Spanish tax inspectors take to the streets in pursuit of the black economy

by Lorraine Williamson
tax inspectors

MADRID – Looking for activities in the ‘black’ economy. That is the job of the tax inspectors that the Spanish tax office, La Agencia Tributaria, will soon send onto the streets. They will focus on so-called non-residents and the construction sector.

The question of whether you want an invoice “with or without IVA” will not sound strange to many who live and work in Spain. The sizeable hidden economy in Spain is a major problem for the government. Various estimates point to an informal economy amounting to between 15 and 20% of Spain’s gross domestic product (GDP). This lost tax revenue should be used to pay important costs of the welfare state, such as the national health care system, education, social services and police services. 

Reviving traditional post-pandemic controls 

The plan to send more inspectors onto the streets has been around since before the pandemic. However, it will now be intensified. “The aim is to revive the traditional visits of the tax authorities to companies, which have been carried out for many years”. This can be read in the Annual Plan for Fiscal Control that was published on Monday and about which El Mundo writes. 

Focus on the construction sector and renovation work 

The Tax and Customs Administration has indicated in this plan it will place a strong focus on the construction sector. In particular on the activities of renovation and alterations. After the standstill during the pandemic, this sector is now showing a booming activity again. Furthermore, it is traditionally one of the sectors where the most black money is involved. 

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False non-residents 

Another important point for the agency dependent on the ministry headed by María Jesús Montero is the “fake non-residents”. These are non-Spanish people who actually live in Spain. However, they have their fictitious residence elsewhere, especially in areas with favourable tax rates. So they live in Spain for more than 183 calendar days per year, but do not pay tax on their worldwide income as residents of the country (IRPF). Instead, they pay the non-resident tax (IRNR) only on income obtained or generated in Spain. 

The inspectors will also look for taxpayers who say they live in autonomous communities with a more attractive tax rate. When in reality they live in a different region. Minister Montero claims that many fictitious relocations are taking place in particular towards the Madrid region, where President Díaz Ayuso is creating an attractive tax climate. 

Related post: Financial incentives for tax inspectors to report defaulters

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