Spanish Government Successful In Fighting Tax Evasion


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We?ve written in previous articles about how the Spanish government, along with other European authorities, have stepped up their crackdown on tax evasion as part of their efforts to raise revenue

We?ve written in previous articles about how the Spanish government, along with other European authorities, have stepped up their crackdown on tax evasion as part of their efforts to raise revenue to bring down their budget deficits. According to preliminary figures released by the Spanish government, their efforts have begun to reap rewards.

Last year it collected ?10 billion in tax revenue. This is a record for the Hacienda and 23% more than they had collected in 2009. It amounts to around 1% of gross domestic product.

The head of the Spanish tax agency, Juan Manuel L?ez Carbajo, explained that this is the result of many years of strategic planning and improved technology and information sharing. With these systems now in place, it should be easier for Spain to prevent tax evasion in future and collect previously unpaid tax in future.

As part of their efforts, the Spanish authorities have been paying close attention to the use of offshore jurisdictions to hide money away. A special department was set up in 2006 to monitor where high net worth taxpayers were keeping money offshore. Another area it has been focussing on is the real estate sector.

Various international initiatives have also helped Spain in its fight against offshore tax evasion. Over recent years we have seen most offshore centres, including Switzerland, capitulate to international pressure. While banking secrecy is still in place, various tax information exchange agreements (TIEAs) have been signed to create greater tax transparency. Switzerland has said that it does not want undeclared foreign assets in Swiss bank accounts and is making it harder for European clients to hide behind its banking secrecy laws.

Other jurisdictions like Andorra have taken steps to be removed from the Organisation for Economic Co-Operation and Development (OECD) list of ?uncooperative tax havens?, though L?ez Carbajo has warned that ?these countries will continue to resist full cooperation as hard as possible, so we must really ensure that the end result is not that they get a better reputation without actually handing over a lot more information?.

Spain?s tax collection last year was also aided by client data stolen from a Swiss bank and handed over to the authorities.

In January 2009, the French authorities seized customer data stolen from the Geneva branch of HSBC by a former employee. This list included Spanish residents and the French authorities passed this information on to their Spanish counterparts, who were then able to investigate 3,000 bank accounts in Switzerland.

The owners of the bank accounts were asked to confirm that these accounts have been declared to the tax authorities and to provide information on the origin of the funds. Reportedly, after receiving no replies, the authorities said they would launch investigations into the accounts, at which point many account holders chose to declare their assets.

In October a Finance Ministry senior official, Carlos Ocana, said that Spain had recovered ?260 million so far after receiving the data. It was investigating 657 people and two companies, and 300 had come forward to voluntarily legalise their tax situation. Ocana said it was the largest operation of its kind ever undertaken in Spain.

According to a New York Times editorial, the amount collected as a result of the list of HSBC accounts has now risen to around ?300 million.

The list contained information on other nationalities who also received information from the French authorities. Italy is said to be investigating 700 people and the UK has reportedly made its first two arrests after starting to investigate the UK residents on the list.

Spain is not the only country which is seeing the benefits of its fight against tax evasion.

Speaking to G30 Finance Ministers In November, OECD Deputy Secretary-General and Chief Economist, Pier Carlo Padoan, said that they were now seeing concrete results from increasing tax transparency and voluntary compliance initiatives. He gave a few examples:

?Germany has already collected around ?4 billion from offshore tax evaders

?The UK has collected an extra ?600 million and expects the figure to rise to at least ?7 billion

?France has collected an extra ?1 billion

?Italy has collected ?5 billion

?Greece estimates it could collect an extra ?30 billion in revenues

Non European countries like Argentina, Brazil, China, India, Russia and South Africa are also using these initiatives and will see significant increases in tax revenues from tax evaders deciding to come clean.

Padoan added:

?Of course these figures represent one-off gains. Equally important are the long-term impacts on revenue. Once wealth held in tax havens/banking secrecy jurisdictions is declared, it remains in the tax net and yields an on-going revenue flow.?

He said this was important as it makes a significant contribution to fiscal consolidation and improves fairness in the tax system.

Although tax rates are on the increase throughout Europe, anyone looking to pay as little tax as possible should not contemplate not declaring assets and income. There are tax compliant arrangements in Spain and other European countries which could help you lower your tax bill, particularly on your savings, investments and possibly pension income. For peace of mind speak to an experienced wealth and tax adviser like Blevins Franks.

By Bill Blevins, Managing Director, Blevins Franks

28th January 2011

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.