Sara Sala Alcaide
Abogada
TIKA ABOGADOS
Requested by ATS Insurance Brokers in order to corroborate whether the invoices issued by the experts and translators for the preparation of their expert reports/translations in Spain at the request of their client, the German underwriting agency NHA Hamburger Assekuranz Agentur, are correct and comply with the requirements of the current legislation and tax regulations as regards VAT.
Specifically, a detailed explanation on the correct way of billing of the aforementioned expert reports and translations is requested, taking into consideration that the entity that performs the commission and the final and effective recipient of the aforementioned services is an underwriting agency with tax domicile in Germany, which does not have a permanent establishment in Spain.
The background of the case is the following: in two audits conducted to the German insurance company, the auditors indicated that, to the best of their knowledge, when the insured is entitled to the deduction of the input VAT, that is, when the insured can deduct VAT, the invoice of the expert and of the translator should be issued in the name of the insured, and the German insurance company is limited to reimbursing the cost of the taxable base of the service (excluding VAT).
Currently, the expert/translator invoice is issued in the name of the German underwriting agency with the taxpayer reversal, and the German company is the one who complies with the VAT tax obligations in the German Public Treasury.
In the cases analysed and for which this report is expressly requested, the costs of the expert and translator are NOT part of the compensation. Therefore, it is not a matter of costs in which the insured has had to incur to repair the damage caused by the accident, nor is it a service that has been requested by the insured. We are talking about the expertise and translation expenses incurred by the German underwriting agency and/or the insurers at their own request, either in order to analyse the causes of the loss, to assess whether the damages claimed by the insured correspond to such damage or whether or not they are covered by the insurance contracted, etc.
The expert reports consist of damage valuation reports on machinery and industrial and second category, construction and agricultural vehicles. The insurance type is called “of machinery breakdown”. Experts are also asked, apart for a report specifying the causes and circumstances of the incident, for a proposal for compensation after assessing the damage, the cost of salvage, depreciation, coverage/exclusions and to discount, in its case, the excess contracted. It is the underwriting agency and/or the insurers the ones that make the expert assignment, either directly or by authorizing for this purpose so that the expert assignments are carried out on their behalf.
Pursuant to Article 38 of the Insurance Contract Act, the insured has the right to hire their own expert to carry out their independent assessment in defense of their rights.
1.- Identification in the VAT of the operations to analyse
This report focuses on the analysis of taxation in accordance with the VAT regulations of the following operations:
- Preparation of expert reports, valuations and opinions related to movable property (mainly industrial or agricultural machinery), as well as language translations of said reports.
- The issuer of the invoice is the expert/translator and is established in Spain in the peninsula or the Balearic Islands (we exclude from the analysis the Canary Islands, Ceuta and Melilla).
- The recipient of these reports/translations is the German underwriting agency NHA Hamburger Assekuranz Agentur, which is based in Germany.
We should clarify that, for the purposes of the VAT regulations, the concept of “Recipient of the good or service” is used. In the present case, we understand that the recipient of the expert reports/translations is the German underwriting agency for the following reasons:
In accordance with current Spanish regulations, we should note that as per Act 50/1980, of 8th October, on Insurance Contracts, articles 18 and 38, the insured may designate, if they consider it appropriate, their own expert whose cost they will assume in full.
Experts are therefore appointed by the parties involved (the insurers or the underwriting agency and the insured) and they are called party-appointed experts, who look after the interests of their respective clients, especially in cases where a conflict in the valuations is expected.
Usually the only part that proceeds to designate an expert after reporting a claim is the insurer. In the present case, expert reports are reports requested by the underwriting agency and/or insurers, not by the insured. Exceptionally, the insured designates their own expert, as for example in the reference claims NH 17/01416 and NH17/02089, in which the insured communicated the designation of their own expert (of whose cost the insured took charge, since they requested it). This is established by the jurisprudence, specifically the Supreme Court Judgment 197/2010, of 5th April 2010.
Whenever there is damage, the insurer of the damaged property, which will be the one that finally has to assume the costs of the accident, sends their expert to make a valuation of the damages. In addition, the expert also analyses the causes of the accident in order to assess whether the damage corresponds to the loss and, therefore, it is covered by the insurance in question. In practice, the expert is fundamental both for establishing the coverage or not of a loss and for assessing the amount of damages.
Regardless of whether the insured is an employer or a professional entitled to the deduction of the input VAT or a private individual, in none of the cases would they be entitled to the deduction of the VAT incurred in the invoice of the expert commissioned by the underwriting agency in accordance with the provisions of article 95 of the VAT Act, which states that:
Article 95. Limitations on the right to deduct.
