Spain Anti-Tax Fraud Success


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We have discussed in previous articles how the Spanish government and other European authorities have been stepping up their crackdown on tax evasion as part of their efforts to raise

We have discussed in previous articles how the Spanish government and other European authorities have been stepping up their crackdown on tax evasion as part of their efforts to raise revenue to bring down their budget deficits. The Spanish authorities, in particular, have raised their game over recent years, implementing a number of new measures to find those who are not declaring all their income and assets as required under Spanish tax law, and not paying all the tax they should be.

Their biggest recent measure is of course the new obligation to report all assets held outside Spain. The new form, Modelo 720, needs to be submitted by the end of this month if you were resident in Spain last year. This new obligation is a significant development in Spain, and it will reap rewards for the government over the years to come, but in the meantime the tax office has other tools it has been using with success.

It is important to understand and comply with all the Spanish tax regulations if you are resident in Spain. The same applies if you are not resident but own property here or receive an income from Spain. Any tax planning you use needs to be fully legitimate, and you should seek advice from a tax advisory firm like Blevins Franks on what would be effective for you.

The Spanish government has now released data on the results of its fraud prevention and anti-tax fraud measures in 2012.

They led to a 10.1% increase in the total revenues attributed to the fight against tax fraud, with the total income from these measures standing at ?11.52 billion for the year.

There was a 32% increase, to ?1.54 billion, in revenue generated by taxpayers utilising voluntary regularisation procedures.

I suspect we will see more revenue generated this way, as people realise it is now virtually impossible to get away with tax evasion. With all the tools, locally and internationally, the government has to hand, it is only a matter of time before tax evasion and hidden assets are uncovered.

2012 saw an increase in tax inspection activity, with the tax office undertaking 470,000 standard inspections on internal taxation. This is 5.9% more than the previous year.

As part of this, analysis of external signs of wealth led to the collection of over ?10 million.

In accordance with the guidelines of the Tax Control Plan, the tax office noticeably increased inspection activity in relation to new sources of information. It issued over 400 requests for information on the transfer of currency to countries that are no longer considered tax havens.

This is a sign of the increasing amount of exchange of information between countries and offshore jurisdictions these days.

Another key source of information was the data provided by electricity companies on consumption. This helped them track down undeclared leases and secondary residences.

As we initially reported back in February 2011, electricity companies are now obliged to provide information to the Hacienda regarding the electricity consumption of every property in Spain. This includes the name of the person on the invoice; the name of the holder of the bank account payments are made from; the catastral reference and property address and the electricity usage. We warned that the authorities would be able to use this data to determine if a property which is declared as empty is in fact being rented out or used for business purposes.

We now know that analysis of the data led to 4,700 investigations on rented properties last year. It was found that, in some parts of the country, 75% of leases had not been declared.

Almost 1,000 visits were made to check if properties being declared as a primary residence could in fact be a secondary one. 70% of the cases raised a tax risk.

The authorities can also use the electricity data to catch people who are living in Spain permanently but have not registered as such and have not been paying tax in Spain each year.

The government data for 2012 also revealed that its steps to improve tax collection are working, with an 18.4% improvement in the tax office?s ability to collect debts that had been previously written off.

Looking ahead, Spain?s new anti-fraud law will be the fundamental pillar in the tax office control strategy in 2013. General guidelines were published in the Official State Gazette on 12th March this year.

The new foreign asset reporting obligation will play a large part. One of the priorities will be to analyse new information on goods and accounts overseas.

The tax office will look at taxpayers who did not submit Modelo 720, but who appear to conduct transactions abroad that imply that they do have hidden assets and rights outside Spain?s borders.

In the case of debtor taxpayers, the information submitted on the form will be used to seek mutual assistance from other EU member states.

The government has also now created a new National Office for International Taxation. It will strengthen the Tax Office?s resources for combating international tax fraud in line with the priorities being set by the EU and Organisation for Economic Cooperation and Development (OECD).

It has the power to coordinate and participate in simultaneous controls with tax authorities in other countries.

One of its activities will be to ensure that non-residents comply with their tax obligations in Spain.

For advice on the most tax efficient ? and fully compliant – ways to hold your assets in Spain, talk toBlevins Franks which has been providing effective tax mitigation advice to British expatriates in Spain for decades.

29 March 2013

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should take personalised advice.

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.