In this very context we would like to comment on the new criteria of the Directorate General of Taxes (Dirección General de Tributos, DGT) for recovering VAT on unpaid invoices, and thus potentially improving companies’ cash flow as much as possible.
As is well known, the Spanish Law on Value Added Tax (Ley del Impuesto sobre el Valor Añadido, LIVA) foresees the possibility for businesses to recover the VAT charged to customers and paid to the Tax Authorities but not collected from customers, when, since the due date of payment, respectively 6 months (SME) or 12 months (companies with a turnover of more than 6 million euros) have elapsed. However, one of the requirements set out in the previous version of the said law and considered as such by the DGT, was having brought legal actions against the debtor or having carried out a notarial demand for payment.
Obviously, these requirements delayed recovery of VAT considerably. However, as a result of the new wording of the LIVA (specifically Art. 80.4) given by the Law on the General State Budget for 2023, the DGT has made the procedure more flexible. The legal actions or prior notarial demand for payment to the debtor can now be replaced with any other means that reliably proof having reminded the debtor of the due payment. Furthermore, the deadline for recovery of the VAT was extended from three to six months from the time the credit is declared a bad debt.
The communication to the debtor has to be made in such a way, that sending the content of the reminder for due payment, the identity of the sender and the addressee, as well as the result and the date of delivery can be proven. Hence, means of communication which fulfil these prerequisites have the same guarantees as the legal actions or the notarial demand for payment. The consultation made to the Tax Authorities specifically included the question whether a mediation procedure in the terms of the Draft Law on Measures for Procedural Efficiency, advocating for more flexibility regarding the means of demanding late payments, would comply with these requirements of the LIVA. The answer given by the Spanish Tax Authorities was affirmative.
We would also add that, according to the new interpretation, a burofax could be a valid means of proof of having reminded the debtor of the late payment, and thus making a request for refund of paid VAT possible. In short, this new interpretation by the Tax Authorities is commendable as it will lighten the financial burden of many companies. This measure acquires certain relevance, since it cannot be ruled out that we will see a liquidity crisis similar to that of past economic crises.