One. Employers or professionals cannot deduct the fees paid or settled for the acquisitions or imports of goods or services which do not directly or exclusively affect their business or professional activity.
The insured will therefore be entitled only to the deduction of the input VAT (in case of being an employer or professional with the right to deduct the VAT payments made) for the expenses of the expert who, in its case, decided to hire for their part.
For these reasons we understand that the expenses of the expert, hired by the underwriting agency and/or the insurers of the responsible party in their interest, must be billed to the recipient, that is, in this case to the German underwriting agency.
The same applies to translation costs, which are works carried out at the request of the underwriting agency and/or the insurers for their interest and understanding of the content of the reports issued by the Spanish experts.
Once the issuer and recipients of the operation have been determined, in order to locate the operation correctly, it is necessary to establish whether we are dealing with a delivery of goods or with the provision of services. Both in the case of expert reports and translations, in accordance with the provisions of article 11 of the VAT Act 37/1992, there is no doubt that we are dealing with services, so we will proceed to analyse these operations in detail.
2. Applicable regulations.
In Spain, the applicable national regulations on VAT are the following:
- VAT Directive ® Council Directive 2006/112/CE of 28th November 2006 on the common system of Value Added tax.
- Council Implementing Regulation ® (EU) No 282/2011, of 15th March 2011.
- VAT Act ® Act 37/1992 on Value Added Tax (LIVA) and its development regulations.
For the provision of services between employers and intra-community professionals, the following articles apply:
1.- General rule applicable to the provision of intra-community services:
VAT DIRECTIVE
Article 44
“The place of supply of services to a taxable person acting as such shall be the place where that person has established their business. However, if those services are provided to a fixed establishment of the taxable person located in a place other than that in which it has its established business, the place of the provision of such services will be the place in which this permanent establishment is located. In the absence of such place of establishment or fixed establishment, the place of supply of services shall be the place where the taxable person who receives such services has their permanent address or usually resides”.
VAT ACT
Article 69. Place of supply of services. General rules.
“One. The performance of services are deemed to be made in the territory of application of the tax, subject to the provisions of the following paragraph of this article and articles 70 and 72 of this Act, in the following cases:
1. When the recipient is an employer or professional acting as such and established in that territory the legal address of its economic activity, or has therein a permanent establishment or, failing that, the habitual or registered residence, provided that they are services that are addressed to that place, fixed establishment, habitual or registered residence, regardless of where the provider of services and the place from which they are provided are established.”
2.- In addition to the general rule, there are special rules for locating certain specific intra-community services that take precedence over the general rule. Specifically, in the case of valuation reports and appraisal of tangible personal property, the following regulations apply:
VAT DIRECTIVE
Article 54
“2. The place of supply of the following services to a non-taxable person shall be the place where the services are physically carried out:
a) …
b) valuations of and work on movable tangible property.”
VAT ACT
Article 70. Place of supply of services. Special rules.
“One. The following services will be understood to be provided in the territory of application of the Tax:
7. Those listed below, when materially provided in such territory and their recipient is not an employer or professional acting as such:
b) Works and executions of work carried out on personal movable property and expert reports, valuations and opinions related to such assets”.
3.- The operation of VAT in the provision of intra-community services, general rule and special rule for expert opinions
“The VAT tax is harmonized throughout the EU. The basic regulation is established by the Directive 2006/112/EC on the common system of value added tax. This Directive focuses on the harmonization of the internal regulations of the EU countries and establishes a common VAT structure, a uniform tax base and minimum rates to be determined by the EU countries.
The Directorate General of the European Commission responsible for the application of VAT rules is the DG Taxation and Customs Union”. http://trade.ec.europa.eu/tradehelp/eu-value-added-tax-vat
In this way, as regards VAT, the different internal legislations of the EU Member States maintain a harmonized system, which guarantees the operation of this indirect tax throughout the EU territory in a homogeneous manner and in terms of free competition, without distortions in the market.
Internally, that is, when transactions subject to VAT that affect a single Member State are carried out, the person liable for the tax and for paying the amount in the Treasury is the employer or professional who performs the delivery of goods or provision of services. That is, the issuer of the invoice is the taxpayer.
However, in intra-community operations involving employers or professionals resident in several states, this obligation is usually transferred to the purchaser of the goods or to the recipient of the services and this is what we call the taxpayer reversal.
Through this taxpayer reversal system, employers and professionals are prevented from submitting VAT returns and VAT refund requests in a country in which they are not established.
The taxpayer reversal is established as a general rule applicable to the provision of services carried out by employers or professionals resident in a State when the recipient is an employer or professional established in another Member State of the European Union.
