Spain’s New Anti Tax Fraud Law

20.11.12

Please note that this article is over six months old. While Blevins Franks takes care to make sure that information is accurate on the date of publication, some content may change over time. You should not rely on the accuracy of legislation and tax information in this article; take professional advice for your circumstances.

Back in April, the Spanish government announced details of its draft new anti fraud plan. One of the proposed measures related to assets held outside Spain and would affect most expa

Back in April, the Spanish government announced details of its draft new anti fraud plan. One of the proposed measures related to assets held outside Spain and would affect most expatriates living here. We have been waiting ever since for confirmation that this is going ahead, and finally received it at the end of October.

Law 7/2012 of 29th October 2012 was published in the Official State Gazette the following day. It amends existing tax and budget legislation and adapts financial legislation to strengthen action to prevent and combat fraud. Most measures came into effect immediately.

It will arm the Spanish Tax Authority with powerful weapons to fight tax fraud and the hidden economy – one of the main priorities of the Spanish government?s economic policy.

State Secretary for the Treasury, Miguel Ferre, described this new anti fraud plan as ?the most ambitious legislation in this field since the 1970s?.

If you live in Spain, it is important to understand what the tax rules are, and ensure you correctly report your income and assets and that you only use approved tax planning arrangements. Professional advice from a firm like Blevins Franks which specialises in tax and wealth management for British expatriates in Spain is invaluable.

Reporting obligation

Under the legislation, residents of Spain now have a new obligation to report all assets and rights held outside Spain, where they are:

  • Owners
  • Beneficiaries
  • Authorised signatories.

A new reporting model will be created, on which all kinds of assets may have to be reported, including:

  • Bank accounts
  • All forms of securities
  • Capital
  • Life insurance
  • Real estate.

Failure to comply with the obligation will have costly consequences when discovered by the tax authorities.

A ?5,000 penalty will be imposed for each omitted data – with a minimum penalty of ?10,000.

On top of this, an asset which has not been reported under this new system and is discovered by the tax authorities will be assumed to have been acquired with undeclared income, and will be treated as an ?unjustified capital gain? for the most recent tax year which is within the statute of limitations.

Under Spanish law tax investigations can go back four years, so the income would be deemed to arise four years prior to the year the asset is discovered. It will be taxed at the marginal rates of income tax (so up to 52%, or 54% in Andaluc? and 56% in Catalu?).

This effectively eliminates the statute of limitations for undeclared assets, so the tax authorities can go back indefinitely to assess undeclared income and tax it at maximum rates, plus interest and penalties. Since this will be considered a ?very serious offence?, the penalty will be 150% of the tax due.

Although this is new legislation, the obligation to report overseas income is not new. Anyone who meets the tax residence criteria in Spain is already liable for tax on their worldwide income and gains and is obliged by law to declare them accordingly. Except for the years when wealth tax was effectively abolished, they should also have declared their worldwide assets on their wealth tax returns where a liability arose.

So what is new and important about this legislation is not so much the reporting obligation itself, but the new consequences for failing to report. The penalties are very severe and could be more than the value of the hidden asset/s.

Note also that this new law is not purely a tax obligation. Whether or not you have to submit a wealth tax return, you still need to report all your overseas assets.

At the time of writing (9th November), the government has not supplied information on how the new reporting is to be done. Further regulation will establish the terms.

Click here to read an update on this topic, New Asset Reporting Law For Spanish Residents, which provides more information on the assets to be reported, the procedure, and the deadline of 31st March 2013.

Limits to cash payments

The new anti-fraud law introduces a limit to cash transactions made where one party is a business owner or a professional (credit institutions are excluded). Cash transactions therefore now cannot exceed ?2,500. This comes into effect 20 days after the law was published.

Where one party is a non-resident, the limit is increased to ?15,000.

Any breach of this limit will be considered a serious administrative offence. A penalty of 25% of the cash payment will be imposed. Both parties to the transaction are jointly liable, so the authorities can bring action against either one.

If one party voluntarily reports the transaction, they will be exonerated from paying the penalty.

Measures to improve tax collection

The legislation includes a series of measures to strengthen the tax authority?s ability to collect revenue, particularly if the taxpayer attempts to escape their obligations by delaying payment, creating obstacles or concealing wealth.

It toughens the penalties for resistance, obstruction, excuses or refusal to comply with tax inspectors. The penalties vary between a minimum of ?1,000 up to a maximum of ?600,000.

The times are changing for tax planning across Europe, perhaps even more so here in Spain. Professional advice is essential if you want to protect your wealth from unnecessary taxation and make sure your tax planning will stand up to scrutiny. A firm like Blevins Franks will guide you through your options for legitimate tax mitigation.

9th November 2012

The 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; an individual 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.

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