Going against the increasingly common trend of advocating
for the reduction or even elimination of direct taxes, indirect
taxes (with VAT at the forefront) are being used more and more
by governments in various countries as an effective way of
raising revenue. Evidence of this is shown by the fact that,
almost every day, suggestions are being made by various
international organisations to increase consumption taxes.
Today, 122 countries around the world have a VAT or GST, and
this number rises constantly. So, when by the time you are
reading this article, this figure will likely have increased.
It is worth pointing out that the GCC countries are in the
process of deploying a VAT system that is scheduled to come
into effect in 2018, something which was inconceivable only a
few years ago.
All this means that VAT – in all its forms and
aspects – is a fast-moving and constantly changing tax
that requires consulting companies and VAT professionals in
general to make a major effort to adapt thereto. Therefore, VAT
can be said to have an exciting and promising future ahead.
As member states of the European Union, we have a privileged
position in this regard. Our common VAT system –
despite having room for improvement – is replicated by
a large number of countries in the world that aim to have a
system for indirect taxation. We have many years' experience
and extensive knowledge that we can export to these countries,
which undoubtedly generates major business opportunities, not
only for expert VAT advisers, but also for countries themselves
to encourage a large number of activities such as inter-country
institutional relations, trading goods and services between
economic operators or expanding upon existing VAT reciprocity
agreements. We must be aware of this and take advantage of all
these opportunities, which will undoubtedly continue to arise
in the future.
It is important to remember that our common VAT system and
other similar systems in place in other countries must take
account of the current situation of our economy and adapt to
the times. The digital economy is a reality. It is already here
and is something we cannot ignore.
In my view, there are three areas that we must not lose
sight of in the coming years regarding VAT management.
(i) The digital economy and e-commerce
The growth of the digital economy and the
internationalisation of small and medium enterprises (SMEs),
especially in the past 10 years, have meant that the VAT system
is not entirely in keeping with the reality of modern
We are almost duty-bound to upgrade and modernise VAT
regulations, especially those to facilitate cross-border trade
and the digital economy.
Measures such as the EU's 'mini one-stop shop' (MOSS, which
is already in place for certain types of services and is being
proposed to be expanded for other operations as well) seem to
be a good starting point and will be of enormous help,
especially for SMEs. Nonetheless, authorities should consider
why in some cases and countries where these types of measures
have recently been rolled out, the response from companies has
not been as hoped, even if the official message released by
institutions says otherwise.
One-stop-shops alone do not eliminate the typical
uncertainties that invariably arise when applying tax,
especially when dealing with international transactions. If the
goal is for SMEs to manage, submit and pay VAT in its
international transactions without the help of a third party, I
as an adviser fear that, in practice, this will give rise to
insecurity and, in turn, create more problems than
(ii) Tackling fraud
We must not ignore the fact that the main and most important
measure to be taken is tackling fraud. The 'VAT gap' –
the difference between expected VAT revenue and the actual
amount of VAT collected – is an enormous issue that we
must do our utmost to counteract. I am not only referring to
tax authorities, but also to companies and consultants. It is
everyone's duty to tackle this problem, although we must be
aware that it is a challenging task. We must assume that
fraudsters are smart, truly multinational organisation whose
sole aim is fraud. In many cases, they are several steps ahead
of governments and companies.
The anti-fraud measures should not fall (as, unfortunately,
is the case) on companies, that every day have to cope with
more and more checks and reporting measures, some of which are
absurd and unjustified, making it almost impossible for them to
concentrate on their real business activities.
Tackling tax fraud not only requires tax measures, but also
other types of administrative or even criminal measures,
needing the cooperation of various individuals, organisations
and institutions. This cooperation must take place at
international level since the highest level of fraud occurs in
international transactions. If we only take local measures to
tackle this problem, we are not doing a good job.
These measures must always respect the essence and workings
of tax. Otherwise, we run the risk of turning VAT into a
different type of tax. Here I refer, for example, to the
proposed, and in my view unjustified, extension of the reverse
charge mechanism to virtually all transactions made by
companies. That cannot be the right path.
(iii) The disappearance of traditional returns and the
modernisation of VAT management
VAT returns as we know them seem to be coming to an end. I
predict that within a period of no more than 10 years, they
will move on to a better life.
These returns are being replaced by other more modern and
sophisticated ones (such as the SAF-T), which makes sense if
done in a justified and flexible way that takes into account
the companies' situation and is – as far as possible
– standardised at international level.
However, there has been a recent and increasingly widespread
trend, which is none other than the so-called 'real-time' VAT
reporting for transactions carried out by companies.
Hungary and Spain are the last two countries that appear to
have joined this trend, although Hungary seems to have
postponed its plans due to a failure by companies to adapt.
This is an example of flexibility that should be considered by
other tax authorities.
The case of Spain could be taken as an example of what
cannot and must not be done. To sum up, the measure to be
adopted would mean that companies are obliged to report on an
almost daily basis. This is clearly unacceptable.
These kinds of measures substantially change the VAT
collection mechanism and seem to go against all of the
principles of proportionality underpinning EU law. This
principle must always be taken into account by authorities and
must be present at the time of adopting any formal or
administrative measures that affect VAT management. Therefore,
I hope that this is not the direction that the tax authorities
of the various countries decide to take. And not only that, I
trust that European authorities will ensure this does not
happen and, where necessary, will seek to rectify the decision
of governments that chose the wrong path.
We must accept that the way we interact with public bodies
must change. Nevertheless, this change must not become an
overly burdensome, unjustified and disproportionate
requirement. Otherwise, the supposed efficiency that we hope to
achieve will turn into an insurmountable barrier especially for
smaller companies which, in actual fact, are the ones that
suffer most from this type of abuse.
I would like to finish this article with the same sentence I
have used to open it. I strongly believe that VAT and all
consumption taxes have a great future ahead.
Spanish VAT Services