In recent years, more and more Latin American countries have shifted towards digital transformation and introduced mandatory e-invoicing and electronic VAT reporting as a proactive solution to tax evasion. This became a huge success for countries, such as Mexico, Chile, Brazil, Peru, etc. to close their VAT gap effectively. Europe has closely monitored this initiative. As a result, some European countries have followed with their own e-invoicing and electronic VAT reporting regulations to reduce tax fraud. In 2017, Spain introduced its own regulation on electronic reporting of VAT-related information: the so-called SII principle (Suministro Inmediato de Información del IVA = Immediate Supply of Information on VAT). The SII obligation to report VAT-related information to the Spanish government has been implemented based on the Spanish Royal Decree 596/2016 of 2 December 2016. This in turn introduced particular regulations into several legal acts, in particular into the Spanish VAT Regulation (RD 1624/1992).
With this SII obligation, the AEAT (Agencia Estatal de Administración Tributaria = Spanish tax authorities) get a better grip on the VAT that needs to be paid as part of B2B transactions. Complying with these SII regulations and avoiding severe penalties for non-compliance brings a lot of IT- and process related challenges for organisations that are doing business in Spain.
In this blog post, I provide more details on the Spanish legal requirements for SII and explain how you can make your own SAP ECC or SAP S/4HANA system compliant with the Spanish SII regulations for the electronic submission of VAT-related ledger information.
Why Spain introduced mandatory near real-time reporting on VAT-related information with their SII rules
The Spanish SII regulation came into effect on 1st July 2017. With this, Spain was the first country in Europe following Latin America’s e-invoicing model to adopt automation in efforts to eliminate tax fraud in order to maximise tax collections. Before this date, several other European members, such as Poland, Portugal, Austria, Luxembourg, France and Lithuania had already introduced the SAF-T (Standard Audit File for Tax) requirements for electronic VAT reporting on a periodic basis, but none of them had requested near real-time information yet.
With their SII framework, Spain took a key step to improve the information they gather, both to gain more effective control on VAT reporting and to focus on generating more revenue. This initiative enables the Spanish AEAT Tax Authorities to prepare the data for VAT in the same way as they also do for income tax.
With the introduction of SII, the gap between recording or booking invoices and the conversion of the related business transaction is faster closed. Through automation, taxpayers can use SII to file their VAT returns in a simpler way with real-time information. This automation framework also provides additional benefits beyond improved control. As such, the SII system assists organisations in obtaining their data for VAT returns and also speeds up any refund process, while allowing checks on the integrity of the data to be made much more precisely.
Who is affected and needs to comply with the Spanish SII legal requirements?
On 1st July 2017, the Spanish SII regulations for mandatory electronic reporting on VAT information came into effect for the following taxpayers:
- Companies that are considered to be “large businesses” and have an annual turnover in Spain over EUR 6.010.121,04.
- Organisations that belong to VAT groups in Spain.
- Taxpayers that are registered in the “REDEME” scheme (special monthly VAT refund scheme).
The SII model also applies to non-resident and non-established companies. However, organisations can also voluntarily sign up.
In the event of failure to transmit the by the Spanish tax authorities required XML file within the established deadline, or in the case of incomplete or incorrect data, a penalty of 0,5 per cent of the amounts omitted can be applied, with a minimum of EUR 300 and maximum of EUR 6.000 per quarter.
The SII legal requirements for electronic reporting on VAT information in Spain
The SII requirements for the electronic submission of VAT information in Spain require to report the following 4 main fiscal books (ledgers) to the Spanish Tax Agency’s AEAT E-Office:
- Book of outgoing invoices (LRFE) to report sales transactions, such as domestic sales, intra-community sales and export. Transactions will include sales invoices and cash sales.
- Book of incoming invoices (LRFR) to report purchase transactions, such as domestic purchases, intra-community purchases and import. Transactions will include vendor bills, checks and credit card charges.
- Book of certain intra-community operations (LRDOI) to report selected receivable, payable, and credit card charges transactions based on the intended use of the goods, as listed in a series of articles in the Spanish Law of VAT.
- Book of investment goods (LRBI), which is required to be submitted by companies that are subject to pro-rata rules. In other words, to the ones who do not have a full right for deduction because of performing exempt transactions.
For each outgoing, incoming or intra-community invoice, the VAT information needs to be saved and summarized in VAT reports that are electronically transmitted to the AEAT tax authorities within 4 days from generating an outgoing invoice and within 4 days from the accounting record of an incoming invoice. For the intra-community invoices, the VAT reporting needs to be done within 4 days after the transport has started (for outgoing invoices) or from the moment the goods are received (for incoming invoices). For investment goods, the VAT information needs to be submitted during the tax filing period corresponding to the last return of the year.
