Tax office knew about Caja Madrid’s undeclared expense accounts

Inspectors tolerated situation, imposing fines via the back door

As further information emerges about the lavish use of company credit cards by board members of the Caja Madrid savings bank between 2003 and 2012, it is becoming increasingly clear that Spain’s tax and financial authorities were aware of abuses but failed to take action.

According to sources within Caja Madrid, the Tax Agency was aware of an account at the bank called “representation expenses,” within which spending by board members was hidden.

Sources say that the Tax Agency carried out random inspections each year of expenses presented by Caja Madrid staff, and always found spending that had nothing to do with representing the bank. In response, tax officers annulled the 35 percent business tax deduction applied to spending on representation, and with the bank’s approval, instead applied a fine of 20 percent on expenses that had not been correctly deducted.

Former board members say that the system meant paying “55 percent on these expenses, which worked out at about the same amount that board members would pay in income tax.”

Neither under the Socialist Party administration of Prime Minister José Luis Zapatero, nor his predecessor, José María Aznar, did the tax office take steps to dismantle the system of expense account credit cards, nor require board members to declare their expenses when filing their tax returns.

The situation created an atmosphere of apparent normality, leading many directors to believe that the tax office knew about the expense account cards. They say that they asked the board about their tax obligations, but were told not to worry and that there would be no trace of their personal spending on their tax returns.

Enrique de la Torre, the board’s secretary, outlined the arrangement in an email, saying that the bank assumed directors’ personal expenses and that there were credit cards which for tax purposes, were “off the books.” In 2008, he also said that he doubted whether the tax office would continue accepting the situation.

Caja Madrid’s board members, as well as its two chairmen, Miguel Blesa and Rodrigo Rato, could still face heavy fines or jail sentences for failing to declare their expense accounts, as well as for embezzlement and mismanagement. The investigation continues.


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