Tax office says PP’s illegal funding not subject to levy

Two experts from the government’s tax agency have come to the surprising conclusion that the alleged illegal donations made to the ruling Popular Party in the period 2007-2008 are not subject to corporate income tax.

The experts adhere to the letter of the law on party funding, which states that “private donations made by individuals or legal entities” are not subject to corporate tax, regardless of the legality of the source of the funding.

This interpretation has implications not only for the PP’s tax obligations, but also penal ones in that the sum the party defrauded the tax agency of during the two years in question would now stand below the 120,000-euro limit regarded as a criminal offense carrying a prison sentence of up to five years.

The donations in question were noted in secret ledgers kept by former PP treasurer Luis Bárcenas, who is currently in preventive custody while the investigating judge in the Gürtel kickbacks-for-contracts corruption case, Pablo Ruz, formalizes a case against him for alleged tax fraud and money-laundering.

The donations made were above the then limit of 60,000 euros. They were also made by companies barred from making donations to political parties because they were in receipt of public contracts. The PP received 542,200 euros in such funding in 2007 and 1.055 million in 2008. Bárcenas masked the illegal nature of the donations by breaking them down in the PP’s official accounts to sums that were under the legal limit.

Against judge's view

The experts’ conclusions go against the viewpoint of Ruz, who argued in a writ dated April 22 that it was implicit in the law that donations to political parties should be legal in order to be exempt from corporate income tax. “Sums donated in excess of the legal limits will be subject to corporate income tax,” the writ reads. Under that interpretation, the amount the PP allegedly defrauded the Treasury of would exceed the 120,000-euro that makes it a criminal offense. The Anticorruption Prosecutor’s Office has taken the same line as Judge Ruz.

However, the tax experts argue that the party financing law does not stipulate that a “failure to comply with the conditions and limits for private donations [...] should have consequences in terms of the tax system.” They do, however, note that illegal donations can be subject to fines imposed by the Court of Auditors.