Therefore, when an employer or professional established in Spain provides a service to another EU employer who does not have a permanent establishment in Spain, as a general rule, the taxpayer reversal occurs and, consequently, this operation, for VAT purposes will be not subject in Spain and will be taxed at the destination, being the employer or community professional receiving the service in charge of self-accounting and deducting the input tax, entering the appropriate amount if applicable.
Translation services provided by a Spanish employer or professional on behalf of the German underwriting agency are subject to the general rule, and consequently the taxpayer reversal must be applied.
Exceptions to the previous general rule on location of services are established in Article 70 of the VAT Act and Articles 46 to 58 of the VAT Directive.
Within the special rules we find in the first place the special rule provided for in article 47 of Directive 2006/112/EC and article 70. One 1. of the VAT Act relating to real property, for which it is established that the provision of the service will be located where the real property is located. In this way, an expert report focused on assessing the damage caused to real property would be understood to be provided in the place where the damaged property is located.
However, as we have stated in the background section, the expert reports analysed are damage assessment reports on industrial and agricultural machinery, so that the specific rule of location relating to real property is not applicable.
Secondly, we analysed the special rule provided for in article 54.2.b) of Directive 2006/112/EC and article 70. One 7. b) of the VAT Act related to expert reports, valuations and opinions on movable tangible property, for which it is established that, only in cases in which the recipient of the benefit is a private individual (not a subject passive for VAT purposes) the service will be located in Spain.
As we have indicated previously, we consider that the recipient of the service is the German underwriting agency because it is a service contracted in the interest of that party and given that the German underwriting agency has the status of employer or professional for VAT purposes (Article 5 of the VAT Act/Article 9 of the Directive), in application of the specific rule, the taxpayer reversal rule must be applied.
4.- Issued bills
Both in the cases of invoices issued by expert reports, valuations and opinions regarding tangible personal property as in the case of invoices issued by translation services:
- The transaction is not subject to VAT in Spain, but it is subject to VAT in Germany, since the client does not have a permanent establishment in Spain.
- The customer must declare the VAT accrued in Germany by the taxpayer reversal.
- The service provider must declare the transaction as not subject to Spanish VAT by location rules, recording the tax base in box 59 of model 303. Likewise, they must be registered in the intra-community operators regime, have an intra-community operator number (NIF-VAT) and declare the operation in model 349, indicating the intra-community operator number (VAT number) of the customer.
- The invoice issued does not have VAT. It must indicate the mention “the taxpayer reversal” (article 6.1.m) of Royal Decree 1619/2012, of 30th November.
5. – Conclusions
After the analysis of this case, in which we have been asked for our opinion for VAT purposes, we conclude the following:
- We classify the described operations as “service provisions”.
- The service provider (expert and/or translator) is in Spain and carries out their work in Spain.
- The recipient of the services is based in Germany and does not have a permanent establishment in Spain.
- The expert reports are made on machinery and industrial and second category, construction and agricultural vehicles, and the orders of expert intervention are always carried out by the underwriting agency and/or insurers, never by the insured.
- The recipient of the expert reports and translations is, in the case of this report, the underwriting agency and/or the insurers.
- An expert intervention (or a translation service) that has not been requested by the insured, but by the underwriting agency and/or the insurers, cannot be invoiced by such experts or translators to the insured, because the insured is not the recipient of such services.
- The only expert expenses that the insured can assume are those of the expert reports that are carried out by experts commissioned by them to defend their own interests and who will act before the expert designated by the company.
- Therefore, it does not matter whether the insured is entitled to the deduction of the VAT paid or not in their activity so that the experts must issue their invoice to the insured or to NHA, since the services provided must be invoiced, in any case, to the recipient, which in this case is NHA (which is the one that makes the expert commission either directly or by enabling it for that purpose), and given that it is an employer without a permanent establishment in Spain, the invoice is issued without VAT applying the taxpayer reversal.
Thus, after a detailed study of the applicable regulations, we have reached the following conclusions:
- Expert reports which are not related to real property
-Since the recipient is in Germany, the taxpayer reversal is applied by the application of the special rule provided in article 70.1.7.b) LIVA, as the recipient is an employer for VAT purposes. As a result, the transaction is NOT subject to Spanish VAT. The transaction will be subject to VAT at the destination of the recipient (Germany).
- Translation services
-Since the recipient is in Germany, the taxpayer reversal is applied by the application of the general rule in article 69.1 LIVA.
-As a result, the transaction is NOT subject to Spanish VAT. The transaction will be subject to VAT at the destination of the recipient (Germany).