KEEPING money offshore and paying for everything in cash was – once upon a time – the way things were done in Spain.
Combined with non-disclosure of income, capital gains which should have been taxed in Spain would also go undetected and it seemed that even the tax authorities were fairly relaxed about the situation.
Perhaps the authorities took the view that money pouring into the country courtesy of expats and overseas investors was driving the property boom and general economic prosperity which was hugely beneficial, even if the tax take was less than it should have been.
When Spain joined the euro in January 2002, it created a problem for those who had stockpiled pesetas, triggering a mini boom in spending on property projects amongst other things – was that really only 13 years ago?
As with most booms, Spain’s property bubble burst five or six years ago in tandem with the global financial meltdown. Thereafter came the emergence of austerity measures to help stabilise and rebuild the fragile financial structure.
Whatever your political persuasion, countries which embraced austerity as a necessary part of the recovery process seem to have made rather better progress than Greece and France, which did not.
In Spain, the measures are clearly working. The economy is growing again at the fastest rate in Europe, with the exception of only Ireland and Poland.
Some will say the recovery is fragile and unemployment remains one of the biggest concerns, as only around one third of the three million jobs lost have been replaced. But the effects of recovery are being felt for sure.
Part of the success can be attributed to the fact that Spain is making a much better job of collecting taxes and arguably, if everyone paid what they should, the overall rates of tax would not need to be as high.
In fact, we have already seen some tax reductions intended for 2016 being brought forward, with new reduced rates of income and capital gains tax applying from July 12.
Meanwhile, the quest to ensure people are declaring their income and capital gains continues, and where non-disclosure is discovered, heavy penalties are being enforced.
The sharing of information between financial institutions across borders is greatly assisting Hacienda, so much so that there has been an increase in the number of people wanting to rectify previous non-disclosure and voluntarily ‘owning up’ through the back-filing of previous years, in the hope of being dealt with less severely by the authorities.
That has to be the best approach to ensure sleepless nights become a thing of the past!