The requirement to electronically transmit the VAT reports to the AEAT does not include the entire invoices to be sent electronically. Instead, only a report, collecting the required VAT information from the different invoices, needs to be transmitted to the AEAT tax authorities.
From a technical point of view, all required VAT information needs to be submitted through web-services in a pre-defined XML data format to the AEAT’s SII system. If you provide the VAT information in any other data format, this will be seen as a non-valid submission. After each submission, the SII system will automatically check the data format and the content of the VAT report and will provide you with one of the following feedback messages: accepted, rejected or partially rejected. In case of a rejection, a rejection code will be forwarded, and adaptions need to be made before resubmitting.
Technical and process related challenges for the electronic submission of VAT reports to the Spanish SII system
With the introduction of the SII legal requirements, the Spanish tax authorities replaced a 30-year-old system for VAT management procedures. This modernisation causes both technical and process-related challenges for organisations that need to comply with this regulation.
As such, the Spanish tax authorities require a tax summary and not specific customer/ vendor invoices. By standard, this VAT report is not available in SAP. Therefore, in order to provide the VAT list, your SAP ERP system must be adapted to automatically create the lists that contain the required VAT information. In a next step, a pre-defined XML file, containing the VAT information, needs to be created. In order to generate this XML file, the VAT information in your SAP ERP system needs to be mapped with the XML structure.
Next to these technical aspects, it is also important to consider the underlying business processes for compliance with the SII requirements. The correct business information needs to be selected in the correct business cases. This means that it is important to consider the different business cases, in which the relevant data needs to be collected. Also, the different business exceptions need to be considered. All this input is important for the technical setup in your SAP system.
How PIKON makes your SAP ERP system compliant with the Spanish SII requirements
At PIKON, we have established a “Competence Centre for Legal Requirements”. We are a strategic partner who ensures that your SAP system and business processes meet different country-specific legal requirements on the long run all over the world. Our team of experts combines SAP expertise and extensive knowledge of country-specific regulations and has gained a lot of project experiences over the years. This ranges from country-specific legal requirements, such as e-invoicing in Mexico (CFDI), Italy (SDI), Spain (SII), Hungary, VAT reporting in the UK (MTD-VAT), e-accounting with SAF-T in France, Portugal and Poland to accounting standards such as lease accounting under IFRS16 and SEPA.
In order to make your SAP ECC or SAP S/4HANA system compliant with the Spanish SII legal requirements for electronically submitting transactional invoice data, we recommend implementing the SAP Document Compliance solution. This is a strategic SAP-standard solution that includes the use of SAP eDocuments and can be re-used for compliance with other country-specific legal requirements all around the world.
SAP Document Compliance to automatically submit VAT-related information to the SII system of the Spanish AEAT tax authorities
In a first step, a source document is created in SAP. This relates to posting an accounting document for an invoice.
Now, an SAP eDocument is created on the basis of the accounting document, which is related to the invoice. For this, you can use a specific SAP transaction or SAP report for creating eDocuments for Spain. The generated SAP eDocuments are all listed in the SAP eDocument Cockpit.
Since the AEAT tax authorities require specific VAT-related information to be submitted, the information in the different SAP eDocuments needs to be summarized in a list. For creating this list, a specific SAP transaction or SAP report can be used. Once you run this SAP transaction or SAP report, a new SAP eDocument is created. This contains the required summarized VAT-related information.
The created list is submitted into the SAP eDocument Cockpit, in which it will be converted into the by the Spanish tax authorities required XML format.
When submitting the list in the SAP eDocument Cockpit, it is transferred to the AEAT E-Office, in which it will be verified. This data transmission occurs through SAP PI, SAP CPI or a third-party middleware system.
Once the AEAT has received your submitted XML list with VAT-related information, it will be automatically processed. Your submitted list can then be approved, rejected or partially rejected. This feedback status, together with a rejection code (if applicable), will then be transmitted back into your SAP system. In SAP, all AEAT feedback is listed in the SAP eDocument Cockpit.
Your benefits of making your SAP system compliant with the Spanish SII regulations
After having implemented SAP Document Compliance and having made the necessary adaptions to your SAP system, you fully comply with the Spanish SII rules. This means that you have an end-to-end solution to automatically submit the required VAT-related information directly from your SAP system to the SII system of the AEAT tax authorities. With this, you avoid paying severe penalties that are imposed for non-compliance.
With SAP Document Compliance, you also have a strategic solution that ensures compliance with the Spanish SII rules on the long run. As soon as the AEAT decide to update their rules, some additional SAP OSS notes and mapping changes will be released for compliance with the latest version of the regulation.
The implementation of SAP Document Compliance can also play a key part in your strategic roadmap for compliance with different country-specific legal requirements all over the world. We at PIKON are happy to help you define your own roadmap and to share our experiences from many different customer projects. Please feel free to request a web-meeting, so we can discuss your current situation, share our project experiences and show our SAP solution in a system-demo.