Penalties under Spain’s New SII Reporting System

12.2019

Since 2017, major changes have taken place in the tax reporting obligations of large companies in Spain—changes which, surprisingly, have received little public attention. Until 2016, such companies were required to file two separate monthly returns. On the one hand, the VAT return (Form 303), in which invoices received and issued were reported on an aggregate basis, resulting in a monthly balance either payable (where output VAT exceeded input VAT) or refundable (where input VAT exceeded output VAT).

On the other hand, companies had to submit Form 340, which contained a list of all invoices received and issued, with key details such as the taxable base, customer or supplier information, and their tax identification number. In this way, the tax authorities did not only receive the monthly VAT summary (the amount payable or refundable), but also a concise record of the invoices previously recorded in the company’s accounting system, which served as the basis for the figures declared in Form 303. This additional list acted as a control mechanism to prevent discrepancies between the amounts declared and the company’s actual accounting records.

One major advantage of this dual reporting system was that VAT refunds were processed almost immediately—typically in the following month—rather than having to wait until January of the following year to request them, thereby improving companies’ cash flow. By cross-checking both returns using computerised systems, the tax authorities could perform an initial consistency check on VAT declarations (and indirectly on invoices) without the need for an individual audit—and, crucially, without requiring additional personnel.

Of course, an individual audit remained possible at any time, since the system continued to rely on self-declared data by taxpayers, which could always be incorrect. Nevertheless, the need for such audits became less pressing. In short, the system provided the tax authorities with greater systematic control—mainly through technology—using the same administrative resources.

Since January 2017, however, the system has undergone a radical transformation, leading to absurd and often disproportionate situations—particularly regarding penalties and the changing relationship between accounting and tax reporting. From that date onwards, large companies must continue to submit Form 303 as before, but they no longer file Form 340. Instead, every few days the company’s internal accounting system must transmit detailed VAT-related information directly to the tax authorities, covering all issued and received invoices.

Consequently, companies are no longer required to file a separate declaration listing invoice data (as was the case with Form 340). Under this new system, the Spanish Tax Agency (AEAT) now has almost real-time access to all accounting data related to invoicing. This continuous transfer of information from within the company is known as the SII (Suministro Inmediato de Información) or Immediate Supply of Information. This represents a fundamental shift in VAT control mechanisms: rather than relying on taxpayer declarations, the tax authorities effectively gain direct entry into companies’ accounting records.

One of the most contentious aspects concerns the weight the tax authorities assign to SII data in comparison to traditional tax returns such as Form 303. Based on our professional experience, failure to transmit SII data—or doing so after the deadline—can trigger extraordinarily high and disproportionate penalties, giving rise to issues similar to those associated with Form 720, the declaration that Spanish tax residents must submit for assets held abroad. Form 720 is purely informative but linked to other tax returns, such as personal income tax or wealth tax. The excessively severe penalties for late filing or non-filing of Form 720 have provoked outrage among tax professionals and even intervention by the European Commission.

The paradox is evident: the penalty for failing to transmit information may be enormous, even where the taxpayer owes no tax under income or wealth tax returns. This offends the most basic sense of coherence, since the purpose of transmitting information is to ensure correct taxation—if no tax is due, then failure to report should not, in itself, be penalised. Information duties are, by their nature, ancillary to the main tax obligation, not the other way around.

The same problem arises with the SII. Some of our clients have faced substantial penalties for failing to submit SII data on time, often due to the additional time needed to adapt to the new Spanish requirements when their accounting is managed centrally outside Spain—a common situation among international groups. Yet, in these cases, the Form 303 declarations consistently result in refunds, as the companies issue invoices without Spanish VAT under applicable VAT rules. Should a company be required to pay a €10,000 fine for being one month late in submitting SII data when it has never owed any VAT to the Spanish authorities?

The amounts demanded for delays during 2018 have been staggering, often leaving the head of tax at the parent company in shock when informed of the penalty’s magnitude and justification. If there is no loss to the public treasury—because no VAT is payable—how can such a penalty be justified?

Another troubling consequence of the SII regime is that any error detected by the tax authorities in an SII submission automatically invalidates the corresponding Form 303 VAT return for that period. Thus, without the need for a formal audit or the opportunity to present arguments in a legally established procedure, the VAT return is deemed invalid because the SII accounting data prevail over the tax data—an unprecedented situation in Spanish tax practice.

In conclusion, disputes concerning the SII system and its interaction with VAT reporting—particularly for international businesses—are increasingly common, though the courts have not yet had the opportunity to examine these cases given their recent emergence. Unfortunately, the current management of this new system in Spain—and its likely expansion to other jurisdictions—is highly conflict-prone. International companies operating with centralised accounting systems are therefore at greater risk of committing material errors and facing severe penalties. Sound tax advice is essential to mitigate these risks effectively.

++ Article originally published in German in the magazine “Economía” in October 2019, issued by the German Chamber of Commerce in Spain ++