What are the taxes affected?

Income Tax for both residents and non residents in Spain and the Corporate Tax for the exercises 2007-2010. No mention is made to VAT, Wealth Tax which was reinstated by the government for the 2011 Fiscal year or to the Gift and Death Duty Tax. The wealth tax was suspended from the 2008 fiscal year, however the 2007 and 2011 fiscal years are still open to possible tax inspection. Therefore if the assets were owned by the tax payer in 2007 and or 2011, even though they may accept to regularise under the new Regulation they would have to make a complementary Wealth Tax Assessment for 2007 and present the tax declaration for 2011. Similar approach should be taken by owners of assets acquired by way of gift or inheritance in the years 2007-2010.

What conditions must be met to obtain the benefit of the new Regulation?

The Tax payer must proof ownership of the assets before the closing of the last fiscal year, whose tax return had to be presented before the Regulation became into force, generally 31.12.2010. Proof of the ownership of assets before such time must be provided to the Revenue in addition to the regularisation assessment and can take place by any legal mean accepted.

As far as cash is concerned the order foresees that proof of the ownership is achieved making a statement that the tax payer was the owner of same before 31.12.2010 in the assessment providing the cash is deposited prior to lodging the assessment in a bank account in Spain or in a country of the UE or a country belonging to the European Economical Area (EEA) with which Spain has signed a double convention agreement with a clause for exchange of information or simply an exchange of information agreement, unless they are considered of high risk, faulty or non cooperative by the financial Action Task Force in money laundering (FATF).

The tax payer which is under tax inspection proceedings initiated by the Spanish Revenue before the new Regulation came into force (31.3.2012) cannot take advantage of the extraordinary tax regularisation for the taxes and fiscal exercises affected by the regularisation.

What assets are excluded from the extraordinary regularisation?

The assets or rights acquired by the tax payer before 2007, since the statute of limitation for the Revenue to enforce payment of the taxes subject of the regularisation has expired.

What is the tax rate and on which amount it must be calculated?

The tax payer must pay 10% on the value of acquisition of the said assets irrespective of what the value these assets might be worth now.

As far as bank accounts, the tax is worked out on the balance showing at 31.12.2010 and for the cash on the amount deposited in a bank account prior to the assessment.

When is the deadline to obtain the benefit of the regularisation?

The deadline will be the 30th November, 2012.

How can I lodge the assessment?

The assessment and any information to be supplied to complement this as for example the documentation proving ownership of the assets must be made solely online providing the tax payer has a digital certificate granted by the Revenue or does it through a representative who has such certificate.

What are the consequences if tax payer affected does not regularise now?

Some sources have commented that the government will intensify the fight against tax defaulters upon the elapse of the said deadline. In fact, the new draft Law on Measures to Fight the Tax Fraud provides for the obligation for all taxpayers to give information on accounts and securities situated abroad which belong to them or they are beneficiaries or authorised persons thereto. Included are all types of titles, assets, accounts in financial institutions and securities or life insurance. The non furnishing of a data or group of data in respect of the accounts and security abroad can result in a fine of 5.000 Euros for data or group of data with a minimum of 10.000 Euros. In addition to this, there will be no statute of limitation for the authorities to enforce payment of the tax on the income produced by the accounts or securities abroad.

In addition to this, the government is working on a modification of the Criminal Code which contemplates a new type of aggravated tax fraud when the amount defrauded exceeds 600.000 Euros or it is generated in a criminal organisation or using companies, businesses or places which hides or makes difficult the identification of the tax payer or the defrauded amount. The penalties are increased for Tax Fraud from 1-6 years now to 2-6 years and the statute of limitation to pursue Tax Fraud is increased from 5 to 10 years since the Fraud was committed.

Polemical decision

Widespread criticism has been received by the new Regulation as it prejudices the normal tax payer who has paid tax each year at the corresponding rate in respect of the defaulter who can now receive the benefit of the regularisation for any assets acquired in the fiscal years still open to tax inspection (2007-2010) at a reduced cost.

The regularisation will exonerate the tax payer who receives the benefit of same from the Tax Fraud crime as this is already foreseen in the Spanish Criminal Code. However, this does not exclude responsibilities from other type of crimes or money laundering should the money comes from other crimes different than Tax Fraud. Especially there will be consequences from money laundering in case the origin of the regularised assets cannot be properly proved.

Although the decision is polemical it will be an opportunity for those who find themselves captive with hidden assets and with a permanent threat that the Revenue falls on them with a huge tax bill to release them from the said situation. On the other hand from the government view point it will allow an extraordinary income and the possibility to count with new assets within the system which may be used for business or ordinary expenditure and which not only will help improve the depressed economy but also contribute, if new income is generated with it, to the payment of further taxes.

Please note the information provided in this article is of general knowledge only and is not to be construed or intended as substitute for professional legal advice.