By PBS Indirect Tax Team
A rather common problem for Spanish companies is that they have to face the payment of output VAT for unpaid invoices relating to the sales or services supplied.
This situation implies a financial cost for VAT taxpayers (companies and entrepreneurs providing services or selling products) since the VAT payment to the Spanish Tax Office must be done in the corresponding deadlines for the monthly or quarterly returns. Non-compliance with this rule is subject to severe tax penalties.
Spanish Law sets forth a mechanism that allows recovering unpaid VAT, and improving the financial situation of Spanish VAT taxpayers.
The most common scenario is related to debts with a maturity exceeding one year since the VAT accrual (or six months, if the company’s turnover in the previous year does not exceed 6 million €).
It is required that the payment of the debt is claimed (either judicially or through notarial request).
The VAT taxpayer has to issue a credit note during a three-month term as from the end of the before-mentioned term of one year (or six months) since the VAT accrual, communicating this practice to the Spanish tax authorities within a month.
It is important to note that the credit note must be sent to the debtor, by any mean that can prove that such remittance has effectively taken place, (and that the credit note has reached the debtor).
The debtor, on its side, shall rectify input VAT upon receipt of the invoice, and communicate this fact to the Spanish tax authorities within the term for filing the VAT return.
Another rather common scenario relates to debts for bankruptcy situations. In these cases, the credit note must be issued within one month as from the date the bankruptcy judiciary resolution is published in the Spanish Official Gazette.
There is no doubt that this mechanism can positively improve the cash-flow of companies that face the problem of unpaid invoices. However it is important to take into account what are the deadlines to comply with the required formalities, to benefit from the VAT recovery.