Spain: Tax Amnesty paints a mixed picture
On Friday 30th of March the Cabinet passed the Royal Decree-Law 12/2012, whereby various tax and administrative measures will be introduced with the aim of reducing public deficit. The leading measure of the law is a tax amnesty programme which will allow for the voluntary regularization of undeclared income by individuals and companies, upon payment of a special tax of 10% on the amount of the funds, or on the cost price of their undeclared assets, with the exclusion from possible responsibility for tax evasion, and with no penalties, administrative charges, or interest for late payment.
In the last few days you will have received a lot of information about this tax amnesty and will, we imagine, be plagued with doubts on the matter. In this post, we aim to throw a little light on this TAX AMNESTY programme, and to remind you that we are at your disposal for any further information you should require, or to resolve any doubts you may have. Please don’t hesitate to contact us.
The requirements for tax payers wishing to avail themselves of this tax amnesty programme are:
1.- They were the titleholders of those assets prior to the end of the last tax period whose declaration date would have ended before the law came into force (generally speaking on 31st December 2010).
As a result, only taxable events occurring on or before 31st December 2010 can be regularized under the tax amnesty programme. Funds obtained after this date must be included in your normal tax declaration corresponding to the tax years 2011 and 2012, whose filing period has not yet expired. They must be consistent with the regularizations to be carried out by 30th November 2012.
2.- They must do a special tax return providing the necessary information about their assets by 30th November 2012.
It should be pointed out that this tax return model must still be approved by the Spanish Ministry of Finance and Public Administration, who will adopt the necessary measures to comply with the regulation.
3.- Together with the tax declaration, the information needed to allow for the identification of these assets must also be presented.
We imagine the Spanish Administration will allow the presentation of bank certificates, even those originating in tax havens.
4.- This voluntary tax regularization must take place before the start of verification proceedings and before the reporting or filing of any resultant criminal complaint.
We mustn’t forget that this regulation must still be validated by parliament, as must the corresponding implementation regulation. There are still many loose ends to tie up. We will have to wait and see how the regulatory implementation of this tax amnesty pans out, but, in the meantime, and given the limited time period to avail ourselves of the opportunity (by 30th November 2012), we think it a good idea to study, in every case, the wisdom of bringing to light undeclared assets (a euphemisim for black money, whether or not it comes from tax havens) and availing yourself of the programme. Before doing so, there are several matters to take into consideration:
1.- Until the 30th of November, this special regularization procedure will coexist with normal tax declaration procedures and will involve filing supplementary tax returns pertaining to those taxes of non-statute barred tax years. It will therefore be necessary to examine every case in order to decide which procedure each tax payer should adhere to. In many cases normal tax procedure may prove more beneficial than the tax rate established for the tax amnesty.
2.- The tax amnesty is limited to taxable events subject to Personal Income Tax, Company Tax and Non Residents Income Tax. Other taxes such as VAT, Capital Gains Tax or Death Duties Tax are not included. Special attention will have to be paid therefore to the taxable events of those taxes which might become apparent as a result of the voluntary tax regularization, which could compromise the tax payers position as they are not covered by the tax amnesty.
3.- One of the advantages of the new tax amnesty program lies in the possibility of avoiding the need to prove the ownership of funds on a certain date and of having to categorise the type of income (earned or savings, capital gain) to determine the tax payable in the ordinary tax regime. The tax amnesty aims to simplify this process, at the risk of increasing the cost of regularization in many instances.
4.- Another advantage is that situations from statute barred tax periods can be regularized, the only limit being, as already mentioned, that they be title holders of those assets prior to 31st December 2010.
5.- But the greatest advantage, without a doubt, is the elimination of the obligation for the Tax Department to send the tax regularization files to the courts for possible liability for tax evasion. From now on the tax authorities can close the file on the tax regularization proceedings, without having to report the tax payer to the courts, if they do not find evidence of crimes other than tax evasion having been committed.
This amnesty has attracted a lot of criticism because it seems to treat the tax defrauder better than the model tax payer, but the government has opted for facilitating the regularization of undeclared funds and assets (so called black money) to increase future tax yields, above and beyond the special tax of 10% of the amount, or, of their acquisition value. Given the current state of lack of liquidity in the financial markets, incorporating this cash could significantly alleviate this situation. It has also been argued that the tax amnesty programme is unconstitutional because it very much goes against the principles of generality, equality and tax justice. Spain’s Constitutional Court has declared however, that exceptions may be made to these, so long as they are protected by other constitutional principles and the economic state of the country does seem to be. Furthermore, the harm done to such principles could be alleviated if, as has been announced, there is a toughening of tax penalty laws as of 2013.
The time period for availing yourself of this “pardon” finishes on 30th November 2012. After that, it must be understood that the Administration could put into operation all the double taxation agreements and information treaties signed with territories certified as having nil or low taxation over the last few years, pressuring their Tax Authorities to provide them with details of tax payers who have not availed themselves of the tax regularization and, most importantly, increasing the penalties for undeclared money.
The prize for availing yourself of the tax amnesty is that these funds will have the tax blessing of the Administration, no mean feat. The punishment will be new anti-tax evasion laws and new penalties with regard to tax evasion.
As you will appreciate from this brief analysis, while the tax amnesty programme has quite a few advantages for the tax payer, it could also have unfortunate consequences. For this reason it is a good idea to examine each case with great care before availing yourself of it. We would strongly recommend you consult us before taking any decision in this respect. We’ll be more than happy to help.