COMMENT
The law analyzed herein addresses the need to adapt indirect taxation to the new situation arising from the establishment of an Internal Market among the European Union countries. The said adaptation involved the adopting of a series of measures which would give identical treatment to all internal transactions and to all intra-Community operations, which would lead to the total disappearance of customs controls among community countries. The two measures were the payment of the tax at source and the total harmonization of tax rates. Nevertheless, practical difficulties made it advisable for the first measure to be postponed while the harmonization of tax rates was being achieved. It is precisely Directive 91/680/EC -adapted by the Law which is commented on herein- that regulates this transitional period which, so that all the objectives can be achieved, is established from January lst 1993 until December 3lst 1996.
The main features of the analysed regulations are the following:
- The suppression of border controls among Community States.
- Maintenance of V.A.T. at the place of destination.
- Duration of the transitory period until 3lst December 1996.
Two new tax items are introduced: "intra-Community acquisitions of goods" and "intra-Community deliveries of goods", regarding, respectively, the purchase and sale of goods among Community citizens. Under the new tax it will be the actual parties to the transactions that will be responsible for settling the tax and paying it to the relevant Tax Revenue Service.
Intra-Community delivery is a transaction which is exempt from V.A.T. at source and means that the seller will not have to charge the tax to the buyer, provided the latter supplies the former with his Community tax identification number. Otherwise, if the tax identification number is not supplied or the buyer does not have one, the transaction will be subject to V.A.T. and the seller will be obliged to charge the tax in his invoice.
Intra-Community purchases also pose the same problem. If the buyer does not give the seller his Community tax identification number, the latter will charge the tax. In the event the buyer supplies such identification, the transaction will be exempt from V.A.T. at source and it will fall to the buyer to self-assess the V.A.T. including the resulting amount in his monthly or quarterly return, it being possible -in the case of the Spanish buyer- to deduct it from the same settlement period.
The import and export concepts are reduced to those transactions of this nature which are carried on with third countries outside the E.E.C. Importation is considered to be the entry into the territory in which the tax is being applied of goods originating in third countries or of goods which originating in third countries come from a free port area or abandon the special customs regime, thus leading to an operation subject to the tax. On the other hand, exportation is considered to be a tax-exempt transaction which consists of the delivery of goods transported or sent outside the E.E.C. by the seller or by a third party which is acting in his name and on his behalf.
Within the framework of intracommunity operations, the transportation of products is taxed separately and in accordance with the provisions which specify the place in which the taxable act took place, as well as the status of the addressee of the service.
As regards the rendering of services, the new provision does not introduce significant modifications, with the exception of the closer definition of the improvement some of the rules which determine the place in which the taxable act took place.
On the other hand, the V.A.T. paid on the employer's, his staff's or third party's travelling, board and lodge expenses will be deductible provided they are expenses which have necessarily been incurred during the normal business or professional activities carried on by the taxpayer and, likewise, enjoy the status of deductible under Personal Income Tax or, in the event, under Corporate Income Tax.
One of the essential novelties of the regulation refers to the possibility that the taxpayer has to renounce the application of certain exemptions from V.A.T., regarding the second or subsequent transfers of buildings, as well as the delivery of land to Compensation Boards and the awards made by the said Boards to the affected owners, thus not breaking the chain of deductions from the Tax due to real estate transactions.
With respect to the new configuration of the special regimes, it will be borne in mind that, when it has to do with travellers, E.E.C. residents will have to pay the tax in the country in which the goods are purchased, except in the case of the purchase of vehicles, in which the tax will have to be paid in the country of destination. In mail order purchases the tax will be paid at source, consistent with not exceeding a given turnover in the year immediately preceding.
The higher rate of the tax which stood at 28% disappears and a new, greatly reduced rate of 4% is established for basic needs.
Finally, within the scope of formal obligations, taxpayers are obliged to make the following returns:
- Monthly self-assessment return: if the gross sales exceed 1,000 million pesetas during the financial year immediately preceding or in the event of there being a right to a refund due to transactions which are exempt that have exceeded 20 million pesetas.
- Quarterly self-assessment return: in the remaining cases.
- Yearly summary return: as its name implies, it is a summary of what has been done during the year, attaching the monthly or quarterly returns.
- Quarterly summing-up return: it is a summary of intracommunity operations, deliveries and acquisitions for the period.
- Monthly statistical return (Intrastat): it is a return which replaces customs documents, in which all the operations for the period in question are listed, together with the acting parties and the type of goods.
Likewise, within the scope of formal obligations, the period is increased during which taxpayers can rectify the V.A.T. passed on for five years, and as a result, in the scope of the deductions relating to the V.A.T. paid, the taxpayer is also allowed to modify the deductions made during the year immediately following the receipt of the new invoice, without it being in any way possible to apply these corrections to that V.A.T. which is uncovered by a tax inspection and which has given rise to penalties being imposed on the taxpayer.
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.
For further information contact Mr Jorge Angell, L.C. Rodrigo Abogados, Madrid (Spain), fax: 00 341 576 6717, or enter text search "L.C. Rodrigo Abogados" and "Business Monitor".
