Author:
Miriam Sánchez González
What happens to the VAT on unpaid invoices and how can I recover it?
The current VAT regulations (Article 80 of the VAT Law) provide for a complex, expensive and time-consuming mechanism for recovering VAT on bad debts:
- The collection must have been claimed by means of a judicial claim, notarial demand or burofax.
- One year must have elapsed since the accrual of VAT without the invoice having been collected.
- The term to modify the taxable base and therefore issue the rectifying invoice is very short (6 months).
- There is a requirement to communicate, within a very short period of time, to the Tax Administration, on the modification of the taxable income and other data of the transaction.
- It is impossible to recover VAT on transactions where the recipient is not a business or professional (B2C transactions) if the taxable amount, excluding VAT, does not exceed 50 euros.
This process, as currently regulated in the VAT regulations, is extremely costly (the cost of the claim may even exceed the VAT being claimed) and with a complex bureaucracy.
But what does the EU have to say about it?
According to the reiterated criterion of the Court of Justice of the European Union (CJEU) in numerous judgments, including its recent judgment of February 29, 2024, there is a fundamental principle in VAT according to which the taxable amount of the tax is constituted by the consideration actually received and “the corollary of which is that the Tax Administration may not collect VAT in excess of the amount collected by the taxable person”. In other words, the businessman or professional “in his capacity as tax collector on behalf of the State (…) must be entirely relieved of the burden of the tax due or paid in the context of his economic activities which are in turn subject to VAT”.
According to what has already been reiterated by the CJEU, entrepreneurs or professionals must be able to recover the VAT due, in respect of those invoices for which they do not manage to collect the consideration from their customer, being therefore an uncollectible credit.
The VAT Directive 2006/112/EC requires Member States to establish a procedure in their domestic legislation to make VAT recovery possible. In this sense, and according to the criterion of the CJEU, the formalities that Member States may impose on taxable persons, in order to be able to recover from the Tax Administration the uncollected VAT quotas, must have the sole purpose of proving that, after a transaction has been agreed, part or all of the consideration has not been definitively collected.
In view of the pronouncements of the CJEU, some of the requirements and limitations provided for in Spanish domestic legislation could be declared contrary to the principle of neutrality and the rules provided for in the European Directive. In the meantime, in recent months two appeals have been admitted by the Supreme Court on these issues.
To date, we must wait for resolutions that continue to be raised with the administration in the courts and expect a modification of the Spanish regulations that better fits with the VAT Directive, making more flexible and simplifying the processes to recover the VAT of unpaid invoices.
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