Brussels – The European Commission has initiated legal action against Spain, referring the country to the Court of Justice of the European Union (CJEU) over its failure to implement two directives concerning Value Added Tax (VAT). The Commission alleges that the Spanish government is refusing to exempt small and medium-sized enterprises (SMEs), and self-employed individuals with annual turnovers below €85,000, from the obligation to account for, invoice, and declare this tax.
The directives, approved in 2020, aimed to reduce administrative burdens for small businesses and the self-employed by removing the requirement to remit VAT to the tax authorities and submit quarterly and annual VAT returns. However, businesses opting for this scheme would not be able to deduct the tax.
Should a self-employed individual or small company initially qualify for this exemption, known as the flat-rate scheme, and subsequently exceed the €85,000 turnover threshold, they would automatically be excluded and required to collect VAT from customers and file official returns the following year.
The Commission’s action also stems from Spain’s non-application of another EU regulation regarding taxation. This regulation mandates that all member states allow self-employed individuals to be exempt from passing on VAT charged by clients from other European Union countries.
Spain Faces Potential Fine
Spain is currently the only EU member state that has not transposed these two directives, which should have been implemented by January 1, 2025. The Commission asserts that the Spanish government demonstrates no intention of complying with its obligations. “Spain has indicated that it does not intend to apply the VAT exemption for SMEs as established in the Directive,” the Commission stated in a press release issued Wednesday.
Spanish authorities argue that the exemption requested by Brussels is “voluntary.” However, the European Commission maintains that Spain is obligated to apply it, even if only to ensure that SMEs established in Spain can benefit from the exemption in other EU member states. Failure to do so, the Commission warns, “carries the risk of double taxation or a lack of taxation.”
Spain faces a potential fine or sanction from the CJEU, which will ultimately rule on the dispute between the European Commission and Spain. It’s standard procedure for the Commission to issue multiple warnings and provide member states with several months to transpose European legislation before resorting to court action. In this case, the Commission sent Madrid a letter of formal notice on January 31, 2025, and a reasoned opinion on July 17, 2024, regarding these directives.
This legal challenge arrives amidst broader discussions about tax fairness within Spain. Recently, Juan Roig, the president of Spanish supermarket chain Mercadona, publicly lamented the disparities in tax burdens between regions, stating that a cashier in Valencia pays more taxes than a counterpart in Madrid. This sentiment, reported by COPE, highlights a growing concern about equitable tax distribution across the country. Roig urged politicians to address the issue, emphasizing the need for a more level playing field.
The situation also comes as Mercadona continues to expand its presence across Europe, recently being recognized as the second-largest retailer with the highest share of private label sales in Europe, trailing only Marks & Spencer, according to a recent NielsenIQ study (Economía Digital). The company’s success with its own brands, like Hacendado, underscores its commitment to value and affordability for consumers.
The European Commission’s decision to pursue legal action against Spain reflects a broader effort to ensure consistent application of EU regulations across member states. The outcome of this case could have significant implications for SMEs and self-employed individuals in Spain, as well as for the overall functioning of the EU’s VAT system.
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