When will they learn?

The latest fashion for the wealthy in Spain is to find another country to pay income tax.

I was enjoying a pleasant lunch overlooking the paseo marítimo in Marbella in the company of Max, a client of many years.

We were reflecting on how wonderful life is in Spain and remembering the dismal weather and general greyness of our previous existences in the Northern climates.

The bubble burst on our musings of paradise when Max raised the painful issue of the M720.

This is the unbelievably idiotic initiative by the Government, allegedly to do something about tax fraud in Spain, demanding that all tax residents file a special declaration giving details of their non-Spanish assets.

Never mind that the regulations were so badly drafted that the tax office was still issuing guidelines on the rules just a few days before the 30 April filing deadline.

Never mind that the M720 reporting obligation is so intrusive and offensive as to be widely regarded by the professional community in Spain as unconstitutional.

Never mind that the fines for non-compliance were frighteningly high - just misunderstanding what has to be declared can produce a fine of 10,000€. Our enquiries demonstrated that the tax office didn't have a clue and the whole thing was a total and unmitigated mess. The only intelligent Administration in Spain appears to be Navarra that gave its people until 30 June to deal with this filing.

So what has the Government achieved? Undoubtedly, it has generated a bit more tax. Many people had the odd 'forgotten' bank account and decided to come clean and declare the asset and pay a bit of back tax for the last few years. The extra tax was, generally speaking, nothing of any real consequence.

But recent experience tells me that this was not the only consequence of the M720.

You see, I was having lunch with Max to go through the alternatives of where he might live. Max and his wife, like so many foreigners in Spain, are very mobile. They really like living in Spain as semi-retired people spending perhaps eight or nine months in Spain. But they can just as easily spend less than six months a year in Spain and a bit more time in another country.

So I was explaining the relative merits to Max of the tax systems in Portugal, the UK, Ireland and even Morocco. Yes, even Morocco is now more attractive than Spain, shock, horror! Portugal has actually introduced special tax rules to encourage foreigners to become tax resident, not frighten them away!

The UK and Ireland look especially attractive to Max and his wife, with dozens of flights to Málaga each day so that they can go backwards and forwards to their hearts content. When it gets a bit too grey there, they can fly to Spain for a few days to enjoy a round of golf in the sun or have lunch on the sunny paseo maritimo and do so some beautiful people watching.

The UK or Ireland are also especially attractive because as non domiciled tax residents of either country, Max and his wife would only pay income tax on what they remit to the country. In effect, they would only have to pay income tax on what they actually spend there.

And, another massive plus, no antiquated and abusive wealth tax, either.

Other tax rules in these countries in particular can almost make the amount of income tax you pay a matter of choice.

Mmmm, I wonder, how much tax shall I decide to pay this year…..now there's a nice thought?

And all this is 100%, absolutely, honestly and truly lawful.

I really do hope that Señor Rajoy and his merry men and women read this article and realise that it is really not very clever to frighten off foreigners who buy property, live and spend money in Spain and support the Spanish economy by spending money in Spanish shops and restaurants, thereby providing much needed jobs.

Max and his wife have not been deliriously happy that Spanish taxes have gone up over the last few years and that wealth tax has come back. But they were willing to tolerate this as they felt it right to contribute a little more to the country that they love so much.

But the M720 has really frightened and upset them. They have heard stories that the M720 is nothing more than a way to track assets of people living in Spain so that they can introduce new taxes or other means of sequestration. They have even heard stories of an exit tax to penalise people who leave Spain.

I hasten to add that these are nothing more than scaremongering rumours. The problem is that frightening people inevitably causes this kind of reaction. It is a fact, people, both Spaniards and foreigners, just do not trust Spain's politicians any more.

When will the politicians learn?

Anyway, back to Max. A few days after our pleasant lunch he told me that he has decided on the UK and will start by renting a small apartment in London. Probably somewhere central like Kensington or Chelsea so that he and his wife can enjoy the best that central London can offer.

The UK will be very pleased to have their income tax contributions next year. The London property market will benefit from yet another couple that has decided that the UK is a good alternative place to live. The theatres, restaurants and shops of London will be pleased to see yet another customer.

Sadly, my friend the tax consultant in London, to whom I introduced Max and who specialises in new non-domiciled residents, will benefit and my firm will lose a client. It used to be the other way around. C'est la vie.

Everything that the UK will have gained will have been at the expense of Spain.

I ask again, when will the politicians learn?

 

Alistair Spence Clarke FCA