Until November 30 this year, individual and corporate taxpayers will be permitted to voluntarily disclose unreported income or assets by paying a special 10% levy on the amount or acquisition value, with no criminal or administrative penalties, surcharges or interest.
According to global law firm Baker & McKenzie Spain’s only precedents in similar procedures, in 1984 and 1991, had no significant effect in terms of tax collection as they involved the obligation to repatriate the unreported income and invest it in public debt. However, this new program does not depend on the repatriation of the funds but is rather aimed at encouraging taxpayers to declare their formerly unreported assets and therefore increase future tax collections beyond the 10% levy, says Baker & McKenzie.
The law firm added that “over the last two years, in the context of the international pressure on tax havens and the move towards tax transparency and exchange of information, the Spanish tax authorities have noted a substantial increase in voluntary disclosure by taxpayers under the ordinary procedure, which remains in place and may be even more favourable in many cases than the new tax amnesty program”.
The “ordinary procedure” referred to by Baker & McKenzie allows every taxpayer to file amended tax returns at any times for tax years not statute-barred (4 years for administrative purposes, 5 years for criminal purposes – i.e., when the undeclared tax due exceeds €120,000 per year, among other circumstances). This includes the unreported assets or income generated over that period.
In these cases, if the taxes due for that period are paid in full, the taxpayer will have no civil or criminal liability, but will face a maximum 20% surcharge on the amount of the unpaid taxes due over the last 4-5 years (i.e., not on the amount of the funds or assets, as under the new amnesty program), plus late payment interest computed from the first anniversary of the date on which the tax was to be paid to the time of actual payment. If the tax is paid at the time the tax return is amended, the amount of the surcharge is reduced by 25% and the effective final surcharge therefore will be 15% of the amount of the unpaid taxes not statute-barred.
While the “ordinary procedure” is perhaps favourable for some taxpayers, the new tax amnesty has one advantage, says Baker & McKenzie, the relief from the need to prove ownership of the relevant assets or funds on a certain date and the need to assess the specific type of income arising there from.
The Spanish government has said, once the term for compliance through the tax amnesty expires, in November, new anti-avoidance measures will be adopted and the penalties for tax fraud will be raised.
