Brussels takes Spain to European court for not exempting SMEs and the self-employed from declaring VAT
The European directive aims to reduce the paperwork for self-employed workers who invoice less than 85,000 euros annually.
BrusselsThe European Commission takes Spain to European justice for failing to transpose two directives relating to value-added tax (VAT). Brussels has taken Spain to the Court of Justice of the European Union (CJEU) because the Spanish government refuses to exempt small and medium-sized enterprises (SMEs) and the self-employed with annual revenue of less than €85,000 from charging, invoicing, and declaring this tax.
The intention of the European directive, which was approved in 2020, is to reduce paperwork for small businesses and the self-employed by exempting them from charging VAT to the tax authorities and, therefore, from filing quarterly and annual VAT returns. However, as is to be expected, self-employed workers or small companies that opt for this scheme and have annual revenue of less than €85,000 will not be able to deduct the tax.
If any self-employed individual or small business takes advantage of this exemption, known as the franchise scheme, and ultimately invoices more than initially projected and exceeds the €85,000 threshold, they would automatically be excluded and the following year would be required to resume charging VAT to their clients.
Furthermore, the European Commission has indicated that Spain is not applying another EU tax regulation. This specific regulation requires all member states to allow self-employed individuals to be exempt from charging VAT to their clients in other EU countries.
Spain faces a fine
Spain is the only member state that has not transposed these two European directives, which should have come into force on January 1, 2025. Furthermore, Brussels asserts that the Spanish government lacks the will to fulfill what it considers its obligation. "Spain has indicated that it does not intend to apply the VAT exemption for SMEs established in the directive," Brussels criticizes in the statement issued this Wednesday. La Moncloa argues that the exemption requested by Brussels is "voluntary," but the European Commission reminds it that it has the "obligation" to apply it, even if only so that "SMEs established in Spain can obtain the exemption in another member state of the European Union." Otherwise, the Commission warns that "the fact that Spain has not transposed the provisions" relating to VAT "entails the risk of double taxation or lack of taxation."
Thus, the State faces a fine or sanction from the CJEU, which will have the final say in the dispute between the European Commission and Spain. It is worth remembering that, before taking a member state to the Luxembourg court, Brussels notifies the relevant government on several occasions and gives it several months to transpose the European legislation. Specifically, regarding these two directives, the European Commission already sent Madrid what is technically known as a letter of formal notice on January 31, 2025, and a reasoned opinion on July 17 of last year.