1.6 Million Companies fail to file annual accounts each year in Spain with no consequences
Its hard to credit this but a recent report in an online newspaper exposes the parlous state of Spain's compliance with EU rules(and its own laws)on company accounts filings. It seems that 2/3rds of Spanish companies completely ignore the regulations and they do so evidently with complete impunity.
The annual accounts, or more properly the annual financial statements, consist of a profit and loss account and balance sheet with explanatory notes, the auditors report (if applicable) and a directors report (if applicable).
These documents should be filed in the local provincial company registry, of which there are 50 in Spain, with several additional forms covering non financial subjects like environmental issues and the company ownership of its own shares.
The Spanish administrative system is, for almost every purpose, calendar year driven and 99.9% of Spanish companies have a 31 December year end, which coincides with the annual tax filing cycle.
The annual financial statements filing has to be done within 30 days of the shareholders annual general meeting, which itself must take place by 30 June each year. In effect, the annual deadline is 30 July each year for the vast majority of companies whose shareholder annual general meetings are no more than a documentary formality.
In addition, the "libros oficiales", the official bookkeeping records, must also be sumitted to the registry for legalisation, in accordance with articles 23-33 of the Código de Commercio. These accounting records include a monthly summary journal, quarterly trial balances and the shareholders register. The deadline for filing is 30 April. This is an important formality as it causes the accounting records to become "legalised", giving them the status of formal evidence in the legal system.
Companies of all sizes have been required to file their annual accounts since 1989 when the Ley de Sociedades Anonimas, articles 218-222, set out the rules for all types of companies. The current filing rules are similar to the old rules and are set out in articles 279-284 of the 2010 Ley de Sociedades de Capital.
These are the filing requirements and penalties for non-compliance:
- The company registry will suspend the company so that no shareholder resolutions or other acts, like the granting of powers of atorney, can be inscribed, except for the appointment or resignation of directors or acts relative to the liquidation of the company.
- Fines will be imposed of a minimum of 1.200€ - 60.000€. For large companies whose turnover exceeds 6.000.000€, the fines go up to 300.000€ for each year of accounts not filed.
- Directors can be held personally responsible for the debts of the company.
After three years the fines are prescribed.
In more than 30 years of public practice in Spain we have not seen a single fine imposed but this is likely to change soon.
The state accounting organisation, the Instituto de Contabilidad y Auditoría de Cuentas (ICAC) has the responsibilty for levying fines and has been notably inactive for 27 years. It has finally woken up from its long siesta and announced that it will start a campaign to deal with non-compliance of the annual financial statements filing obligations. They have notified the professional organisations that they will apply fines of the higher of:
- The minimum fine of 1.200€
- 0,5% of the total asset value plus 0,5% total sales, as shown by the corporation tax return for the year.
- In the case no tax filing has been done then 2% of the share capital.
Probably, the real reason for the apparent mass non-compliance, apart from state inactivity, is that hundreds of thousands of the companies that apparently exist are in fact completely inactive. In Spain there is no mechanism to apply to the registry to "strike off" an unwanted and inactive company for a nominal registry fee.
Instead, but only in the case that a company has no creditors, it is necessary to sign a dissolution deed in a notary's office and have the deed inscribed in the company registry, a relatively complex process that involves costs of about 600 Euros, plus the professional fees involved.
In some cases, when an inactive company is dissolved, the obligation to file the backlog of annual accounts is exempted and this saves significant fees and costs.
A company that has creditors and is effectively insolvent cannot use this process and instead has to apply to the court for a formal liquidation. This is a very formal and complex process requiring the appointment of a lawyer and a procurador and with minimum costs that would easily start at 7.000€ and could cost a lot more if creditors cause problems. The best solution in these circumstances is to try to make a deal with all the creditors to allow the simple process to procced.
It should be emphasised that until a company has been dissolved, the directors remain obliged to file the company's annual financial statements as well as the annual corporation tax declarations and failure to do so causes exposure accounting and tax fines and other resonsibilities.
Spain has a disfunctional insolvency judicial system, which is frequently criticised in the national press and which successive governments have proved to be incapable of reforming. This, combined with the absence of a simple process to strike off unwanted companies adds a considerable negative to Spain's status as being a business friendly country. In fact Spain is ranked by the World Bank at only 28. See World Bank rankings.