Family holidays, Rolex and luxury yachts on company expenses: How the rich evade tax

A trip to Disneyland, curtains from the Spanish department store El Corte Inglés and the housekeeper’s salary. These are some of the expenses that many large fortunes bill through their companies, not to mention the mansions, yachts, private jets and exclusive cars. In Spain, the wealthy use a wide range of strategies — some more sophisticated than others — to minimize their tax burden or sidestep it altogether. While some of these practices are not exactly illegal, they can involve aggressive tax planning techniques that allow the super wealthy to hide assets, disguise income and take advantage of loopholes in the law. Aware of these tactics, the Tax Agency in Spain has implemented a series of mechanisms to combat them. In 2023, almost 1,000 audits led to the recovery of €502 million ($520 million), at a rate of half a million per taxpayer.

It all started in 2018, when the Tax Agency launched the Central Unit for the Coordination of the Control of Relevant Patrimonies, a group dedicated to monitoring those in the highest tax bracket with the aim of coordinating inspections. Since then, 5,410 cases have been closed, which have made it possible to claw back €2.98 billion ($3.11 billion) from tax evasion.

As José María Peláez, spokesman for the Association of State Tax Inspectors, explains, the agency monitors a group of more than 170,000 taxpayers that includes the country’s main companies and their partners, as well as artists, sports figures and other high-profile personalities. “It is a living census that is constantly shifting,” Peláez points out. “For example, years ago there were no YouTubers and now there are.” It’s a sort of high-risk collective. That is to say, not all those who are part of it are evading tax, but they have the potential to do so. What is clear, he adds, is that it is very difficult for someone to leave the census once they are registered, unless it is a company that has gone bankrupt.

According to José María Mollinedo, secretary general of the Gestha, the trade union of inspectors of the Ministry of Finance, the central coordination unit is so called because it is dedicated to analyzing the “distorting elements” that set off the alarm bells. Once it understands that something does not add up, the group directs the information it has gathered to the Tax Agency department that corresponds to the tax domicile in which the large fortune in question resides and an inspection ensues.

One of the most common tax evasion practices is the use of companies for private purposes. These corporate structures allow the wealthy to charge personal expenses such as vacations, the maintenance of luxury villas, expensive vehicles from yachts to airplanes, as if they related to the company. The aim is for companies to deduct these expenses as if they were part of their economic activity, which artificially reduces their taxable profits. Add to this the deduction of VAT, which allows for the avoidance of both the payment of taxes on these goods and services and the personal taxation of the same. The problem with the strategy is that a corporation cannot wear a Rolex, sail a yacht or go skiing, as Pelaez observes. “This is where our work to dismantle everything comes in,” he says.

Pelaez lists a string of examples in which a wealthy individual has tried to pass off their private expenses as those of the company. They range from dinners in restaurants to luxury watches, through the gardener’s wages, the housekeeper’s salary, receipts from El Corte Inglés and family trips. These last cases, says the inspector, correspond to the stingiest of the rich. What is widespread, he adds, is the use of company property by the partner without a formal lease or assignment of use. In this case, they use company property, such as mansions, secondary residences or vehicles, without paying for them, which allows them to enjoy these assets without being taxed for their personal use.

Mollinedo says that the agency has identified the users of high-end properties located in Spain, but whose formal ownership corresponds to foreign companies whose real owners are unknown. The same has been done with another 2,500 opaque companies, in this case based in Spain, which own more than 2,800 luxury villas, mainly on the Costa del Sol and Balearic Islands. These structures and shell companies, designed to conceal the identity of the true owners, often consist of multiple layers of different countries and trusts, making it extremely complicated to trace the flow of money or assets.

Luxury stores

To ensure that nothing escapes them, the agency’s officials use different sources of information. The tax amnesty of 2012 and the old model 720, which legally obliged citizens to declare assets abroad with a value of more than €50,000 ($52,000), led to several high-income taxpayers coming under the spotlight. Now, the Treasury also uses the model 347, which must be submitted by any entity that sells a good or service for more than €3,000 ($3,130), reflecting the data of the buyer in the case that this is a legal entity. “There are also individualized requests to banks and notaries in case any taxpayer is under suspicion,” adds Peláez.

Mollinedo says that the agency also launched the catalog of suppliers of luxury goods and services four years ago. This is a list of 570 companies in the sector with which the unit works. There are jewelry stores, furriers, art galleries, boutiques, luxury car brands, social clubs, restaurants, wealth investment managers and premium travel companies that allow for a keener focus on high-income taxpayers who escape direct control by reducing their income tax returns through the use of intermediary companies and other instruments.

International tax planning is another key tactic. Many large fortunes place their assets in tax havens or low-tax jurisdictions, such as Luxembourg, Switzerland and the Cayman Islands, using complex structures to hide the identity of the true owners of the assets. These structures, known for their lack of transparency, make it very difficult for inspectors to trace the effective control of the assets. In some cases, advantage is taken of double taxation agreements signed with other countries. In others, the operations carried out offshore are traced in order to identify the holders. According to Peláez, the agency has developed big data techniques to dismantle the false residence of high-income taxpayers who claim to live in Andorra, Monaco or San Marino, but who spend more than 183 days a year in Spain, after which you are considered a resident.

With all these tax evasion techniques, it is possible to reduce the IRPF taxable bases and quotas and to do the same with the wealth tax, since the assets in the name of the company are exempt. The same can be done with corporate income tax through all the expenses that would be considered deductible. Minimizing inheritance and gift tax can also be planned in this way.

Sign up for our weekly newsletter to get more English-language news coverage from EL PAÍS USA Edition