Taxing times in Spain: How to avoid a tax inspection

THE Spanish Tax Office (AEAT) carried out just under 500,000 tax inspections in 2013.

Although more usually these enquiries are triggered when the tax authorities ‘smell a rat’, they are also conducted at random, so no one is ‘safe’.

Standard practise for avoiding an inspection includes getting good advice from your accountant, declaring everything you should declare, avoiding risky schemes and paying taxes in a timely manner.

Keep the tax inspectors at a distance by bearing these golden rules in mind when you make your next tax return:

Personal expenses: Be careful when deducting these, if you have the notion that clothes, Mercadona shops and rounds of pub drinks are legitimate business expenses. They are not!

Vehicle purchase: With the exception of transport companies, travelling salesmen and similar, you can only deduct 50% of the purchase value, unless you can prove that the business activity is wholly dependent on the vehicle/transport. One famous example relates to the well-named Sr. Cuatrecasas, the chairman of Spain’s second largest law firm, who has just settled a criminal prosecution brought against him for trying to include his luxury yacht, private properties and furniture as deductible corporate expenses.

Holidays: For obvious reasons, these are not deductibles expenses.

Documenting expenses: For an expense to be deductible, a proper ‘factura’ (invoice) is necessary. Receipts or tickets are not valid.

Habitual residence: The AEAT has different ways to establish whether a person is living in the property they claim to be their habitual residence: checking water and electricity consumption levels, children’s schools or even asking the neighbours.

Using companies to offer professional services: Although invoicing for professional services through a limited company is not illegal, this very basic scheme has recently come under fire. The AEAT will apply one simple principle to prevent service providers paying less tax: ‘the market cost of a service is what someone alien to the provider is prepared to pay’. Anything different is incongruous to the AEAT, and will invariably attract hefty fines.

Mistakes or errors in tax returns: Any tax advisor will confirm that one mistake on a tax return can cost hundreds of euros in potential rebates and may trigger an inspection.