In most commercial transactions, the supplier collects the VAT, which is then handed over to the tax authorities. But not in all of them. There are occasions when the customer must perform this task, thus producing the reverse charge. What does this situation consist of? How does each of the parties have to act? In which cases does it come into operation?
To find the answer to these questions, knowing the differences between the three figures involved in any legal relationship is essential. The passive subject is the person, whether natural or legal, who is liable for an obligation on behalf of the active subject who has the right to demand that obligation from the taxpayer. On the other hand, the taxpayer is the person, whether natural or legal, who pays the debt.
Let us transfer this to the tax field. For example, the taxpayer and the taxable person are the same in the payment of personal income tax. The citizen not only settles the debt but also has to answer to the Treasury, which assumes the role of the active subject.
In the case of VAT, the roles of the taxpayer and taxable person are played by different people. The seller of a product or provider of a service is obliged to include value-added tax in the price. This tax is levied on the customers who purchase the product or contract the service, thus becoming taxpayers.
The merchant collects the taxes from all his sales and pays the total to the Treasury every three months. He is responsible for fulfilling this tax obligation, thus exercising the taxpayer's role. As the main beneficiary of the operation, the tax authorities are again the active subject. And it demands payment of the debt from the entrepreneur, not from the end customer, even though the latter is the one who corrects it.
Reverse charge: a change in roles
Certain transactions involve the reverse charge. In this case, the recipient of the goods or services is both the taxpayer and the taxable person. The responsibility for satisfying the tax liability no longer lies with the entrepreneur but with the customer.
The invoice recipient is responsible for declaring the VAT and paying it to the tax authorities. Therefore, the payment of the good or service only includes the taxable base and not this tax, which will be paid in the future. Even so, the business person who issues the invoice must include an express mention indicating that the operation is carried out through the reverse charge, according to article 84.1.2º of Law 37/1992, of December 28, of the Value Added Tax (LIVA).
Although the responsibility does not fall on your shoulders, the invoice issuer must still indicate these sales in box 61 of form 303. This form is used to transfer to the Treasury quarterly the accumulated VAT of all invoices issued during that period. The deadline is from the 1st to the 20th of the following month, i.e., in April, July and October. Likewise, the business person must also reflect it in form 390, a form delivered from January 1 to January 30 that compiles the VAT of all the sales made during the previous year.
In the same way, the taxable person and taxpayer must self-reverse this tax, indicating it in his quarterly and annual VAT returns.
Conditions for the reverse charge to take place
It should be noted that reverse charge is not common since the business person is responsible for declaring the VAT in most transactions. For the reverse charge to occur, the recipient of the good or service must be a professional in exercising his function. Ordinary citizens can never act as taxable persons.
Moreover, the range of situations in which this process is triggered is not very wide. The business transaction in question must fall into one of the following categories:
- Transactions carried out by professionals in whose residence the VAT is not valid.
- Sale of silver, platinum, palladium, unprocessed or semi-finished gold products.
- Sales of salvage materials, such as industrial waste.
- Sales of cell phones, computers, tablets and video consoles to a reseller or for an amount exceeding 10,000 euros.
- Certain construction work, such as on rural and unbuildable land or during the refurbishment of business premises.
- Transactions involving greenhouse gas emission rights.
- Actions for the delivery of certain real estate.
The consequences of a VAT misdeclaration
One of the benefits of reverse charge is that the final amount paid by the taxpayer may be less than what would have to be disbursed in a standard transaction.
When filling forms 303 and 309, this figure must be included in the sections corresponding to accrued VAT and input VAT. If this expense is framed within the economic sector of the professional and the corresponding invoice is presented, the Tax Agency allows the deduction.
However, these forms must be completed with special care and accuracy. Furthermore, all taxes must be reported, as any omission or error may result in a penalty. The fines for this tax infringement are regulated in articles 170 and 171 of the LIVA. They will represent 1% of the accrued quotas of the operations causing the sanction, with a minimum of 300 euros and a maximum of 10,000 euros.
Although there are not many situations in which the reverse charge is applied, this can cover any type of financial operation, from those carried out in more traditional channels to those framed within the ethical investment.
Regardless of whether the sale or purchase of goods or services is carried out in a conventional market or an alternative financing platform, if it falls within the above categories, it is essential to know how to proceed to save costs and avoid possible penalties.