The Tax Man Cometh...
Over the last few year or so we have heard that various governments have licitly and not so licitly managed to get hold of lists of people with bank accounts in funny places. What has become apparent is that these lists are being shared with the tax authorities of any interested country. Well Spain has shown its interest too...
A little background:
German tax authorities managed to get hold of a list of 1,400 clients of LGT Bank in 2008. The German government had paid up $7.4 million for information on German account holders in Liechtenstein.
A former bank employee stole HSBC Swiss bank account data in 2008, and passed them on to French authorities. The transaction was eerily similar to the LGT Bank in Leichtenstein.
The U.S. government made a deal with Swiss government and the Swiss bank UBS that lead to the disclosure of as many as 4,450 U.S. individuals that used the bank accounts to hide money. Ex-spouses, creditors and former business partners were salivating at the prospect that details might become public.
Guernsey recently signed a disclosure agreement with Spain as part of the process of getting itself off the OECD blacklist.
Switzerland recently signed a new tax treaty with Spain that included an exchange of information clause.
With pressure on governments to raise politically acceptable revenues, putting the money in an offshore account and pretending it doesn't exist just doesn't seem like such a good idea any more.
Fines and interest in Spain are not less than 75% of tax evaded and can be as high as 150% if the individual does not cooperate.
I won't even mention the stress and costs of the tax investigation itself, especially for a foreigner who can't communicate with the authorities or understand the process.
Are we getting the general idea?
In the last few years we have come across more than a few cases where Spanish tax residents have received a polite invitation to have a chat with their local tax inspectors. Well, as polite as Spanish official notifications ever are. Not a nice surprise.
Under Spanish anti-evasion law, a tax payer can finish up being assessed on deemed income of 15%, if investment capital is hidden behind an offshore company.
What surprises me is 'why bother' to hide from the taxman? Spanish investment income and capital gains tax are subject to maximum rate of 21%. Legitimate arrangements can produce tax rates as low as 2.5%, rolled up investment income taxed at 0%. This makes Spain almost a tax haven. Why bother indeed!
Why do people not get legitimate tax advice? It is baffling given that there are more than a few, perfectly legitimate, tried and tested methods for the tax efficient structuring of wealth.
Must be something to do with the 300 sunny days in Spain each year.
Time to get with the 21st Century, if not the 20th. This is not rocket science.