I have written many times that it’s important to make sure that your tax affairs are in order and that the Hacienda can go back 4 years under the statute of limitations. So, even though you may have submitted your 2010 return on time, they have up to the end of the voluntary period in 2015 to query it. If you have a digital ID and check your tax returns on the Hacienda Virtual Office you will see that they all say “En tramitación”.
To understand why this is important, and why recent events could impact you in the future, we need to consider some background information.
In April 2013 the governments of Spain, France, Germany, Italy and the United Kingdom announced that they were to develop and pilot a multilateral tax information exchange. The purpose of the agreement is to help catch and deter tax evaders as well as provide a template for wider multilateral automatic tax information exchange.
Well, that’s all very interesting I hear you say, but how does that affect me, surely that’s all about the activity of companies and rich people, not me. It is true that a large part of the focus of the exercise will be aimed at these groups and some of the avoidance activities, but there is also evidence that these efforts will cover a wide range of activity.
For example as you may know Spain and the UK agreed a new Double taxation Agreement in 2013, which was signed earlier this year and came into force on June 20th 2014. There were a number of changes, but one that didn’t really get much mention was the development of the Information Exchange. This has always been included in Double Taxation Agreements, but the new one has been expanded and says for example:
If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes.
It goes on to say
In no case shall the provisions of paragraph 3 be construed to permit a Contracting State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.
So, this means that if Spain asks the UK for information which it doesn’t normally collect, they will do so on request, even if they have to ask the banks for the information. So, when you read that, and then the “ 2014 Plan Anual de Control Tributario” which says under Control over operations, legal and tax, tax regimes:
Along with priority control areas previously mentioned, there are certain subjects, sectors or tax regimes on which the Tax Office has developed their control actions in previous years to be maintained. However, new in 2014 highlights the exploitation of the 720 model information on the assets and rights located abroad to detect potential income from such assets and ensure proper taxation.
So, it seems to me that all this activity points to the fact that the Hacienda, along with most other countries are determined to clamp down on tax evasion.
So, all we’ve done so far is look at the foundations of potential future activity that might affect us. Let’s now look at specifics:
On 23rd June 2014 the Government published draft changes to the current tax laws, including revised allowances and reductions in tax rates from 2015. On the 6th August it published a revised draft bill to be considered by Congress. The following section was added (paraphrased)
Based on information obtained in the context of information exchanges with other countries, the Spanish tax authorities learned of the existence of taxpayers having received pension income from abroad that had not been declared correctly. With respect to such income, the State Tax Administration, in fulfilment of its functions, has been developing actions to regularise this.
As those mainly affected are usually older people recently moved to Spain, it is deemed necessary for reasons of justice and social cohesion to deal with this as special circumstances. Accordingly there is a provision of voluntarily regularizing excluding penalties, surcharges and interest.
There is then an additional provision in the law which basically says that by the 30th June 2015 (6 months from the date of entry of the law) anybody who had not declared pension income from abroad for previous years can regularise the position without penalty.
Now, at this stage we don’t know what information they have, and this may become slightly clearer when the legislation is published. However, if you received but did not declare overseas pension income in previous years, when you should have done, then you should seek professional advice from your advisor. The reason for this is that if they have information on your pension income, then once the statutory period has elapsed you will be liable for the penalties.
So, it would also appear based on my analysis that this may not be the end, but only the beginning. In particular the clause in the Plan Anual about using the Modelo 720 to crosscheck income declared on tax returns is something I have written about many times. Once they can crosscheck the 720 to information from the UK they will know everything about you.
There is no place to hide from taxation anywhere.
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