Last March, the Council of Ministers announced the long-awaited reduction of VAT on glasses frames from 21% to 10%. The announced reduction in the tax rate has not been free of controversy, triggering a conflict between the Treasury, suppliers and opticians – and will have no effect on the consumer’s pocket.
The beginning of the disputes dates back to a ruling by the Court of Justice of the European Union in 2013, which stipulated that The frames do not acquire the status of prescription glasses until the prescription lens is incorporated into them.Such an interpretation paved the way for a differentiation between health products with a reduced VAT rate (contact lenses, glasses and products necessary for their maintenance) and accessory products (frames) at a general rate. After the sector rejected this measure, the Government calmed things down a year later by announcing that both contact lenses and lenses as well as frames would continue to be taxed at 10%.
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A fallback.
Knowing that VAT on frames would not be raised, the sector continued to invoice as usual at the reduced rate. To the surprise of the sector, the government broke its promises (once again) without warning. On December 28, 2016, businesses began receiving letters from their suppliers claiming 21% VAT.
Faced with disbelief, some opticians initially thought it was an April Fool’s joke, since the letter had been sent by the DGT. “When I received the letter and given the date, I thought: What does the General Directorate of Traffic have to do with opticians? But no, after investigating I realised that it was the General Directorate of Taxes,” recalls Enrique Convalia, owner of an optician in Alcorcón, with irony. Nothing could be further from the truth.
In a response to a supplier in the sector who was being asked for 21% VAT, published in the specialist magazine Lookvision, The Treasury repeated the arguments of the European Court – and rectified the promise announced to the sector – establishing the reduced rate for “items consisting of a lens with a frame or a lens, but never just a frame.”.
According to the director of the magazine Julio Rozas, following the logic applied by the Treasury, “hearing aids should be taxed in the same way: 10% for their internal system and 21% for the casing.” “Let’s not give ideas, but it’s the same: What does the technical system of a hearing aid have to do with its casing and support for its placement? And lenses without a support such as the frame? Both items, both frames and casings, are essential parts of the hearing aid or glasses,” points out the director of Lookvision. In this way, the area directed by Cristóbal Montoro applied a retroactive reform to the optical sector under astonishing opacity.
Suppliers demand payment of VAT for 2015 and 2016
In the letter, after notification from the Treasury, that Suppliers sent opticians to demand payment of VAT from merchants for the years 2015 and 2016. An amount that could range between 100 and 200 million, according to calculations by the Treasury, and which has greatly altered the accounts of small independent opticians.
This sudden change of criteria by the Ministry of Finance has its origin in the activity of inspectors at customs. According to sources in the sector, the Treasury had been observing the suspicious activity of certain suppliers when importing glasses. While frames for prescription glasses are taxed at 10%, sunglasses are taxed at 21%. “There are suppliers who have dedicated themselves to introducing sunglasses into Spain as if they were prescription glasses and, as in the rest of the European countries the VAT on prescription frames is 21%, some large suppliers have dedicated themselves to bringing all their imports through Spain because they were at 10% and it was cheaper,” details a source who prefers to remain anonymous.
Small optics come together
As a result of the disagreement with the claim for retroactive VAT by the Treasury and suppliers, last April those affected decided to join forces by creating the National Association of Optical Entrepreneurs and Professionals (ANEOP). The main lack of helplessness that this group points out comes from the sector’s employers’ association (FEDAO) and “the dominant position that suppliers exercise over these businesses.”
According to the spokesperson for this opticians’ association, Enrique Convalia, both the Spanish Federation of Optical Sector Associations and the suppliers it represents knew ten months in advance that the Treasury would claim 21% VAT and continued to invoice the frames at the reduced rate. “If they had warned us of the Treasury’s intention, we could have had some room to manoeuvre by buying less or raising prices. Now they are coming to claim VAT from two years ago with threatening letters and we have no possibility of buying less, or of claiming from the client that amount for a product that I have already sold,” explains Enrique Convalia.
The FEDAO technical team emphasises: “The only reliable information that the entire sector had was on 26 December 2016 with the response from the Treasury technicians to a query from a supplier. Any other comments on the matter are speculations that will not modify the tax obligations of each taxpayer at all.”
In order to shed more light on this conflict, the more than 400 opticians included in ANEOP hide behind the fact that they are within the so-called “special equivalence regime”while larger businesses take the form of limited companies. Under this special regime, businesses pay a 5.2% surcharge on each purchase to suppliers if 21% VAT is applied, and an extra 1.4% if a product is purchased with reduced VAT, which goes to the State coffers. “Being under the equivalence regime means that we do not have to make a settlement, because we already pay our share to the Treasury on each purchase,” the spokesperson points out.
Enrique Convalia, spokesman for ANEOP, regrets the attitude of the large suppliers, who, in his opinion, far from reaching an understanding, have saddled them with invoices that do not correspond to them: “We have refused to pay a lot and the suppliers are trying to compensate by paying 15% more, but allowing us to return frames and trying to adjust in different ways. There are other suppliers who are using more intimidating methods, forcing us to pay or else they will stop supplying us with products.” Protected by the recently created organization, Many opticians have decided to file appeals before the economic-administrative courts of each autonomous community.The decisions will not set a precedent, since this court only handles individual claims for a specific financial amount.
The Government distances itself by announcing a reduction in saddle prices that was never in effect
With this bleak outlook for optics entrepreneurs, The Government has once again distanced itself by announcing a reduction in VAT on glasses frames that was never implemented. “When the Government and the opposition announce that VAT will return to 10%, they are deceiving people. Saddles were always at 10% and only – after the fact and without prior notice – the activity of the tax inspectors raised the taxes on saddles to 21%,” explains Enrique Convalia.
A conflict that could have been resolved with the drafting of the General Budget, according to ophthalmologist Felipe Sánchez (Inoftalmic): “When approving the budget, instead of saying that it would remain at 10%, they said that it would be lowered, forcing people to pay the retroactive VAT for 2015 and 2016.” From the sector, professionals such as Felipe Sánchez consider that at least this fight has served to unite the small opticians present throughout the country and that, otherwise, they would have continued to be unprotected against the dominant position of the rest of the actors.