Governments all over the World have amended their domestic legislation over the last few years aimed at gathering as much information as possible from current and potential taxpayers and Spain is no exception. Governments have also signed agreements to exchange that information with each other and to disclose relevant data, primarily under the auspices of fighting money laundering and terrorism. Lately, this has had a direct impact on individuals and corporate taxation.
All these changes and improvements equally affect big corporations, large stockholders, important CEOs and ordinary people. Regrettably, the speed and frequency at which those changes take place makes it difficult for ordinary people to keep up and stay up to date with their obligations. Pensioners living abroad are a group particularly affected.
In our experience, we know many people who were just “out of the loop” by ignorance, going about their daily lives without being aware of how all these changes affect them. One of these new rules is the OECD´S COMMON REPORTING STANDARD (CRS).
As of 1 January 2016, Spain fully adopted the provision of the Council Directive 2011/16/EU on administrative cooperation in the field of taxation and the OECD CRS for the automatic exchange of financial account information.
Under the CRS and EU Directive, financial institutions in participating jurisdictions will report the full name and address, jurisdiction of tax residence, tax identification numbers and financial information of individual clients to their local tax authorities, which will then automatically exchange the data with the tax authorities of the participating countries where the individuals are tax resident.
Spain is one of the 102 committed jurisdictions and the list also includes traditional off-shore jurisdictions such as Gibraltar, Guernsey, Jersey or the Isle of Man. As of 5 April 2018, there are now already over 2700 bilateral exchange relationships activated with respect to 80 jurisdictions committed to the CRS. This link shows all bilateral exchange relationships that are currently in place for the automatic exchange of CRS:
Financial institutions in all participating jurisdictions will be obliged to ascertain and verify the tax residence status of their individual clients by application of specific due diligence procedures under the CRS.
The automatic exchange of information related to financial accounts held by the end of year 2015 and new ones opened afterwards began in 2017. Hence, sooner or later, in cases where there was information exchanged that did not match the information provided by the taxpayer in their declarations and tax returns, people started to receive notifications from the tax office.
Those who have not been registered as resident or have not realized that they should have registered as resident, could be in trouble when the Spanish tax authorities receive information about a supposedly resident taxpayer. This information is gathered by the due diligence process that banks and financial institutions, including trustees, have to carry out. In some cases this can lead to the conclusion that they are resident in Spain (i.e., the postal address to where Banks send correspondence, the bank account to where they regularly transfer funds, the country where credit cards are frequently used, etc.). Spanish tax residents who have not fully disclosed their foreign portfolios to the Spanish tax authorities may encounter trouble as well. Full voluntary disclosure by means of late filings could avoid potential tax fraud penalties.
It is crucial to check with your banks, financial agents, trustees, etc. if they have reported anything to a wrong country. Once the information gets to the tax authorities, those authorities will not doubt or care if the information is accurate or not, even if you try to prove otherwise, because the information has been provided by a Government of another country and it is understood that they, as well as the bank or financial entity who has previously reported to that Government, have complied with the regulations. In our experience, at least in Spain, if information provided by a Bank was not accurate, that Bank would have to amend whatever they had previously reported to their Government. Thus in turn it will amend the information sent to the Spanish tax authorities. The taxman will not stop demanding the taxpayer to pay the corresponding taxes unless the Government of the other country recognizes that it was a mistake.
Source: Santiago Lapausa of JC&A Abagados, Marbella