Cash payments to be limited to €1,000

Measures to combat tax fraud.

The Council of Ministers has approved the Bill on Measures to Prevent and Combat Tax Fraud (Proyecto de Ley de Medidas de Prevención y Lucha contra el Fraude Fiscal), which will now begin its passage through Parliament. The bill amends various rules and taxes, both to transpose EU law into Spanish domestic law and to introduce measures that strengthen the fight against complex tax avoidance and the underground economy.

Tightening of the cash payment limit

The bill amends the cash payment limit for certain economic transactions, which will be lowered from €2,500 to €1,000 for transactions between businesses.

The use of cash as a means of payment facilitates fraudulent conduct, and for that reason the general limit on such payments is being reduced. However, to minimize the impact on small household economies, the €2,500 limit is maintained for payments made by private individuals.

In addition, the cash payment limit is reduced from €15,000 to €10,000 for private individuals whose tax domicile is outside Spain. The aim is to restrict these transactions which, because they are made in cash, are more difficult to trace and may therefore facilitate fraud.

Ban on tax amnesties

Another measure provided for is a statutory ban on tax amnesties, which will affect large fortunes and large asset holdings. It is considered appropriate to expressly establish the prohibition of any extraordinary tax regularization mechanism that entails a reduction in the amount of the tax debt. This prevents unjustified tax benefits that would amount to a breach of the duty to contribute to the funding of public expenditure.

Expansion of the list of debtors to the Spanish tax authorities

The bill lowers from €1 million to €600,000 the amount above which a debtor is included on that list. The objective is to encourage large debtors to pay what they owe to the tax authorities.

Likewise, jointly and severally liable parties are expressly included on the list of debtors to the tax authorities, alongside the principal debtors. The aim is to ensure that the consequences of appearing on the list extend to a greater degree to those truly responsible for the debts.

Combating tax havens

Another measure included in the bill is the updating and broadening of the concept of tax havens, which will now be referred to as non-cooperative jurisdictions, the term used internationally.

The concept of tax haven is broadened on the basis of criteria of tax fairness and transparency. Thus, the list of tax havens will include, for example, territories that facilitate the existence of offshore companies designed to attract profits without any real economic activity, or those characterized by opacity and a lack of transparency, or territories with which there is no effective exchange of information on the beneficial owner of assets or rights, or where there is low or no taxation (until now, only the concept of no taxation was included).

Likewise, harmful preferential tax regimes established in territories that facilitate fraud will be included, for example, regimes that give non-residents more favorable treatment than residents.

Furthermore, the Government will be empowered to update the list of tax havens, which must be reviewed periodically, with a dynamic approach.

Combating dual-use software

The bill also prohibits so-called dual-use software, that is, computer programs that make it possible to manipulate accounting records. The objective is to prohibit both the production and the possession of computer programs and systems that allow accounting and management data to be manipulated.

Accordingly, the bill requires computer or electronic systems that support accounting or business management processes to meet certain requirements guaranteeing the integrity, preservation, traceability, and unalterability of transaction records.

Provision is made for the possibility of including technical specifications through implementing regulations, including subjecting such systems to certification, and a specific penalty regime is established for the production of these programs or their possession without the appropriate certification.

Control of cryptocurrencies

New circumstances in the economic world make it necessary to adjust Law 7/2012, which introduced the obligation to report assets and rights located abroad. Greater control over cryptocurrencies is now necessary, and the bill therefore introduces an obligation to report holdings of and transactions with virtual currencies, whether located in Spain or abroad, where Spanish taxpayers are concerned.

Information will thus be required on the balances and holders of currencies held in custody. In addition, an obligation is established to provide information on acquisitions, disposals, exchanges, transfers, collections, and payments made with cryptocurrencies.

An obligation is also introduced to report, in Form 720 (return on assets and rights held abroad), holdings of virtual currencies located abroad.

Reference value: Transfer Tax and Stamp Duty (ITP-AJD), Wealth Tax (IP), and Inheritance and Gift Tax (ISD)

Given the high level of litigation over the valuation of the assets and rights subject to these taxes, a reform is being undertaken to provide legal certainty to taxpayers and tax administrations, in line with the case law of the Supreme Court.

In the interest of legal certainty, in the case of real estate, the reference value set by the Cadastre becomes, on an objective basis, the tax base of these wealth and transfer taxes.

The reference value of each property is based on all property sales actually carried out and formalized before a public attesting officer. It is calculated using fair and transparent technical rules and will be set by the Cadastre through an administrative procedure with full procedural safeguards, so that it is made publicly known.

Anti-avoidance measures

This bill also provides for the transposition of the EU Anti-Tax Avoidance Directive, known as ATAD, which lays down rules against tax avoidance practices that directly affect the functioning of the internal market. The directive incorporates several of the matters addressed in the OECD reports under the Action Plan on Base Erosion and Profit Shifting (BEPS Action Plan).

The bill approved today incorporates into Spanish legislation the areas of the directive concerning controlled foreign company rules (Transparencia Fiscal Internacional, TFI) and exit taxation, or “Exit Tax.”

On the one hand, the aim is to reinforce the taxation in Spain of income that had been shifted to low-tax territories, thereby preventing its relocation.

On the other hand, the aim is to ensure that companies relocating to another country do not escape taxation on tax bases that must by law be taxed in Spain.

Thus, the “Exit Tax” seeks to ensure that, when a company transfers its assets or its tax residence out of a State, that State taxes the economic value of any capital gain created in its territory, even if the gain in question has not yet been realized at the time the assets are transferred. In this way, capital gains generated when a company transfers its tax residence abroad are taxed in Spain.

Voluntary compliance with obligations

In addition, the Bill on Measures to Prevent and Combat Tax Fraud contains measures to reduce the volume of litigation with taxpayers and to encourage voluntary payment. Changes are envisaged to the system of reductions applicable to tax penalties and to the system of late-filing surcharges, in order to achieve greater simplification and encourage voluntary payment.

Likewise, measures are included to strengthen the control of gambling operators, which will be required to cooperate in the fight against fraud in this activity. Mechanisms are put in place to combat the manipulation of sports competitions and the fraud that may occur in sports betting.

Canary Islands Economic and Tax Regime to strengthen the fight against fraud

Furthermore, the Council of Ministers has agreed to refer to the Canary Islands Parliament the amendment of Law 20/1991, of June 7, amending the tax aspects of the Canary Islands Economic and Tax Regime (Régimen Económico Fiscal de Canarias), which is included in the Bill on Measures to Prevent and Combat Tax Fraud.

These are two measures relating to the Canary Islands General Indirect Tax (IGIC). First, the amendments made to Value Added Tax (VAT) (IVA) regarding tax liability in the context of customs assessments are incorporated.

Second, the IGIC rules have established that the tax’s record books must be kept through the electronic office of the Canary Islands Tax Agency, by submitting the invoicing records. For this reason, late compliance with or failure to comply with this obligation is classified as a tax infringement and the corresponding tax penalty is established.

This agreement is being referred to the Canary Islands Parliament as provided for in the Statute of Autonomy of the Canary Islands, which establishes that any amendment of the islands’ Economic and Tax Regime requires a prior report from the Canary Islands Parliament.