Tax fraud in Spain is taken very seriously and, under certain circumstances, can constitute a criminal offense. It is essential for individuals and companies to understand the thresholds, risks, and corrective measures available to avoid escalating a tax problem into criminal territory.
When Does Tax Fraud Become a Criminal Offense?
Tax fraud is classified as a criminal offense if all three of the following conditions are met:
- There is unpaid or unwithheld tax, an incorrect tax refund, or an inappropriate use of a tax benefit.
- These actions are carried out with the intent to defraud (*).
- The amount of tax involved is 120,000€ or more.
(*) The tax office may infer intent in cases such as:
- Hiding or failing to declare income.
- Falsely generating tax benefits.
- Issuing false invoices.
However, intent is not assumed when a business deducts expenses that are genuine but simply not deductible. Even if the tax debt exceeds 120,000€, there is no criminal offense if fraud was not intentional.
Penalties
If classified as a criminal offense, the consequences are severe. For individuals, this may include prison sentences, in addition to significant financial penalties.
The statute of limitations for standard tax obligations is four years, but in cases of criminal tax fraud, this period extends to five years.
How Can You Avoid Criminal Liability?
If the tax office has not yet initiated an inspection, you may be able to regularise your situation by:
- Submitting a complementary declaration.
- Paying the outstanding tax.
In this case, only late payment fines will be applied. However, if the debt exceeds 120,000€, the tax authorities may still initiate a fraud investigation, even if the payment has been made.
The Role of Form M770
To fully regularise your situation and reduce the risk of an inspection, you must also submit Form M770. This form allows you to pay both the fines and late payment interest in addition to the owed tax.
- By submitting M770, you can benefit from a 25% reduction in penalties.
- An M770 must be filed for each relevant year. For example, if you submit complementary declarations for Q3 and Q4 of 2022, you will only need to file one M770 for the entire 2022 tax year.
When to Use Form M771
If the complementary declaration for the period you need to regularise is no longer available in the system, you must submit Form M771 as a substitute.
Final Thoughts
Tax fraud can have serious consequences, both financial and criminal. The good news is that Spanish tax law provides mechanisms, such as complementary declarations and the use of Forms M770 and M771, that allow taxpayers to voluntarily regularise their situation before an inspection begins.
If you believe you may be at risk or need to correct past declarations, we strongly recommend seeking professional tax advice to guide you through the process and protect you from unnecessary risks.
