Tax Avoidance Crackdown On Wealthy Expats In Spain

Wealthy British expats in Spain face a tax crackdown as huge amounts of information about their offshore finances is swapped with other countries.

Spain’s tax authority, the Hacienda, has new powers and technology to scrutinise data received under the international common reporting standard.

Under Spanish laws, every expat should have filed a Modelo 720 tax return since 2012 to declare offshore assets they hold worth more than 50,000 euros.

The Modelo rules required expats to declare how much retirement savings they had in Malta QROPS accessible under pension freedom rules.

Later this year, the Isle of Man is expected to introduce similar pension freedom rules that will make fund disclosure necessary as well.

Tax data swapped

Now, this data will be compared with financial information about Spanish taxpayers collected from more than 100 countries, including tax shelters such as the Isle of Man, Cayman Islands, Switzerland, Singapore and Monaco.

Gibraltar is also expected to become a major tax target due to the frazzled relationship between Britain and Spain over sovereignty of the British Overseas Territory that has a fingertip hold on the Spanish mainland.

Like many other European governments, Spain has introduced much stricter anti-avoidance laws to deter tax cheats in recent years.

The common reporting standard allows members states to exchange detailed financial and personal details of cash and investments held by financial institutions held in one country by taxpayers resident in another place.

New powers

For example, the data will include information about British expats with QROPS pensions. Offshore savings and other investments that were previously inaccessible to investigators.

The Hacienda has revealed that investigators will work to uncover ‘false residents’ who live in Spain but declare their wealth elsewhere to avoid tax.

New powers allow the Hacienda to order utility providers, car registration information and property ownership records to determine where someone lives and to cross-reference the details against tax filings.

The Spanish government has also agreed to keep a controversial wealth tax which demands tax from expats with worldwide assets worth more than 167,000 euros.

The common reporting standard was inspired by the US Foreign Account Tax Compliance Act (FATCA), which requires financial institutions worldwide details of cash and investments held offshore by US taxpayers to the Internal Revenue Service (IRS).