When I was at home as I listened to the theme song from the film Frozen for the umpteenth time (kids, you know), my mind began to wander and I think about one of the last times I —like the snowman Olaf— was "frozen", when faced with an inspection from the Spanish Tax Authorities.
The document concerned the revision of Value Added Tax (VAT) and highlighted several controversial issues —prominently an operation in which the tax payer had charged a client the VAT they were liable to pay (by declaring it as accrued VAT), having nevertheless failed to pay the Spanish Tax Office (in fact, this amount was not even collected from the buyer, since they decided to pay this amount with other debt).
During this operation, it was quite clear that not all legal requirements for charging VAT were met, namely (i) that the operation is carried out by a business owner, (ii) that there is a taxable event, (iii) that it is located in Spain, (iv) that it is subject to and not exempt from VAT and (v) that the VAT has been accrued. As such, the buyer should not be implicated and no items should be paid by way of VAT.
Nevertheless, the inspection left both myself and the tax payer "frozen", upon demanding, despite everything, payment of the VAT rate mistakenly featured on the invoice. As such, Spanish regulations were forgone and Article 203 of the community guidelines on VAT was called upon as the only argument demonstrating that anyone mentioning VAT on an invoice or document is considered a VAT debtor.
Being treated this way by a Government body is somewhat shocking, since the same should be extremely rigorous upon applying the Law, yet, in spite of all this, it "forgets" basic tenets of European Law, such as correct use of what is known as the direct (vertical) effect of the community Guidelines.
It must be noted, for those unfamiliar with European Law, that the Guidelines (legal instruments governing European policies) subject member states to various obligations concerning the results to be achieved, nevertheless granting leeway as to the way in which this is done. In light of this fact, Spain enforced the Guideline in question as it deemed best via its VAT law. As such, Spanish tax payers are subject to Spanish law rather than to this guideline.
Indeed, a Guideline may also be enforced directly, alongside the regulations set forth (in this case, alongside the VAT law), if it is possible to deduce subjective rights or responsibilities from the same.
Nevertheless, logically speaking, this direct effect may only be invoked by individuals before the member State that issued the regulation and not vice-versa, since the State was able to choose how to phrase and apply this regulation. Moreover, acceptance of the latter would undermine the legal security of Spanish tax payers, since it would make it necessary to decide whether to apply the Spanish regulation or the European one in each operation.
Luckily, despite the significant legal indiscretion posed by the Inspection, it seems that these cases, like the story "Frozen", will have their own "happy ending", since the Central Economic Administrative Court (in a Ruling issued on the 22nd of September, 2015, in line with that issued on the 22nd of April, 2015) amends inspection criteria, emphasising those sections of European Law we have seen, thereby annulling the settlements made.
The inspection should, without a doubt, take good note of what the Central Economic Administrative Court says, leaving this kind of focus behind upon standardising VAT documents, since they are clearly breaching European Law. As such, payment of VAT rates may only be requested when the same have been accrued in accordance with Spanish regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
