is rendered or the delivery undertaken. However, in case of prepayments the VAT accrues at the moment where the payment is done. Thus the same taxable event can be subject to two different laws.

  17. Invoice requirements • A German company performs a supply of service on a construction site in Spain of an Italian resident customer (not a service in connection with real estate) • Which VAT ID No is applicable ? • -On the invoice: The Italian VAT ID No must be shown in the invoice • -In EC Sales Listing: Italian VAT ID Nr. has to be used • (country of residence of the recipient) • Respective configuration of ERP-system necessary • Penalty for incorrect EC Sales Listing – up to EUR 150

  18. EC Sales and Acquisitions Listing declaration obligation (1/2) • Content: - Intracommunity deliveries and acquisitions. - Supply of intracommunity services. - According to the draft of Spanish VAT regulation also acquisition of intracommunity services • Monthly submission of the EC Sales and Acquisitions Listing • In general monthly filing of this listing • Quarterly filing in case that intracommunity deliveries or intracommunity supply of services in the relevant quarter or during the four preceding quarters ≤ 100.000,- € • Verbal interpretation of the Tax Authorities: Intracommunity acquisitions always monthly. Intracommunity deliveries or supply of services with the mentioned limit quarterly.

  19. Submission of the EC Sales Listing until the 20th of the following month Two different declaration dates for EC Sales and Acquisitions and preliminary VAT return. This latter one is filed quarterly as far as turnover of preceding year ≤ 6.010.121 € Declaration of intra-community services (services rendered) in the period of the completion of the services Invoice date is irrelevant; how to handle in practice to be discussed. However, as such services are not subject to Spanish VAT the practical consequences in Spain of this problem aren't material from a Spanish point of view. EC Sales and Acquisitions Listing declaration obligation (2/2)

  20. VAT return declaration obligations • Declaration of intra-community services (services rendered) in the period of the completion of the services • Invoice date is irrelevant; how to handle in practice to be discussed. However, as such services are not subject to Spanish VAT the practical consequences in Spain of this problem aren't material. • Declaration of reverse-charge procedure (acquired services) in the period of the completion of the services • Although in principle Invoice date is irrelevant, in order to apply the reverse-charge rule with regard to intracommunity services acquired (issuing of the so-called self invoice “autofactura” the incoming invoice is needed. • In case of services rendered without interruption during more than one year without giving raise to prepayments VAT accrues on 31.12 of each year (Article four Resolution 23.12.09, Directive 2008/117).

  21. Confirmation of VAT ID No • In principle, the conformity of the entrepreneur status of EU resident customers has to be checked only once – but before the first supply of service. Confirmation in https://aeat.es/viesdist.htmlor in http://ec.europa.eu/taxation_customs/vies/vieshome.do • In principle, simple Confirmation of VAT ID No should be sufficient (article 26 Proposal of Council Regulation). Neither Resolution 23.12.09 nor draft of the transposition law foresee further confirmations. However Proposal of Council Regulation foresees in article 23 the necessity to check if the intracommunity services are used by the recipient for business or private purposes. Tax Authorities could request the obtaining of the corresponding client’s confirmation. Once Council Regulation enters in force it is directly applicable. • Evidence of the entrepreneur status of third country customers (what kind of evidence will be sufficient ?!): According to article 3 of the Proposal of Council Regulation the confirmation of VAT or similar number should be sufficient.

  22. Confirmation of VAT ID No

  23. Confirmation of VAT ID No

  24. Explicit use of the VAT ID No Practical Solution ? According to article 23 Proposal of Council Regulation the obtainment of such confirmation might be requested by the Tax Authorities

  25. Input VAT refund procedure (1/2) VAT refunds of Spanish resident companies for foreign EU-countries to be submitted through an online portal at www.aeat.es Problems: • The total document size of scans per application and country cannot exceed 5MB (appx. 100 pages). If this size is exceeded only invoices with the highest amounts shall be included • The invoices should be scanned in PDF or TIFF in a resolution of a minimum of 200 dpi • The refund request must include all the information foreseen in article Eight 5. c) of Resolution 23.12.2009. Otherwise it is deemed not to have been filed. No possibility of amendment? Loss of refund right if deadline to file the refund request (30.09 of the following year) has elapsed?

  26. In order to file the request an electronic signature is needed. Furthermore an e-mail address has to be provided to the Tax Authorities for notification purposes. Attention: Notifications done at such e-mail address are fully valid. Deadlines for VAT refund (4/8 months) for the tax authorities realistic ? What about former applications (old system) – when can a refund be expected? Requests filed before 31.12.09 follow the former procedure Interest rate ? (Spain → 2010 5%). No interests if the applicant does not attend within the deadlines the information request of the Tax Authorities (Article Eight.13 Resolution 23.12.09). No interest as per the termination of the such deadlines or no interests at all? Input VAT refund procedure (2/2)

  27. Increase of VAT rates as per 1.07.10 The general VAT rate of 16% is increased to 18% The reduced VAT rate of 7% is increased to 8% Attention: - VAT accrual determines the applicable rate. Example: Prepayment in June 2010 of service to be rendered in July 2010 → Applicable rate = 16% Continuing services: VAT accrual occurs when the corresponding price is demandable. Example: Services consisting in providing Internet access rendered during 2010. The price is only demandable as per 1.01.11 → Applicable rate for the total year 2010 = 18% Other relevant changes not foreseen in the VAT Package (1/3)

  28. - Correction of invoices: According to the Spanish Tax Authorities (Response to Consultation dated 1.07.1993) the correction does not imply a new accrual → Same rate as that which was applicable to the rectified invoice applies. - Services rendered to Public Administrations: According to article 88.One of the Spanish VAT Law VAT is considered included in proposals submitted to Public Administrations. According to writ of the Spanish General Direction of Taxes dated 22.01.1992 (Circular 2/1992) the price to be paid by the Public Administration is that foreseen in the accepted proposal minus the VAT rate applicable when the contract was ascribed. Example: Proposal of 100.000,- € submitted in 2009. Contract ascribed in June 2010 → Price = 100.000 - 16.000 = 84.000,- €. Contract ascribed in July 2010 → Price = 100.000 – 18.000 = 82.000,- €. Other relevant changes not foreseen in the VAT Package (2/3)

  29. ● Electronic filing of VAT registers The obligation to file per internet periodically VAT registers has been postponed until 1.01.2012. Thus only those entrepreneurs which ask for the monthly refund of input VAT have to file these registers periodically per internet. Other relevant changes not foreseen in the VAT Package (3/3)

  30. Information on speaker • 2 years of experience in a Spanish-German law office in Madrid.6 years of experience in one of the Big Four companies in a leading position in Madrid. In 2003 foundation of WTS Lamarque Krieg Tax Advisers SLP • International VAT advice and planning • Due diligence • International construction contracts • Tax procedures and litigation • Lecturer on tax law at the Universities Carlos III of Madrid, ICADE Madrid, UNED Madrid and Trier (Germany). • Author of several articles and publications in German and Spanish tax magazines • Speaker in different seminars and courses given by private institutions, business schools and enterprises. WTS Lamarque Krieg Tax Advisers SLP Luis Lamarque Partner Telefon: (0034) 91 406 29 26l.lamarque@lamarque-krieg.com

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