Modifications to the tax treatment of telecommunications, broadcasting and television services and electronically supplied services have been implemented in Spain.
In connection with electronically supplied services, EU Directive 2017/2455 was approved on December 5, 2017, modifying, among other rules, EU Directives 2006/112 and 2009/132.
Although the Spanish Law 6/2018 implemented part of the modifications related to electronically supplied services on July 3, 2018, it was necessary to introduce an additional rule to detail these modifications: this regulation was the Royal Decree 1512/2018 dated December 28, 2018.
First of all, it would be useful to outline briefly the applicable treatment, up to the present date, of the location of telecommunications, broadcasting, television and electronically supplied services in value-added tax (“VAT”).
VAT Treatment from 2015
From 2015 to December 31, 2018, the applicable location rule for telecommunications, broadcasting, television and electronically supplied services was to consider them as located at the place of consumption, regardless of whether the recipient was a VAT taxpayer or a private individual.
Since January 1, 2019, although the general location rule applicable to these services is the same as described in the above paragraph, a new special rule has been implemented in order to reduce the management costs as well as the formal obligations borne by small and medium-sized companies in each country of consumption of the services.
It was decided to introduce a special location rule so that these kind of services would be considered as located in the country of establishment if the following requirements are met:
- the customer (private individual) must reside in a different EU member state to the country of establishment of the supplier;
- the volume of transactions between the supplier, and clients who are resident in an EU member state different from the country of establishment of the supplier, cannot exceed the yearly threshold of 10,000 euros ($11,280), either during the current year or the previous one.
However, suppliers which meet these requirements can still opt for considering these services as located in the country of consumption.
The special rule described above would only apply if the requirements referred to are met; if they are not met, the general location rule for these services (place of consumption) would apply.
The following is an example of this special location rule:
During 2019, a company which is established only in Spain starts rendering services not only to Spanish clients but also to French clients. The services rendered consist in online access to computer programs, the foreign clients being private individuals who live in France. The total amount of the services rendered to the French clients, during 2019, is 7,000 euros.
In principle, applying the new special location rule, these services would be located in the Spanish VAT territory; notwithstanding this, the Spanish company can opt for locating these services in France, submitting its VAT returns in Spain but through the Mini One Stop Shop regime (“MOSS”).
Implementation into Spanish VAT Regulation
This rule has been applicable since the beginning of 2019 and is familiar to most VAT specialists; however, it is useful to mention the following details included in the Spanish VAT regulations as well as the Spanish invoicing regulations.
Article 22 of the Spanish VAT regulations establishes that VAT taxpayers who opt for locating this kind of services, in any case, in the EU member state of consumption, even if the clients are private individuals and have not exceeded the aforementioned threshold, must prove to the Spanish tax authorities that such services have been declared in another EU member state.
In addition, it is important to mention that, assuming that the clients are private individuals and the supplier has not exceeded the threshold, the option for locating this kind of services in the EU country of consumption has a validity period of two years. After this time, if the supplier wants to keep using the same location rule, the supplier must communicate this again to the Spanish tax authorities; if not, this option will be revoked.
It is important to know that the local regulations of EU countries must be taken into account, as such local regulations would be applicable, for example in terms of invoicing. On this point, the EU legislator understood that, for companies which render this kind of services to clients located in different EU member states, it is very complicated to comply with the different invoicing regulations of the relevant member states.
In Spain, previous to this modification of the location rule for telecommunications, broadcasting, television and electronically supplied services, the applicable invoicing regulations for the issued invoice were those of the country of destination; however, since January 1, 2019 the applicable rule to be taken into account for VAT taxpayers who opt for the application of the MOSS is the invoicing regulations existing in the country of establishment of the supplier of the service.
This change in the criterion of the applicable regulations regarding invoicing rules has contributed to a significant increase in safety for companies providing this kind of services, since these companies do not now have to worry about whether their issued invoices meet with the legal requirements of each EU country of consumption, but only whether they meet the legal requirements of their country of origin.
In the same sense, for cases when the supplier of the service is not established in the EU, but is registered in the MOSS regime and Spain is its country of identification, the applicable invoicing regulations would also be the Spanish ones.
It is also useful to mention that, since January 1, 2019, the modifications included in the EU Regulation 282/2011, which is directly applicable in Spain, have simplified the requirements for small and medium-sized companies opting for considering this kind of services as located at the place of consumption to prove that their customers of electronically supplied services are resident in a certain member state. It is now simpler for these companies to prove the location of customers.
Our opinion on the new localization rule for electronically supplied services is that its application will be very restricted, since the annual limit of 10,000 euros, for all transactions with individuals residing in EU member states other than the one where the company is established, is very low.
Real Time Invoicing Obligations
Finally, regarding Spanish invoicing obligations in real time—"Immediate provision of information” (in Spanish “SII”)—the new regulation rectified the deadline for opting to apply the SII voluntarily, in the case of taxpayers which are not obliged to apply the SII. Since January 1, 2019, this option can be used at any time during the year.
This change is very positive in that, at any time of the year, companies that, although due to their volume of transactions would not be obliged to apply the SII, are usually in a VAT credit situation with the Spanish tax authorities: they could opt for the monthly VAT Refund Scheme and, in doing so, would be obliged to comply with the SII.
However, compliance with this system implies an implementation of the accounting and automatic information delivery systems of the company, particularly if the company has a large number of invoices.
In addition, once the monthly refund scheme has been applied, in order to obtain the monthly VAT refund it is necessary that the VAT books supplied through the SII correspond exactly to the VAT returns submitted by the company to the Spanish tax authorities. Otherwise, the Spanish tax authorities would halt the monthly VAT refund.
Ignacio Sandino Egea and Javier Galván Falcón are Partners with Diligens Tax Consulting, Spain.