Tax amnesty
The vast majority of readers are surely aware of the opportunity currently open in Spain for filing a special tax return that, in return for paying a limited amount, would put an end to any existing income tax contingencies.
The particular manner in which this measure has been crafted, allowing for the effects of the statute of limitations to be fully respected, makes it a quite attractive option to consider: in our view, no concerned individual should let this chance pass by without careful thought, although they ought to hurry because the deadline (November 30 this year) is fast approaching.
Many of the foreigners residing in Spain and who may be concerned by this measure share a common profile: they all have hidden away from the scrutiny of the Spanish taxman (by failing to report in their self-assessed tax returns) income from capital and the capital itself held in foreign-based institutions, and materializing in various and myriad forms of investment, directly or through a variety of entities or vehicles such as trusts. Under the terms of the amnesty, so long as the capital was already held at December 31, 2007 (or 2006, in certain circumstances), the special tax will be limited to 10% of the increase in the realized value of such holdings.
If some of the capital was earned after those dates, then the 10% tax should instead be assessed on the amount of the capital. Note that I deliberately wrote 'earned' and not 'acquired' or 'received' as only income tax (which, in Spain, includes tax on capital gains), and not inheritance or gift taxes, is affected by this special regularization.
Filing this special tax return has other indirect consequences also worth considering. Once the assets and income earned on them have been reported, they will have to continue to be reported going forward, thus appropriate tax planning measures ought to be put in place: in this regard, let us not forget that wealth tax was only temporarily reinstated and is due to lapse after 2012 and that inheritance tax only affects tax-resident heirs or non-residents in a limited way in relation to Spanish-based assets, being in this regard relevant the absence of any 'asset repatriation' conditionality in the special tax regularization rules. Undergoing a special tax audit as a result of filing this special tax return should not be a consequence, although those who have had or still have to subsequently amend their 2011 return may wish to reconsider this statement. Remember that the regularization covers taxes up to and including 2010, but not 2011 taxes.
It is also very important to note that this special opportunity ought to be viewed against a backdrop of increasing weakness of systems based on banking secrecy and absence of shared information, as well as in light of a projected legislative change that will require all individuals resident in Spain to disclose their foreign holdings, or else risk the dire tax and punitive consequences of their failure to do so.