Good news for contractors in Spain: favourable change in relation to the requirements for reclaiming debts from the public authorities
Published on 28th Apr 2023
Important questions regarding the calculation of interest for late payment associated with the payment of invoices arising from public contracts resolved
The Court of Justice of the European Union has resolved important questions regarding the calculation of interest for late payment associated with the payment of invoices arising from public contracts, following a preliminary ruling from the Second Administrative Court of Valladolid.
In its judgment of 20 October 2022 (Case C-585/2020), the CJEU decided the following questions for preliminary rulings concerning the interpretation of certain articles of Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 on combating late payment in commercial transactions, which can be summarised as follows:
(i) whether the compensation for recovery costs is €40 per invoice in any case even if a grouped and generic claim is submitted;
(ii) whether a national regulation providing for a 60-day payment period generically and for all contracts is in conformity with Directive 2011/7/EU; and
(iii) how Directive 2011/7/EU is to be interpreted in relation to the inclusion of Value Added Tax in the amount due.
Amount of compensation for the recovery costs
The first question referred for a preliminary ruling was in relation to the amount of compensation for the recovery costs.
It is very common that by virtue of the same contract, a public authority owes a contractor several invoices. In this case, and by procedural logic, when claiming the outstanding invoices from the public authority, these are grouped together in a single administrative or judicial claim. The first question is whether, in the case of grouping in a grouped claim, the compensation for collection costs, established in a minimum amount of €40, must be considered as a single claim, or whether, on the contrary, it must be paid for each of the commercial operations that are grouped together in the same claim.
The CJEU clearly rules that Directive 2011/7/EU establishes a link between the fixed minimum amount provided for by way of compensation for recovery costs and each commercial transaction not paid when due and that, given that invoices are equivalent to payment requests and constitute relevant documents for determining the time-limit for payment, the submission of a grouped claim covering commercial transactions not paid when due, duly substantiated by invoices or equivalent payment requests, cannot have the effect of reducing the minimum fixed amount due by for the recovery costs. In conclusion, the contractor is entitled to be paid €40 for each of the invoices claimed, even if they are part of a grouped claim, as recovery costs.
The CJEU also clarifies that the reference to the reasonableness of the compensation established in Directive 2011/7/EU refers only to those recovery costs that exceed the fixed minimum amount of €40 to which the creditor is automatically entitled. Therefore, the argument made by the Spanish courts cannot be sustained, being that, in the case of a grouped claim, a payment of €40 for each of the invoices claimed could not be considered reasonable because it would entail a repeated and excessive compensation of costs.
Period for payment
The second question referred for a preliminary ruling was on the period for payment of invoices.
Law 9/2017, of 8 November, on Public Sector Contracts establishes a period of 60 calendar days for the payment of invoices by public authorities (30 days for the approval of the invoice plus another 30-day period from approval for payment).
The CJEU interprets Directive 2011/7/EU by concluding that the generalised application to commercial transactions between companies and public authorities of a payment period of more than 30 calendar days up to a maximum of 60 is exceptional, and must be limited to certain well-defined cases, in accordance with the particularities provided for in the directive.
Therefore, the CJEU concludes that a national legislation which provides a payment period of a maximum duration of 60 calendar days, 30 days for approval or verification and an additional period of 30 days for payment from approval, in respect of all commercial transactions between companies and public authorities, is contrary to Directive 2011/7/EU.
Inclusion of VAT in amount due
The third question referred for a preliminary ruling was on the inclusion of VAT in the amount due.
The essence of this question focuses on whether the VAT associated with the invoices claimed is to be included in the amount due from the public authority in any event, or whether inclusion is only appropriate where, at the date on which the delay in payment occurs, the contractor, who is liable for VAT, has already paid those amounts to the Treasury.
Again, the CJEU is clear, ruling that the directive is to be interpreted as meaning that the inclusion in the concept of the "amount due" of the VAT shown on the invoice is independent of whether or not the amount of VAT has already been paid to the Treasury at the time when the delay in payment occurs.
Subsequent Supreme Court case law
The publication of the CJEU ruling on the inclusion of VAT in the amount due has had an impact on existing Supreme Court doctrine.
The traditional doctrine of the Supreme Court on VAT in relation to the requirements for reclaiming debts from the public authorities can be summarised as follows:
(i) inclusion of the tax liability in the amount due will depend on the contractor having declared and paid VAT without the invoice having been previously paid;
(ii) the accreditation of the payment of the VAT quota corresponds to the contractor, and it is not sufficient to provide a generic certificate such as a certificate issued by the Tax Agency that the contractor is up to date with the payment of tax obligations; and
(iii) the starting date for late payment interest on the VAT liability is the day of payment of the VAT liability.
This traditional doctrine of the Supreme Court on the matter clashes with the conclusions reached by the CJEU, which is why it was surprising that the Supreme Court upheld it in its judgment of 21 November 2022 (STS 4300/2022), subsequent to the ruling of the CJEU on the matter.
However, finally, the Supreme Court, by means of its judgment of 5 December 2022 (STS 4581/2022) and subsequent judgments, has modified its criteria, adapting it to the ruling of the CJEU, pronouncing in the following terms: "the basis for calculating interest for late payment due to the Administration's delay in the payment of certain invoices of an administrative contract must include the value added tax (VAT) quota, without the contractor being required to prove that it has effectively paid the tax to the Treasury in order for the payment of such interest to be applicable".
In conclusion, the CJEU ruling of 20 October 2022 has resulted in a favourable change for contractors in relation to reclaiming debts from the public authority. From now on, VAT will be included in the amount owed without the need to prove that it has actually been paid to the Treasury. Furthermore, the contractors' legal entitlement to receive the minimum amount of €40 for each of the invoices that are claimed, regardless of whether the claim is made as part of a single or a grouped claim for several invoices, is strengthened.
In addition, it is to be expected that a modification will be made in the short term to the LCSP in relation to the deadline granted to public authorities for the payment of invoices to contractors, given that the current wording allows a general maximum period of 60 days, which the CJEU has interpreted as contrary to Directive 2011/7/EU.
Should you wish to know more about the change in relation to the requirements for reclaiming debts from the public authorities or our assistance in claiming owed amounts from public authorities, please do not hesitate to contact one of our experts listed below or your usual contact at Osborne Clarke.