Fresh scrutiny for taxpayers in Spain

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New measures announced by the Spanish tax office will make it much easier to investigate the tax affairs of wealthy individuals and crack down on tax fraud.

The Spanish tax office has announced new measures to crack down on tax fraud. Their tax inspections plan for 2017 revealed new IT tools and processes that will make it much easier to investigate the tax affairs of wealthy individuals. 

More access to information

Now, the tax office (Agencia Tributaria or Hacienda) will be able to analyse and cross-reference data from a wider range of sources than ever to detect possible tax fraud. This includes personal income and wealth tax returns, Modelo 720 declarations and information from the 2012 tax amnesty. 

Tax authorities are already benefiting from the new ‘automatic exchange of information’ regime. This year, Spain became one of over 100 countries who will be sharing information on taxpayers’ assets and income. Financial institutions reporting data across countries include banks, custodians, investment funds, certain insurance companies, trusts and foundations. 

Information being shared includes personal data such as your name and address, country of tax residence and tax identification number. Information about your accounts includes investment income you earned over the year, such as interest, dividends, income from certain insurance contracts and annuities. Account balances are also reported, as are gross proceeds from the sale of financial assets.

With all this information combined, the new system in place will work as a big data container capable of estimating the total wealth of each taxpayer in Spain. 

Identifying ‘fake’ residency

One focus for the Hacienda will be clamping down on false claims of residency. They plan to catch out those who actually live in Spain but do not declare their income and assets here, usually claiming residency in a low taxation territory. 

It is now much easier for the tax office to collect information from utility providers, as well as paperwork for vehicles and property ownership, to establish where individuals are effectively living. For example, they can check electricity bills to confirm whether a property is being lived in long enough to make someone a resident and disprove it is just for holiday use. They can also use this information to identify if people have an income arising from letting out property without declaring it.

It is likely they will look closely at those who have declared themselves resident in lower taxation territories like Gibraltar, Andorra and Portugal, but effectively are resident in Spain. This could also catch out expatriates who declare themselves UK residents without realising they are actually tax resident in Spain. 

The Hacienda’s plan also revealed they will pay attention to VAT fraud to identify undeclared funds from businesses, as well as targeting tax avoidance by multinational companies. 

Why the crackdown?

By identifying those who are not declaring all their income and assets as required under Spanish tax law, the Spanish government can raise revenue to bring down budget deficits. Wealthy individuals are the latest target because the Hacienda sees them as more likely to have opportunities to use aggressive tax planning. 

According to Agencia Tributaria chief, Santiago Menéndez, up to now their efforts have been profitable. During the last five years, they collected €400 million from tax inspections of individuals with wealth over €10 million. With all the latest tools, locally and internationally, the government has today, it is likely they will continue to profit from uncovering more fraud in the future.

How might this affect you?

The new measures are designed to catch out those who have been incorrectly declaring themselves and their income and assets in Spain. There should be little to worry about if you have been declaring your finances correctly.

However, this fresh approach to tax evasion makes it more important than ever to take personalised, professional advice on your financial planning. If you live in Spain but have assets or receive income abroad, it may be hard to determine what you should be declaring and where tax is due.

First, you need to make sure your arrangements are fully compliant in Spain and anywhere else you have assets or heirs. This can be particularly complex for expatriates with cross-border interests. Getting it wrong may be easier than you think and result in costly fines and even prosecution. 

Second, your tax planning should suit your particular aims and circumstances, and work well in both Spain and the UK. For example, tax-efficient investment wrappers, offered through a Spanish compliant bond, could legitimately reduce tax on savings and investments. However, while some structures can seem similar, their tax benefits can vary significantly. 

Spain can be a very tax-efficient place to live for expatriates, but you need specialist, up-to-date knowledge of local, UK and international tax regimes to achieve the best results. An adviser with cross-border expertise can help you enjoy favourable tax treatment while offering peace of mind that you are meeting your tax obligations, here and in the UK.

Any questions? Ask our financial advisers for help


Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.