Description of operations in invoices for VAT deduction purposes
The issue of compliance with formal requirements in relation to the right of deduction for VAT purposes has long been a bone of contention between the tax authorities and taxpayers.
The tax authorities have been known to take, on occasion, an excessively formalistic approach, leading many to dispute the imposition of restrictions on the entitlement to VAT deduction based merely on formal deficiencies in invoices.
The most recent ruling regarding this matter has been that of the European Court of Justice (ECJ), in its judgment of 15 September, 2016, in which it analyses the possibility of restrictions being placed on the deduction of VAT in the case of invoices which document legal services provided “between one date and another”.
The ECJ has confirmed in its judgment that an invoice such as that referred to does not meet the minimum content requirements of the applicable legislation, since it fails to provide a sufficiently detailed description enabling the tax authorities to verify both the payment of the Tax and the existence, where appropriate, of entitlement to deduct it.
It nevertheless expresses the view that where the tax authorities have access to sufficient information to be able to verify compliance with the material requirements for the exercising of the right to a deduction, no restriction should be imposed since this would be in breach of the principle of neutrality on which VAT is based.
This is just the most recent of a succession of decisions, dating back over several years, in which the ECJ has shown that insofar as relates to the exercising of the right to deduct VAT, it attributes greater importance to material than to formal requirements.
We are nevertheless aware of the billing practices of Spanish companies and know how very strict the management and inspection bodies of the State Tax Agency can be in relation to compliance with formal requirements. We therefore wish to stress the importance of ensuring that the description of the transaction to which the invoice relates is sufficiently precise as to its nature and as to the treatment which corresponds to it (i.e. exemption where appropriate, tax rate applicable, etc.). Similarly, references made to appendices or other documentation (such as contracts) can be a useful way of ensuring that the information contained in the invoice is not only precise but also concise.
Garrigues Tax Law department