VAT Talks - Rufino de la Rosa



We are extremely proud that in this episode of VAT Talks we spoke with one of the fathers of the first real-time reporting system in the European Union, Rufino de la Rosa. After setting up the Suministro de Información Inmediata (SII), Rufino is now Partner Global Compliance and Reporting at EY. During the interview we discussed the main functionalities of the SII, why the Spanish tax authority decided to implement such a system and how the implementation process looked like. We also discussed how the tax authority is using the tool. Rufino explained that step by step the data collected is more often used for data analytics. In order to pre-fill VAT returns for example. Another hot topic on which Rufino shined his light is the upcoming e-invoicing legislation in Spain. Lastly, we discussed the upcoming plans of the European Commission regarding Transaction Based Reporting (TBR). Rufino could not be clearer when he stated: “Do it!”

How did you end up in the field of VAT and what is your current role?

“I started as a tax auditor with the Spanish Tax Administration administration. One of the fields I focused on from the beginning was VAT. However, my last position was at the tax management department. This department has a very wide scope in helping taxpayers in the field of e.g. income tax where tax returns are pre-filled, while on the other hand these kinds of services have shown that it enhances voluntary compliance and helps to avoid tax fraud. In the field of VAT this was not as advanced as for income tax and that’s when we decided to build something similar for VAT. That was the moment where I really moved towards a focus on VAT in particular.

Currently I’m working at EY. As I was deeply involved in the development of the SII, one of my focus areas is, of course, supporting clients with the SII, but also supporting them with technology in general. Especially advising clients how technology can help with their tax compliance. To make tax compliance easier is actually one of the main targets of the UN sustainable development goals. Currently many companies all over the world are very much concerned about how to comply with their tax obligations. By sharing my knowledge about tax-technology and also about how things work at the tax administration, I try to help my clients in this regard.

Currently the Suministro Inmediato de Información (SII) is implemented in Spain. Could you tell a bit more about the SII and why it was implemented?

“The implementation of the SII was a very challenging but important project. Before the SII, the VAT system in Spain was mainly based on taxpayers filing their tax returns in paper. A problem was that many taxpayers were reluctant in fulfilling this compliance in time. As we aimed to provide pre-filled VAT returns, we realised we needed information with high quality, but also in a timely manner as the tax authority needs time to process this information. Besides, the taxpayer should have enough time to be able to check if the data is correct or not. If we compare this with income tax, the periods to file your tax return are way longer. VAT is more urgent, it’s an ongoing process. What we therefore did was look at the experience of other countries and we saw that in Latin-America e-invoicing was a real success in the field of VAT.

So, we knew our targets (receiving more information and providing more support to the taxpayer) and now we were investigating how to achieve that. The Latin-American experience showed that e-invoicing was not only working from a technical point of view, but also from the taxpayers perspective. And regardless not all of these tax authorities have the same level of technological development, this approach was successful in all those countries.

Still, we took a slightly different approach as we were thinking not about an e-invoicing system, but more an e-ledger, e-books compliance system. There were several reasons why we took that decision: (1) there were already certain legal obligations regarding reporting information about the accounting books in Spain, so it was a logical step in that direction. (2) On the other hand, we thought that if we only rely on information contained in the invoice, we lack certain information. There is still a lot of information that is not inside the invoice. Although both the e-ledger and the e-invoice are related, they are both XML files, the e-ledger contains a lot more information than the invoice. The last reason (3) was that we were not sure if the European Commission would have granted us a derogation from the VAT directive regarding e-invoicing. The composition of the parliament made this process quite uncertain and we were also bound to certain time limits. After we implemented the SII other countries were granted with that permission, but at the moment we were building the system we were not too sure about our case.”

What did the process of implementation look like?

“The entire process can basically be divided into two periods. The first one was where we designed the system in a very general way. This design had to be approved at a political level. As some legal changes were needed, this whole period lasted around one, one and a half years. It was not a very demanding period, we were simply waiting until the red button was pressed. The other period, which was roughly half a year, we were very much in a hurry. We had to quickly move forward with all technological implementations, provide all companies, tax advisors, IT service providers and taxpayers with the necessary information. That was a very demanding, but at the end a very fulfilling process. Actually all members of the team remember it as a very good experience.”

How did you deal with the issue of data protection? In what way is the data protected that is sent to the tax authority?

“This was one of the concerns we had at a quite early stage. First, we didn’t necessarily think there would be a problem with having information about taxpayers as the Spanish tax authority has a very strong system, strict rules regarding secrecy and a very long history of safeguarding information. However, the concerns were growing because one of the key aspects of the SII is that every company can check the information that other companies are sending about them. You can double check if the information provided by you is provided in the same way as your counterparty. Does it have the same VAT amount, the same VAT rate etc. Therefore, we consulted our legal department and they did not see any problem in this aspect of the system.

Still, it’s true that the information received through the SII is very detailed. Some of the main challenges for both companies and the tax administration is the question how to store this information, who to give access to this information and how to trace who has access. However, there have not been any issues to date because the Spanish authorities have very strong systems and maintain very high standards. At the same time, it’s an issue that needs to be worked on in a continuous way because security standards are rapidly changing.”

Was data only being stored and not analysed at the beginning due to data analytics capabilities? Does it have more capabilities now?

