Working on the Tax Agency’s fight against tax fraud and tax collection has monopolized our week at Del Canto Chambers.
Treasury leads the way:
The Tax Agency has been the chief protagonist this week at Del Canto Chambers. We have focused on the inspections being carried out in large multinational companies operating in Spain; the regular visits to commercial and luxury developments of key areas such as Costa del Sol; and the measures being taken to combat tax fraud.
In light of this, our Managing Partner, Leon Fernando del Canto, published an opinion article in the Spain’s daily Cinco Dias, on the inspections the Spanish Treasury is conducting in the Costa del Sol region on luxury developments that are mostly owned by British residents with high purchasing power: Aggressive actions are being taken and excessively high penalties handed out, which many of those affected agreed to pay simply because they are unaware of their legal rights (“Treasury and foreigners in the Costa del Sol”) .
However, it is not only non-residents who are experiencing difficulties; large multinationals such as Google, Apple, Amazon and Facebook are being investigated by the Treasury for possible tax evasion. Google is even being investigated across borders: its two locations in Madrid were searched, while its Paris office was fined €1,600 and its London one £172-m.
Treasury is looking closely at their corporate tax, property tax and, income tax, declarations (including for non-residents of these large companies). The Treasury is very untrusting, due to the fact that these companies pay little taxes compared to the profits that they declare. Under the BEPS project, an international project which has been put together to combat fraud, the intention is that there be no “Irish coffee” for anyone -that in Spanish means that not all companies will be treated the same-(“Treasury focuses on large technological multinationals”).
Let us not forget about those who are self-employed, who make up an important part of any economy. This week, Treasury published the information regarding the income tax that they generated: Net income for the economic activities of those who are self-employed, namely their profit margins, rose 6.04% for the first time since 2007: the highest figure in nine years (“The declared income tax of the self-employed rises for the first time since 2007 “).
In its fight against tax fraud, the Tax Agency does not mess around. Using drones and satellite imagery, the Agency has combed through the majority of Spanish territory over 4,000 municipalities were observed, only to discover that more than 1,690,000 properties had failed to declare themselves to the Spanish Property Tax (IBI). For the most part, these were plots of land where houses have been built without making any declaration, or homes that have been expanded (including gardens where pools had been built in back gardens). This resulted in extra revenue of €1,254m for a very pleased Land Registry. The involved municipalities (who receive cash in times of crisis) were also delighted because this has increased the value of many properties, which has in turn pushed up the cost of and property tax (“Game of drones: Treasury discovers by means of these devices a massive fraud in property tax”).
However, if the collection of property tax has been this week’s source of good news, then the bad news has been corporate and personal income tax. The Tax Office had estimated in the State Budget for 2016 that the collection of both taxes would improve significantly but much to their surprise, the figures have not shown this to be the case.
Personal income tax revenue actually fell 4.7%, which was less than had been estimated. Meanwhile, the amount raised with corporate tax was only €221m euros, while the estimated amount was almost €25,000m! Experts explain that this is due to the fact that Treasury misjudged the effects of the much-vaunted government’s tax reform (“The revenue forecasts of the Spanish Treasury miss completely”).
Finally, our collaborator, Maria Arcenegui, also analysed the increase in construction licenses, which have risen by 57% in the first quarter of 2016. It appears that the crisis that has existed in the real estate sector is starting to dissipate, according to experts (“Construction licenses rise 57 percent in the first three months of 2016”).
In short, this week’s news agenda has very much been dominated by the work that the Spanish Treasury has been undertaking. We are confident that we can continue to count on you over the next week for tax and business-related-news.
Xavier Nova (@xavinova)
Director of Del Canto Chambers