Spain has not been left out of the international tax developments which have taken place around the world in recent years. These have included:
- the besieging of tax havens;
- the fight against bank secrecy;
- the measures included in the plan to combat Base Erosion and Profit Shifting (BEPS) prepared by the OECD;
- the new standard of effective automatic exchange of tax information; and
- any other measure which fights tax evasion.
Both companies and individuals resident in Spain have witnessed the more or less successful implementation of different measures in the fight against tax evasion in an international context: from pressure by the Spanish administration after the publication of the Falciani list to legislate for strict anti-tax haven and anti-tax evasion measures; and the start, negotiation, and signing of double tax treaties or information exchange agreements with jurisdictions which have traditionally been on Spain's blacklist of tax havens (for example, Andorra, UAE, Cyprus, Hong Kong, Panama and Singapore). However, the Spanish government recently adopted a measure which has revolutionised the Spanish tax environment and continues to have long-term effects..
Specifically, in 2012 one of the most controversial measures in tax policy in the last few years was approved: a special tax regularisation, which was commonly known as a tax amnesty.
Paradoxically, the tax amnesty laid the foundations for absolute tax transparency for those Spanish taxpayers who accepted the amnesty but, at the same time, left those not accepting it in danger of tax and penal consequences as yet unknown.
The tax amnesty consisted of filing a Special Tax Declaration (Form 750) by November 20 2012. This form allowed taxpayers to inform the tax administration about goods and money which had up to that time been concealed. No maximum limit was set on the amount of goods or money that could be regularised in this way.
The Spanish government set the tax rate at 10% for income generated in fiscal years still liable (2008, 2009, and 2010). The amnesty did not include surcharges, interest for delayor administrative or criminal sanctions. The taxpayer had to file a supplementary declaration for the personal income tax (IRPF) for fiscal year 2011 (and perhaps a supplementary declaration for the wealth tax for 2011). This supplementary filing for these taxes did include surcharges. The Spanish administration also unofficially assumed a commitment not to prosecute taxpayers taking advantage of the amnesty.
The government expected to collect€2.5 billion as a result of the amnesty but it only took in €1.2 billion, with an effective tax rate of about 3% on the concealed goods and rights.
Therefore, the tax amnesty had two advantages. On the one hand, an effective tax rate well below that for the personal income tax, the corporate income tax, and the non-resident income tax; on the other hand, the tax administration allowed these funds to appear.
The taxpayers who chose not to avail of the tax amnesty found the landscape desolate because of a particularly harsh sanctioning regime that came into effect after November 30 2012. Its outstanding measures included:
considering the undeclared goods to be unjustified capital gains (with a tax rate of 51%);
sanctions of up to 150% of the undeclared amount; and
the attribution of these gains to the latest fiscal year still taxable.
The new legal framework
Thanks to this procedure, about 32,000 taxpayers who were not paying taxes were discovered. Once their foreign funds were regularised, the rules of the game changed substantially. Before the amnesty, taxpayers' main concerns were merely financial: how to make the products located abroad generate returns. After the regularisation, the tax side became particularly relevant. The declaration of funds held abroad made them taxable, and what had been secondary became important: for example, tax withholdings, commissions, international double taxation, the type of financial product chosen, the purchase and sale of assets, the time for these sales, and the impact of dividends received as reported on the personal income tax and wealth tax, and tax returns. Tax advice became of crucial importance.
After the tax amnesty, those taxpayers who did not repatriate the funds they were concealing from Spain have been subjected to major compliance obligations.These include:
Survey Form on Foreign Transactions (ETE) to the Bank of Spain
Resident taxpayers (both individuals and legal entities) in Spain with assets abroad must inform the Bank of Spain annually of collections and payments made abroad and whether or not they have assets or liabilities abroad.
This is a form containing information that financial institutions previously provided. It has, now been replaced by different forms to be filed with the Bank of Spain for statistical purposes only (for example, the jurisdictions where these Spanish taxpayers' financial resources are found).
There are three ways to declare, depending on the transactions with non-residents during the calendar year or depending on the amount of the assets and liabilities held abroad: If the amount is:
- more than €300 million ($355 million), the declaration must be monthly;
- between €100 million and €300 million, quarterly; and
- between €1 million and €100 million, annually (no later than January 20 of the following year).
Taxpayers are also obligated to inform the tax authorities annually, by December 31 of each year, regarding the holding of certain goods and rights abroad (Form 720).
This is an information form, with no tax consequences. It does, however, have a very strict sanctioning regime independent of the value of the declared goods and rights. Thus, failure to file the form or filing it in time but with wrong data or missing information would be sanctioned by a fine of at least €10,000. If the form has the correct information but is filed late, the sanction would be €1,500.
The Spanish tax authorities have sufficient information to give them a complete picture of the wealth of most of the taxpayers both in Spain, through withholdings and other instruments mainly based on the interchange of data, and abroad, through the two above forms. The administration's supervision using Form 720 is so tight and the sanctioning regime so disproportionate and unjustified that it is being reviewed by the European Commission after a suit filed against it. Therefore, we shall have to wait for developments on a possible infraction procedure against Spain, as this is a rule which violates the principle of free circulation of capital within the European Community. If this does happen, the regulations for Form 720 must be eliminated or relaxed.
In the meantime however, effective exchange of information with foreign authorities in addition to reporting imposed on Spanish taxpayers is leading to a huge number of audits on companies and individuals that keep assets or income sourced abroad. Just an example of this is the fact that more than 28,000 foreign pensioners resident in Spain and Spanish pensioners who have returned after working abroad have received requirements from the Spanish tax authorities in recent months urging them to become compliant by filing tax returns and paying taxes on such pensions received in the last four years which are not covered by the statute of limitation period. This is just the beginning of a new era of exchange of information and international tax transparency.
Bruno Domínguez, Baker & McKenzie Barcelona
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