On March 31,
2012, the Spanish Government enacted an extraordinary procedure for the
voluntary disclosure of undeclared income linked to assets held by
taxpayers -resident and not-resident in Spain- on or before December 31,
2010. On June 4 the regulation establishing the relevant criteria for
the filing of the return was approved by the Spanish Government. On June
27, the General Directorate of Taxes issued a report clarifying specific
key aspects of the extraordinary procedure.
The purpose of
this document is to summarize the consequences of holding undeclared
assets and the mechanism of the ordinary voluntary disclosure procedure.
We do also compare the new procedure with the ordinary procedure.
Although we do focus this note in the status of individuals resident in
Spain, the extraordinary proceeding is open to corporations and to not-residents.
In this regard, a taxpayer may only use this special proceeding for
declaring unpaid Individual Income Tax, Corporate Tax and Non-Resident
Income Tax. Other taxes should be declared using the ordinary disclosure
proceeding.
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1. Consequences
for Spanish individuals of holding undeclared assets
Spanish
Individual Income Tax subjects to taxation the worldwide income
perceived by a Spanish-resident individual.
Financial income
and capital gains are currently taxed at 21 to 27%, rates went up from
the 18% set forth in 2007. The discovery by the Spanish Tax Authorities
of undeclared assets held or income obtained by taxpayers implies
payment of the corresponding taxes, interest -currently at a 5% rate-
and penalties up to 150% of the tax liability. Furthermore, in those
cases where the origin of the income is not evidenced, the authorities
will recognize such income in the first fiscal year pending to elapse at
marginal rates -up to 56% for individuals, depending on the fiscal year
and the autonomous region in which the tax subject is resident-.
In addition, the
Net Wealth Tax subjects worldwide assets held by a Spanish-resident
individual to taxation at their fair market value as at December 31. The
tax is levied at a progressive rate up to 2.1%. Net Wealth Tax was
suspended with effects as from 1 January 2008 and restored with
transitory effects for 2011 and 2012.
Furthermore, if
the unpaid tax for a given tax and tax period exceeds € 120,000, then
the taxpayer may be charged with a criminal offence. The statute of
limitations for tax criminal offences is 5 years and the penalties are
imprisonment up to 5 years and a fine up to 6 times the tax due.
Finally, the
Government has passed a new bill proposal to the Courts, proposing a new
criminal offence for unpaid taxes that exceed € 600,000 or when using
complex structures. The proposal intends to extend the statute of
limitations period to 10 years and to harden the penalties.
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2. The ordinary
voluntary disclosure
A voluntary
disclosure has always been available for taxpayers: any taxpayer may
complete former tax returns during the statute of limitations.
The ordinary
voluntary regularization procedure is open to whatever undeclared tax
liability that is due according to Spanish Tax legislation and it
applies to taxpayers who are liable for any tax in Spain, irrespectively
of whether they are residents in Spain or not.
Taxpayers who
voluntarily file a complementary tax return to regularize their tax
situation are not subject to administrative penalties, provided that the
filing takes place before any formal investigation starts. However, in
addition to the tax due, the taxpayer must pay a surcharge for late
payment (up to 20% of the tax due) and, in case the delay is longer than
a year, delay interest.
If the voluntary
regularization is true and complete and payment takes place, voluntary
payment avoids any criminal offence.
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3. the
extraordinary voluntary disclosure
Royal Decree-Law
12/2012 has introduced an extraordinary procedure for the voluntary
disclosure of undeclared assets held by taxpayers on or before 31
December 2010. Under this proceeding, taxpayers may avoid tax liability
by paying a 10% flat rate on the value of the assets linked to
undeclared income. The voluntary disclosure must be done on or before 30
November 2012. Repatriation of funds is not required.
As confirmed by
the General Directorate of Taxes, the existence of the proceeding is
compatible with the ordinary proceeding.
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3.1.
