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Proposals for the future of VAT in Spain

Spanish Value Added Tax’s 30-year anniversary is in 2016, having been first applied when Spain joined the then European Economic Community.

This celebration is in itself an argument and an opportunity to review Value Added Tax, which has been the subject matter of only two laws in its 30-year life, the primitive Law 30/1985 and the current Law 37/1992, in force for over 23 years. A long time has passed, endorsing the suitability of the review process addressed here.

We should recall the enthusiasm with which VAT was received, from a technical perspective, and confirm whether it currently fulfils the paradigms of neutrality and transparency proclaimed when it was introduced to society in the past, as well as its capacity to serve as “an instrument able to contribute effectively towards achieving economic policy objectives in any circumstances” as the preamble to Law 1985 stated.

The latest Value Added Tax reform having been approved in 2014, the Fundación Impuestos y Competitividad’s indirect taxes work group considers it to be advisable to assess to what extent the prevailing regulations respond fully to the needs of business in our times.

The document sets out the areas in which dysfunctions have been detected which could merit purely national legislative actions and suggests possible solutions, always from the viewpoint of gaining competitiveness for Spanish companies and the necessary compatibility with European law. The suggested changes could be made within the framework of the prevailing VAT Directive and in compliance with CJEU case-law.

The analysis has been undertaken, on the one hand, by reference to the general nature of the economic activities on which the tax is levied, in an analysis of the essential aspects of the tax regulations and also by specific reference to two economic sectors: finance and real estate. The choice reflects in part the undeniable importance of both sectors for the economy but also, and above all, the specific characteristics of their treatment in Value Added Tax regulations, which raise complex issues that have a considerable impact on competitiveness in these sectors.

This work has borne fruit in the form of the book “Propuestas de futuro para el I.V.A. en España” (Proposals for the future of VAT in Spain), published by Fundación Impuestos y Competitividad, which brings together the work of professionals from the entities that sit on the Foundation’s Board of Trustees, plus contributions made by other specialists from the Tax Administration, tax advisors and business organisations, coordinated by KPMG’s team.

It is difficult to summarise the set of proposals included in this work, but we can state that the common factor is the search for solutions that will reduce certain business inefficiencies caused by the application of prevailing VAT regulations or the burden on business of fulfilling the detailed formal obligations imposed by the regulations. The aim is to achieve these improvements while clearly observing the EU’s VAT framework, through an approach that makes possible feasible solutions to perfect the existing model. Aiming to achieve these improvements with a clear respect for the European framework of regulation and application of the figure and with a possibilistic approach, concretized in viable solutions for the improvement of the existing model.