Is the fiscal amnesty simply a launderer’s paradise?

Laundering money will be easier than ever this year, if a piece of legislation drafted by the Finance Ministry takes effect. The project aims to increase tax receipts by offering a fiscal amnesty for undeclared money, which will only be taxed at 10 percent; but experts say that this will only encourage people and businesses to avoid declaring money from 2011 or 2012, instead applying later for the fiscal amnesty and ending up paying significantly less on it than they would through regular income or corporate tax rates.

In the case of cash, all one needs to do is deposit the amount in a bank to be automatically eligible for the amnesty. However, if the money is being kept in foreign bank accounts that the Spanish Treasury is currently unaware of, the account owner must prove that the money was sent offshore before December 31, 2010.

The fiscal amnesty, in theory at least, was thought up for tax evasion prior to that date, since establishing a later date would only encourage taxpayers to refrain from declaring some of their income and then paying only 10 percent on it, rather than up to 30 percent for corporate tax and up to 52 percent for personal income tax.

Yet that is precisely what people are being encouraged to do, say the experts. The problem lies in paragraph two of article 3.4 of the government decree that established the amnesty last March. The text says that “in the case of cash, it will follow that one is the owner of the same since before December 31, 2010, as long as the amount is deposited in an account in the taxpayer’s name at a credit institution prior to filing the special tax form.” The bank account may be Spanish or European, as long as it is not located in a tax haven.

But the fact that one does not need to prove that the money was held back before December 2010 leaves the door wide open to fraud on 2011 and 2012 tax returns.

For instance, an apartment owner who sells his property now can collect much of the money in cash, avoid paying capital gains tax on it, deposit the money in a bank and benefit from the lower rate of the fiscal amnesty.

A small business — a dental clinic or a restaurant, to give just two examples — can likewise charge for its services and products in cash, hold on to that money, and later apply for the fiscal amnesty. Self-employed workers can also minimize their declared income and later pay only 10 percent of taxes on it. Even a drug trafficker could theoretically take his ill-gotten money to the nearest bank and take advantage of the amnesty.

The application period ends on November 30 of this year, and besides cash the fiscal amnesty also covers property, deposits, IOUs, shares and several other kinds of assets.

The possibility of fraud could deliver a major blow to tax receipts at a time when the cash-strapped state is desperately seeking new sources of revenue. What’s more, tax evaders can apply for the special amnesty from the comfort of their own home, through the Treasury’s website. The government decree guarantees “the private nature” of this special tax return.