Possibility of disclosing only those assets and rights acquired within
the 4-year statute of limitations period
The General
Directorate of Taxes has established that taxpayers who can evidence
acquisition of certain assets or rights in a tax period falling outside
the statute of limitations period may elect to disclose solely those
assets or rights corresponding to income generated within the statute of
limitations period.
For example, if
a taxpayer credited a foreign account with an undeclared amount of €
500,000 in a tax period that now falls outside the statute of
limitations period, i.e. June 2005, and in June 2008, the taxpayer
credited into the same account € 300,000 as undeclared income.
According the General Directorate of Taxes’ report, the taxpayer need
only declare € 300,000 to regularize the tax situation.
|
Extraordinary regime |
|
Assets |
Acquisition value |
Rate |
Tax due |
|
Bank Account |
€
300,000 |
10% |
€
30,000 |
|
Ordinary regularization |
|
Year |
Income |
Rate |
Tax due |
Interest |
Surcharge |
TOTAL |
|
2008 |
Professional income:
€
300,000 |
45% |
€
135,000 |
€
13,500 |
€
20,250 |
€ 168,750 |
3.2. Chains of
assets: what should the taxpayer declare?
According to the
new procedure, and in order to avoid duplicities, if the proceeds from
the sale of an asset are used to purchase another asset, only one asset
need be declared. By declaring the asset, the Directorate will consider
any gain or loss realized to have been declared.
The example
provided in the General Directorate of Taxes’ involves a taxpayer who
acquired an asset for € 100,000 in 2009 with undeclared professional
income and subsequently sold the asset at loss in 2010 for € 80,000
and used the proceeds to purchase shares worth € 80,000 in June 2010.
In the example, if the taxpayer declares the acquisition value of the
most recent asset, the taxpayer will regularize both the undeclared
positive income of € 100,000 and the € 20,000 loss.
|
Extraordinary regime |
|
Assets |
Acquisition value |
Rate |
Tax due |
|
Shares |
€
80,000 = € (100,000-20,000) |
10% |
€
80,000 |
|
Ordinary regularization |
|
Year |
Income |
Rate |
Tax due |
Interest |
Surcharge |
TOTAL |
|
2009 |
Professional income:
€
100,000 |
45% |
€
45,000 |
€
4,500 |
€
6,750 |
€ 56,250 |
|
2010 |
Capital loss:
€
(20,000) |
This loss can only be offset with capital gains
arising in the same tax year or with those generated during the
following 4 tax years |
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4. Current
alternatives
Therefore,
taxpayers have until November 30, 2012 two different alternatives for
regularizing their tax situation with the Spanish Tax Authorities. Both
the ordinary and the extraordinary procedure have the same consequence:
the taxpayer avoids penalties and tax criminal offences.
The following
chart summarizes the main differences between the ordinary and the
extraordinary procedure for the voluntary disclosure of undeclared
assets.
|
|
Ordinary |
Extraordinary |
|
Taxes covered |
All types of taxes |
Individual Income Tax,
Corporate Income Tax, and
Non-Resident Income Tax |
|
Types of assets |
All assets and income |
Assets held before December 31, 2010 linked to undeclared income |
|
Tax base |
Regular proceeding |
Assets: Part of the acquisition value of assets linked to undeclared
income
Accounts: balance as of Dec. 31, 2010 or prior balance linked to
undeclared income
Cash: Amounts deposited |
|
Tax rate |
Regular tax rates
(individuals up to 43 to 45%) |
10% |
|
Interest |
Yes |
None |
|
Surcharges |
Up to 20% |
None |
|
Penalties |
None |
None |
|
Statute of limitations |
Interrupts statute of limitations |
No effect on statute of limitations |
|
Tax return |
One per tax and fiscal year |
One: Form 750 |
|
Fiduciary entities as legal owners |
No specific restrictions |
Beneficial owner must become legal owner prior to Dec. 31, 2013 |
|
Acquisition value of disclosed assets |
Fully valid for future sales |
Restrictions on the deductibility of losses |
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