Tax evasion in Spain

Tax evasion in Spain is regulated in Article 305 of the Spanish Criminal Code. Tax evasion in the Code is defined is as being committed by anyone who, by action or omission, defrauds the public treasury; eludes the payment of taxes or amounts withheld, or that should have been withheld; unduly obtains refunds or enjoys tax benefits, provided that the amount of taxes not paid, or tax refunds unduly obtained, or benefits unduly enjoyed exceeds EUR 120,000 per tax year.

Tax evasion is punishable with a prison sentence of one to five years and a fine of one to six times the unduly evaded or obtained amount, unless the taxpayer voluntarily discloses their tax situation and pays the taxes due. The taxpayer is considered to have voluntarily disclosed the tax situation when they complete an updated declaration and payment of the outstanding taxes before the tax administration has notified the initiation of verification or investigation actions, or, in the case that such actions have not taken place, before the Public Prosecutor's Office, or the State Attorney or the procedural representative of the autonomous administration, files a claim against the taxpayer.

The statute of limitations for tax evasion is five years from the date on which the corresponding tax return was filed or should have been filed.

How do authorities usually find out about tax evasion?

Tax authorities become aware of possible tax evasion through the inspections regularly carried out on taxpayers. If, during a tax inspection, the inspector obtains evidence that tax evasion has taken place, they must immediately inform the Public Prosecutor's Office, which will initiate the corresponding criminal proceeding.

The initiation of criminal proceedings immediately paralyses the administrative procedure by the tax office. If, once criminal proceedings have been completed, the court does not determine the taxpayer's criminal liability, the tax office must continue with its administrative proceedings.

What are the possibilities to amend tax declarations or declare additional income? 

Once criminal proceedings have been initiated, any tax returns the taxpayer submits or any payments they voluntarily make to the public treasury have no effect on the qualification of the tax offense. Therefore, it is essential, if a taxpayer wants to voluntarily disclose his situation with the Spanish tax office, for the taxpayer to file supplementary tax returns and pay any outstanding taxes before a criminal proceeding is initiated. Once a criminal procedure is initiated, voluntary tax disclosure is no longer possible.

What are the conditions for voluntary disclosure of tax evasion? 

If the tax office has not yet initiated an inspection of the period in which the tax evasion has taken place, or the Public Prosecutor's Office has not yet initiated criminal proceedings, the taxpayer may voluntarily submit supplementary tax returns and pay the outstanding taxes to the tax office. In this case, the taxpayer is completely exonerated from criminal liability.

What are the consequences of voluntary disclosure of tax evasion? 

Late voluntary submission of tax returns gives rise to the imposition of a general surcharge of 15% and interest on late payment. The 15% surcharge includes interest for the first year of delay, and interest for late payment accrues from the second year of delay until the date of submission of the supplementary tax returns. The currently applicable rate of interest for late payment is 4.0625% per annum.

If the amount paid is significant, there is a high risk that the tax office may initiate a tax audit. If the tax audit reveals that the taxpayer has not declared all income correctly, tax evasion proceedings could be initiated if the unpaid taxes exceed EUR 120,000 per tax year.

When is voluntary disclosure of tax evasion no longer possible? 

As indicated previously, if the tax office has notified the initiation of investigation proceedings, or if the Public Prosecutor's Office or the State Attorney has filed a claim against the taxpayer, it is no longer possible to carry out a voluntary tax disclosure.

Any declaration submitted by the taxpayer has no effect on the qualification of the tax evasion offence.

In which areas does voluntary disclosure of tax evasion play a major role? 

The controls imposed by the Spanish tax authorities on income earned in Spain are very strict. For example, all financial institutions and companies in general are obliged to report to the tax office any remuneration paid to professionals and entrepreneurs as well as any other transaction carried out with other companies that exceeds an annual amount of EUR 3,000. As a result, the possibility of concealing income generated in Spain from the Spanish tax authorities is very low, since, in general, the tax authorities have knowledge of such income.

Voluntary tax disclosure is mainly applied when taxpayers have obtained and concealed assets and income abroad, where such assets or income would have resulted in additional tax in Spain exceeding EUR 120,000 per tax year.

What is often overlooked by foreigners but is considered tax evasion in Spain? 

It is very common for foreign taxpayers who own real estate in Spain, and who rent these properties to third parties or use them personally, to omit filing the corresponding tax returns on income obtained in Spain, under the false assumption that the income is taxed only in their country of residence.

Although it is difficult in these cases for the undeclared income or wealth to generate taxes exceeding EUR 120,000 per tax year, from a theoretical point of view, the failure to file such declarations in Spain could result in a case of tax evasion.

What do you recommend to clients who have committed tax evasion and what is your professional stance in these cases?

My urgent recommendation to taxpayers who may have committed a tax evasion offence in Spain is to immediately contact a Spanish tax advisor, who will calculate the amount of tax due and file the supplementary tax returns voluntarily. 

As mentioned above, voluntary filing of tax returns nullifies any criminal liability and any penalties the tax office may impose are limited to a maximum amount of 15% of the outstanding taxes. This amount will increase based on any interest that may accrue from the second year of delay in filing the returns. The voluntary filing of tax returns nullifies any criminal liability for the taxpayer.

---

Carlos Frühbeck Olmedo is a member of the Spanish Official Register of Chartered Accountants. He speaks English and German fluently and is currently Managing Partner of Ficesa Treuhand, S.A.P.