Indirect Tax Alert | 5 February 2014

New Spanish cash accounting scheme impacts VAT reporting

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Executive summary

On 27 September 2013, the new Spanish cash accounting scheme was approved by Law 14/2013. This new special scheme came into effect on 1 January 2014. However, taxpayers have until 31 March 2014 to elect it.

The cash accounting scheme is optional. Subject to certain requirements, taxpayers with turnover not exceeding €2 million can elect to apply it. This scheme affects how to report and deduct VAT.

Under this special scheme, taxpayers will report the VAT charged on sales of goods or supply of services, on the date on which payment is fully or partially received.

Likewise, these taxpayers will delay their right to deduct input VAT incurred on their purchases until they pay fully or partially the price of the transaction.

Detailed discussion

Time limit for the VAT due settlement

The VAT due on transactions undertaken by taxpayers applying this special scheme, whose payment has not been collected before 31 December of the following year in which the transaction has taken place, must be included in the last VAT return of such calendar year.

Likewise, the recipients of these transactions may deduct the input VAT even if they have not paid the pending amount in the four years starting from the above mentioned date.

Quantitative limit applicable for this special scheme

Taxpayers can not apply the cash accounting scheme when their total turnover in the preceding year exceeded €2 million.

Additionally, the VAT regulations establish a second limit: taxpayers who have received more than €100,000 in cash from one single recipient are excluded from applying the cash accounting scheme during the following year.

Excluded transactions

The general VAT accrual criteria will be applied to the following transactions supplied and received.

  • Transactions subject to the VAT reverse charge mechanism.
  • Intra-community acquisitions of goods.
  • Imports or similar operations.
  • Transactions performed by taxpayers subject to the following special VAT schemes: simplified procedure for small enterprises, common flat-rate scheme for farmers, special scheme for investment gold, equalization surtax scheme for retailers and the special scheme for electronically supplied services.
  • Operations performed by businesses in the VAT grouping scheme. It is advisable to interpret that the cash accounting scheme shall not be applicable at both the advance and basic levels.

Impact for entities purchasing from taxpayers applying the special scheme

Apart from the consequences that the special scheme has for taxpayers that apply it, the scheme has relevant implications for the recipients of goods sold or services supplied.

1. VAT deductions

Input VAT of transactions subject to the cash accounting scheme can be deducted exclusively once the price of the transaction is paid, whether totally or partially, and in proportion to the amount actually paid.

Notwithstanding, input VAT of any operation subject to the special scheme that has not already been totally or partially paid until 31 December of the following year, can be deducted in the total or partial amount not paid in the four years starting from said date.

According to the above, it is advisable to carry out a separated and specific accounting of these transactions with the aim to ensure:

  • Control of cash payments performed during the calendar year with the same taxpayer that has applied the special scheme for an amount above €100.000. These payments prevent the application of the special scheme to the supplier.
  • Deferring the input VAT deduction until the total or partial payment has been done, or, alternatively, deferring it until 31 December of the year following that in which the supply was made.
  • Registering the deferred VAT in the book of invoices received, with an additional requirement as explained below.
  • Reporting the transactions subject to the special scheme in the Form 347 according to the deadline and data required.

The recipients of goods or services from taxpayers that apply this special scheme will be subject to the general VAT rules regarding the exemptions, the taxpayer status, the pro rata rules and the general requirements and limitations for deducting the VAT, except for the timing of deduction rules above mentioned.

2. Invoicing and booking obligations

  • Invoices issued under the special scheme must contain a reference to “Cash accounting scheme” or in Spanish “Régimen del criterio de caja.”
  • The book of invoices received must include two additional details:
  • Date or dates in which the payments of each transaction have been made, reporting them separately.
  • Mean or means of payment used in each transaction.

3. Annual summary of transactions with other companies – Form 347

Form 347 will report the transactions of the corresponding year in which the total or partial payments have been made and, additionally, the transactions made in accordance with the accrual date.

It should be noted that taxpayers that must comply with the fulfillment of Form 340 (taxpayers that are included on the monthly VAT refund scheme) should not file Form 347.

Issues pending clarification

Among others, the General Directorate of Taxes should clarify the following issues:

  • If the use of means of payment such as factoring, confirming or bill discounting will determine the VAT accrual under the special scheme.
  • If the VAT grouping scheme is excluded from the cash accounting scheme in its both levels –basic and advance- or only in the advanced one.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Abogados, Madrid
  • Javier Martín Martín
    +34 915 727 554
  • Silvia Bermudo Conde
    +34 915 727 749

EYG no. CM4160