The Spanish Tax Office, La Agencia Tributaria (colloquially known as Hacienda), has never been known for being helpful or approachable to the taxpayer, however in the last few months things seem to have taken a turn for the worse.
They seem to be looking for any excuse to punish the taxpayer with fines for even the smallest unintentional errors, or to disallow perfectly legitimate tax deductions and leaving the taxpayer in a “guilty before proven innocent” situation.
Here’s a couple of examples that we have come across recently:
Unintentional error in tax return- sanctions payable even after the error has been corrected
In this case, there was an unintentional error in an autonomo‘s annual tax return, where the payments on account of income tax during the year were overstated. The Agencia Tributaria, as is routine, checked the figures on their system and identified the error. They issued a corrected assessment, and added late payment interest. All of this is perfectly reasonable of course. However the letter also mentioned that penalty (known as sancion) proceedings had been opened.
The autonomo paid this bill straight away, we wrote to the Agencia Tributaria stating that it was not justifiable to charge a penalty because the error in the return had been unintentional. They did not accept this, and a month later the client received a bill for the penalty of more than 200 Euros. The client had no option but to pay this, or face an increased penalty,
Our assessment: the penalty was entirely unfair, and this new policy whiffs of an effort by the State to make money at the expense of the honest small businessperson. They cannot argue that there is any tax evasion taking place because all the data for the payments on account made during the year are on their system and any errors are picked up systematically.
1. The taxpayer and their accountants need to be even more vigilant from now on that not even the smallest error is made in tax returns.
2. The Agencia Tributaria is even less of a friend of yours than it was before.
Disallowed pension contributions- payments made in another EU country
In Spain, there is a generous tax allowance whereby private pension contributions are deductible for income tax purposes, up to 10,000 Euros per annum. Tax Law states that contributions made to pension funds in other other EU countries can be included.
One client of ours made payments into a French pension fund which exceeded 10,000 Euros, so we claimed the maximum in his annual Spanish income tax return (Renta). A year or so later, he received a letter from the Agencia Tributaria with a revised assessment based on the premise that the pension payments were not deductible because they were not in their database (which is, of course, only for Spanish pension funds).
The taxpayer had just ten days to appeal and we did so on his behalf, stating the relevant Spanish tax law and attaching proof of payment of the pension contributions. The Agencia Tributaria accepted our argument and cancelled their revised assessment.
A couple of years later, the client received a similar letter from them querying his latest tax return, and only after we wrote another letter to point out that they had already accepted the deduction for him two years previously, did they accept that the client’s return was correct.
1. When there is an Agencia Tributaria query into a tax return which has been correctly prepared, the taxpayer is guilty unless proven innocent and the lack of a prompt reply to them will result in the overpayment of tax.
2. The Agencia Tributaria conveniently do not look into past judgements made in favour of the taxpayer when there is the opportunity for them to overtax them again.