Spain approves a Law on intensified measures against tax fraud.

8 November 2012

Among others, it requires to inform about the assets and rights located abroad and it prohibits cash payments in the amount over 2,500 Euros.

30 November 2012 is the last day for regularization of tax situation related to undeclared income and assets, known as “Tax Amnesty”, by making a payment of 10% of “undeclared income”.

At the same time, the Spanish government has just approved a new law “Law on intensified measures against tax fraud”, published in the Official State Gazette on 30 October 2012.

This Law approves a number of measures aimed at intensification of fight against tax fraud in Spain. We would like to highlight two of them: a new requirement of reporting the assets and rights located abroad and prohibition of making cash payments in the amount greater than 2,500 Euros.

As far as the obligation to inform about the assets and rights located abroad, this obligation especially applies to natural persons and legal entities who are considered tax residents in Spain, according to the draft of the Royal Decree that develops this new Law.

In particular, such individuals and entities must file a declaration on assets and rights, which are owned by them and located abroad, between 1 January 2013 and 31 March 2013.

Elevated penalties will be assigned in case of non-compliance. On the one hand, financial fines in the amount of 5,000 Euros for each omitted piece of information, with a 10,000 Euros minimum amount of fine. On the other hand, for example, Personal Income Tax has a concept of “unjustified capital gain”, which may lead to imposition of other sanctions, of much bigger amount, which can even exceed the value of undeclared asset or right.

Nonetheless, there shall be one exemption in regard to the second type of penalties. In particular, they shall not be applicable if the ownership of assets or rights will correspond to “declared income” or income obtained during tax periods when the taxpayer was not considered a tax resident in Spain.

This exemption, in an indirect manner, seeks to provide an incentive for voluntary regularization within the process of “Tax Amnesty”, mentioned at the beginning of this article, which ends on 30 November 2012.

The second measure aimed at intensifying fight against tax evasion that we would like to point out in this article consists of a prohibition to make cash payments in the amount greater than 2,500 Euros. This measure will become effective after 19 November 2012.

This measure shall be generally applicable when one of the parties to the transaction acts in the capacity of an entrepreneur or a professional.

Nonetheless, in regard to the quantitative limit of 2,500 Euros we would like to point out that the threshold increases to 15,000 Euros when the payer is a natural person who indicates that he or she is not a tax resident in Spain and does not act as an entrepreneur or a professional.

Parties to the transaction must keep receipts of payment during five years, the length of the established taxable period.

As far as penalties for non-fulfillment, it is established that violators shall be both the payers and the payees, who make or receive full or partial cash payments in surpass of the established threshold.

The penalty shall be based on the amount paid in cash, and it shall consist of a financial penalty in the amount of 25% of the base amount. For example, an individual purchases a piece of artwork from an art gallery, paying 100,000 Euros in cash. The penalty shall equal to 25,000 Euros.

It is established, however, that non-fulfillment shall not lead to a penalty fine in regard to a party to the transaction, when the transaction is reported to the Tax Authorities with three months after the payment date, with detail on carried out transaction, its amount and identity of the other party. In this regard, any such reporting that may be subsequently made by the other party shall be considered as non-submitted.

Lastly, we would like to point out that the Law does not specify the personal and territorial scope of application of this regulation. Therefore, during the process of regulatory development, it shall be understood that the personal and territorial scope is included, thus being applicable to any transaction involving an individual or company with residency in Spain, or assets and rights located in Spain.

For any further questions, please contact José Blasi: