Why aren’t all the Tax Identification Numbers of Spanish companies valid in the European system VIES (VAT Information Exchange System)?
In order to better understand the reason why not all tax identification numbers or NIF (Número de Identificación Fiscal) of Spanish companies are valid in the European VIES system, it is important to understand some concepts first.
What is the VIES system?
The VIES system is an electronic system used to transmit the information relating to VAT of all those companies that are registered in the European Union in order to verify its validity. In addition to this information, the VIES system also allows the transmission of information relating to intra-Community supplies, which are tax free in the Member State where they are despatched, among all the Member States of the European Union. This is a highly reliable fraud prevention system. If the customer who buys the services or products is not in the VIES system, the operation is not exempt from VAT and a VAT invoice must be issued to that person or company so this tax is paid to the country where the goods arrive.
The data provided by the VIES system are produced in real time. That is, whenever information is requested, the system sends a message to the Member State that is responsible for assigning the VAT number of the company in question in order to see if such a tax identification number is actually valid or not.
What are NIF and NIF-IVA?
The way a natural and legal person is identified for tax effects is through their Tax ID or NIF (Numero de Identificación Fiscal), and should not be confused with the NIF-IVA, which is a TAX ID number for VAT purposes and is the one required in order to perform certain intra-community operations.
For the NIF, the format is basically 8 digits + 1 control digit for all those Spaniards who have their ID card. For other individuals, the NIF will consist of 7 numbers + 1 letter + 1 control digit.
The NIF-IVA usually consists of the NIF each person subject to VAT has in accordance with the legislation of the Member State of residence. This number is preceded by the letters of that country and complies with ISO 3166. In the case of Spain, the format of the NIF-IVA is ES +9 characters, of which the first and last character may be letters or digits and the rest only digits, for example: ESX1234567X.
To apply for a VAT registration or NIF-IVA, the interested person must do it directly when applying to enter the ROI (Registro de Operadores Intracomunitarios / Register of Intra-community Operators) by completing the form 036, which is a census declaration, checking the box 582 to register and filling box 584 with the date in which the first operation is expected to take place.
What is Form 036?
Form 036 is the document that contains all the information and census data of the natural or legal persons that the Spanish Tax Agency (AEAT) needs to know. This form includes all data for the identification of companies such as their core of business, way of taxation and information on partners and managers of legal entities such as corporations, public limited companies, cooperatives, associations, civil societies, etc.
How do you enter the ROI and therefore, the VIES system?
Entering the ROI is not an automatic process, and the Treasury must accept the application first. To this end, the Tax Office conducts an inspection and asks the company or individual who wishes to register, the reasons why they want to be part of this register. They have to provide all the documentation to support their reasons and to demonstrate that they are true and justified. Treasury has the power to reject or accept the request. The inspection can include a physical visit to the company's offices, and the proper identification of the company in the office building or personal address is required. If the application is accepted, the company or individual will receive a NIF-IVA, which will be their identification number for these operations within the European Community. This will allow them to purchase services from companies in other EU countries and receive invoices without VAT charges.
It is important to note that the company or individual who has not completed Form 036 and has not checked the box 582 will not be in the VIES System. Form 036 can be obtained at the Administraciones y Delegaciones de la Agencia Tributaria (Local Tax Offices).
Why does Spain require the completion of Form 036 in order to enter the ROI?
The reason that Spain requires that Form 036 is filled in order to enter the Register of Intra-Community Operators and therefore, the European system VIES, is to minimize the risk of VAT fraud. This census is a way to keep a better understanding of intra-Community operators, allowing the detection of suspicious companies because of their profile, and to take appropriate action.
The VIES system is highly reliable but given its nature is not capable of controlling VAT fraud in intra-Community transactions all by itself. This is the reason why there is a need for other forms of prevention.
In recent years, “Carousel” has been the type of tax fraud which has grown noticeably. It occurs when a company buys a product in another EU member country without paying the VAT, then it sells these same products within its country to a third party charging VAT, but disappears and does not return the VAT charges to the Treasury. The third party who purchased the products claims back to the Treasury the VAT it has paid to the company that disappeared, representing a loss to the Treasury of this State Member.
Although it sounds a very simple type of fraud, fighting it is more difficult and complex because in that process there are involved two or more States of the EU and various departments of tax administration. That is why it is important to coordinate efforts and actions and hence the importance of the existence of ROI and the measures to prevent fraudsters to have access to this register.