New Spanish tax inspection campaign


The Spanish Government recently announced new measures to fight against the black economy in Spain, unofficially 28% of the Spanish GDP. Who are the targets and will these measures work?

The Spanish Government recently published the action plan to be carried out by Spanish tax inspectors during 2014 to reduce the Spanish black economy. This is currently officially recognised at 20% of the Gross Domestic Product but some sources estimate this as high as 28%.

To put this into context, this means that the Spanish treasury is not taxing undeclared income of over 280 billion Euros or 6,000 Euros per capita, and each year loses tax revenues of at least 100 billion Euros, 80% of the cost of Spain’s entire social security and national health system.

This is despite Spain having one of the lowest tax collection rates in the EU, despite having tax rates that are significantly higher than average. Only the recently admitted Eastern European states and Ireland manage to collect less tax. Something is obviously wrong in Spain.

The Government has told the tax inspectors to focus on:

  1. Inspecting businesses to detect the existence of undeclared sales.
  2. Finding undeclared rental income.
  3. An analysis of aggressive tax planning by major groups of companies and multinationals.
  4. Systems to exchange information between the national and regional tax administrations with regard to wealth, inheritance and transfer taxes, with the aim to detect undeclared income.
  5. Increasing the number of tax inspections on individuals to ensure they have declared their non Spanish income and foreign assets, using the information provided through the M720 declarations and FATCA (Foreign Account Tax Compliance Act)agreements.
  6. Systems and procedures to enable the embargo of non Spanish assets held by Spanish residents in settlement of their tax debts.

For the first time after many years, the Spanish Government has announced that they will recruit more tax inspectors during 2014 and they will reinforce software systems (and perhaps increase the level of information to be provided by the tax payers every year) to acquire and utilise as much information as possible.

So what’s new?

Not a lot really. The same words are used year after year by the Government in announcing its annual tax inspection campaign.

However, the references to employing more tax inspectors, using the M720 and FATCA data will undoubtedly produce results for the state.

Whilst Spain continues to charge the self-employed a minimum of 260€ per month and take 20% of their earnings in VAT, regardless of how much they actually earn, we will continue to see massive so-called unemployment in Spain. How else can people survive?

The most important change is the recruitment of more tax inspectors. Spain currently employs only 1,800 inspectors and with so much tax fraud in evidence it only requires a sensible number of motivated tax inspectors to make a real difference.

The consequences for tax fraud remain tough on the perpetrator with fines starting at 50% and easily reaching 150% of tax evaded. Tax evasion of 120,000 Euros becomes a criminal offence with more severe fines and prison. Fraud of over 600,000€ produces up to six years in prison with fines of up to six times tax defrauded.

A final, forlorn, comment from a tax adviser: There are more than a few renowned economics authorities who postulate that lower and fairer tax systems result in people being less inclined to evade tax. Sadly, such books do not seem to be in the library of Spanish politicians or, if they are, the politicians do not have the courage to change the way Spain works.

Spence Clarke specialises in the provision of Spanish tax, accounts, law and labour services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.