In March 2012 the popularly called Tax Amnesty, was approved and now renewed by the agreement between PP and Ciudadanos.. Its objective was to obtain a substantial collection (finally was significantly lower than initially anticipated) through the declaration by residents in Spain of the assets and rights they had abroad and that were hidden to the Spanish Tax Authorities.
The non-regulation of assets and property abroad is hardened
This measure was accompanied by a significant tightening of the tax consequences of non-declaration of income abroad by Spanish residents. The measures were the approval of a non expiration of some tax issues and debts and a harsh penalty system that has been sued against the High Court of Justice of the European Union for its lack of proportionality. That procedure in the beginning was not very successful. But after the interpretation regarding its application done by the Spanish Tax Administration through the “Direccion General de Tributos”, that had reduced the tax cost of the procedure in certain cases, a lot of taxpayers opted, at the last moment, to benefit from the tax amnesty and they regularized assets that had the outside. Although, the amount received by the Spanish Tax Authorities was very low for the reason explained before.
For every law there is a loophole
Now because of the negotiations for the formation of a new government in Spain, one of the points of the Agreement signed between the PP and Ciudadanos has been to review the tax treatment applied by the “Dirección General de Tributos” to taxpayers who used the Tax Amnesty. The “Dirección General de Tributos” (DGT) issued a report, dated June 27th 2012 but unsigned (see PDF), which clarified that taxpayers who could prove their ownership of the assets (that were not cash) prior to 4 years (obtained during exercises prescribed) should not regularized and therefore they only have to pay for the income from the assets obtained in non-prescribed exercises but they should not pay tax on the declaration of assets hidden to the Spanish treasury up to then. This means that the effective average tax rate applied for the regularization was around 3% instead of 10% approved by the Law. The agreement between PP and Ciudadanos establishes a change of the above criteria followed by the Tax Administration and determines that an effective tax rate of 10% will applied to all amounts related to regularized assets even if they were obtained in prescribed exercises, because of neither the Law or other Tax Regulations specify anything different. All this would further increase legal uncertainty and would put to a scandal level, the changes in criteria about taxation occurring in Spain and, that’s more, would generate a real “earthquake” in the tax field with important consequences that in different levels and fields may suppose the change of administrative tax criteria. All this regardless the snowsilde of appeals that taxpayers can give notice.
No time to back down!
However, today Mr. Rajoy is not yet President and so, the pact signed between PP and Citizens has been no application. In addition, it seems it is not contemplated at the moment that the “caretaker” government instruct the AEAT to act contrary to the criteria taken so far by the DGT at the request of the government. Therefore, we must take into account, in particular, that if on 31st October the investiture of Mr. Rajoy doesn’t takes place and elections are held again, the possibility to check the Tax Amnesty Forms will be virtually impossible, because of the next November 30 these forms expire. So, if they don’t reach an agreement investiture and we arrive to 1st December, the possibility of checking the Forms announced with great fanfare with both parties and also to collect the estimated amount of 2,800 million Euro (as Ciudadanos calculations), will cease to exist. So the question to ask is: were perfectly aware the two parties, at the time they signed the agreement, of the material difficulty of carrying out the agreement signed?