“I left the tax administration around two and a half years ago. So I cannot provide the most detailed information of the current stage. But, it’s important to emphasise that there were different stages. In the first stage, we really concentrated on the quality of the information. As it was not easy to implement all the different requirements of the SII, the first year was mainly about checking if the information was correct and that there were no misunderstandings with the taxpayer. Yet, I have to say that in general terms we were surprised because the quality of the information was very high. Still, quite some quality management was required. So for example changing a point for a comma, correcting an incorrect invoice number, etc. The second stage was how to treat that data, because the goal of the SII was not only to give information and support to taxpayers, but also to tax auditors and tax lawyers. More or less at this moment, the tax administration is working on the last stage: how to manage big data. For example, last year they started to provide pre-filled VAT returns. It was announced that at the beginning the scope would be quite limited, starting with companies with simple VAT returns so of which the tax administration is very sure that their information is correct. Next year they will widen the scope. So that is really an excellent way of providing support to the taxpayer.

However, there is something that is underneath this entire process which is that in the traditional tax administrations there is a distinction between providing support to taxpayers on the one hand, and performing controls and audits on the other. However, with a system such as the SII, this distinction does not make sense anymore. Now when the tax administration is giving information to taxpayers they are doing that with real-time information. At that same moment they are also controlling and auditing to a certain extent. They basically say to the taxpayer: ‘this is what we know about you, this is how we think you should declare it and how much you can deduct.’ Thus, the tax administration gives a pre-filled VAT return which can be to a certain extent seen as a form of auditing. Afterwards the taxpayer can still do whatever they want, but the tax administration does already have certain information about the taxpayer.

When speaking more specifically about how to manage data for audits, the Spanish tax administration has announced that they have specific AI systems to check e.g. fake invoices. So, step by step they are using that information. All in all, for the SII, and any tax-technology application for that matter, the main challenge is to get to a stage where the quality and quantity of the information received is high. That is what you get with the SII and once this very good basis is in place, you can build whatever you want on top of it. However, the main purpose of the tool is supporting taxpayers and performing tax audits.”

Does it already have an effect on the VAT gap of Spain?

“Yes. Of course it’s very difficult to know what exactly influences the reduction of the VAT gap. Still, from my perspective, although I might be a bit biased as one of the parents of the SII, I think it has a strong role in reducing the VAT gap. You could argue that the social system, a different number of small businesses or a difference in the grey economy might also play a role. But if you look at other southern European countries, the real difference is real-time reporting. I don’t think it’s the only reason for a reduction of the VAT gap, but it did have a strong effect.”

Currently you experience such an obligation from the business side, how are businesses responding to this obligation? What is their biggest concern?

“When the system was developed, we tried to make it as business-friendly as possible but we were probably not aware enough about the challenges that come along with the implementation of such a system. Companies are all different, some have a modern ERP system for example, some a less modern one. The challenges encountered by businesses differ a lot from one company to another. Today, businesses send an important amount of information to the tax authority and sometimes they may lose the oversight on what they are reporting. So the goal now is to coordinate this flow of information and provide companies with tools which can help them to also analyse their own information. This can help companies to gain more control over their business processes. This can also even go beyond VAT as it is information about their clients, providers etc.”

Mandatory e-invoicing is in the planning in Spain, would this be coupled with the SII?

“The implantation of e-invoicing in Spain is at a very early stage. A project is currently being discussed within the government. The Ministry of Economy is in charge of implementing the new system and discussions are now ongoing with the Spanish tax administration. From the start, the objective of the government was to reduce the payment period of the invoices in the country. With e-invoicing, you know exactly when the payment period starts. On the other hand, perhaps the Ministry does not know all the abilities of the SII. Indeed, companies can access the information of the system in order to know when an invoice was issued. In the end, the information the Spanish government is currently looking for can already be found in the SII.

Nevertheless, it is true that the SII is only for companies with a revenue of €6 million or higher. What the government is trying to do is to have an impact on all companies, widening the scope. I think we will see some kind of coordination between e-invoicing and the SII. This will help companies to comply with the requirements at a lower cost by using e-invoicing. Nevertheless, the e-invoicing system will make it more difficult to access the payment information, concerning how the payment was done and how. As I said before, I think that the purpose of the Ministry is to reduce the payment period by making perhaps some small changes in the SII.

We see in the European Union that many countries are now looking into e-invoicing or real-time reporting. These systems have proven their effectiveness. They come indeed with some costs for companies but the advantages outnumber the expenses related to its implementation. Nevertheless, from a European perspective, it is not advisable to have many different systems in different countries. Companies work in different countries and would need to share information with different systems. This could become a problem and therefore I think that European authorities should take this into account.”

There is also a plan to implement some form of real-time reporting (or transaction based reporting) for intra-Community transactions. What do you think of this development?

“I think this is a very good step forward. We faced some challenges in this regard when implementing the SII in Spain, because the system would have had no impact on intra-community transactions reporting obligations. So one of the most important questions was actually: what are we doing with that obligation? I think it really shows that the European authorities want to make progress regarding real-time reporting. This development will help to collect information more quickly and to implement an early stage detection mechanism also on a European level.”

If you could give one piece of advice to the European Commission, what would it be?

“Do it! It is important to consider the challenges, but the EU should not be paralised by all the potential problems. You must start somewhere and try to solve these problems during the process.”

What would you say to the reader to make them more enthusiastic about VAT?

“It is sure that VAT lacks the glamour of other fields of taxation. Nevertheless, VAT is the second source of income of all developed countries. It’s true that it might be quite far from the real economy, because the information was not real-time. Now that we have real-time reporting systems this situation changes and VAT can also become the main source of information on economic activity. Lastly, it’s a fair way of taxation and that a lot of countries are implementing more and more consumption based taxes.

[Laughing] Maybe we won’t attract all taxation experts from other areas, but I hope I managed to make a strong case for VAT.”

We would like to thank Rufino again for his time and for giving his perspective on VAT. The opinions expressed in this article are personal. If you have any questions, suggestions or if you want to be our next interviewee, do not hesitate to contact us via