The crisis is forcing Spain to get serious about reducing tax avoidance

With a national budget deficit is 10% and under intense pressure from the international bond markets, Spain's government is turning nasty with tax avoiders and with some success. The New York Times reports that efforts to clampdown on fiscal tax cheats netted 10 billion euros, or so the Agencia Tributaria (Spanish tax office) claim:  Crackdown on Tax Evasion Nets 10 billion.

The Agencia began a systematic campaign against "fraude fiscal" in late 2008 with the implementation of a Plan to Prevent Fiscal Fraud covering such weak points as failure to declare VAT and use of subcontractors instead of employees to avoid tax.  Last year saw 254 convictions for tax fraud with 89 people in prison.

Objectives for 2011 include closer cooperation with Social Security to catch individuals operating businesses in the informal economy without declaring tax and also to catch professionals who don't declare all their income.  To this end they have seized new powers to gather information from electricity bills, credit card accounts and bank transfers over 3.000€.  One idea is that they can catch people renting out properties without declaring the rent by seeing who is on the rental contract.  200,000 rental tax avoiders have already been caught because the Agencia now insist that claims for tax deductions for rent paid are supported by a catastral reference.  The information about bank movements will be used to target unpaid property transfer taxes and gift tax avoidance.

The Agencia's Director said that 2010 “wasn’t a miracle year but the result of several years of better strategic planning and better use of technology and information sharing.”

For instance, he cited the creation in 2006 of a special department to monitor whether large taxpayers were trying to keep money offshore, in particular companies with over 100 million euros in annual revenues that operate across borders.

Another area of progress has been in the fight against fraud in Spain’s huge real estate sector, the recent downturn of which has been at the heart of the country’s economic difficulties. For example, the Agencia shifted its focus onto land transactions to identify possible fraud at an earlier stage in the construction process.

Spain is also benefiting from international efforts to force Switzerland and other banking centers to loosen their secrecy laws, as well as tapping into account information provided by disgruntled bank employees.

In fact, Spain’s tax fraud revenues last year included about 300 million euros recouped becuse of a list of undeclared HSBC accounts initially handed over to France by one of the bank’s former information technology specialists. In Italy, meanwhile, authorities are investigating about 700 names that also appeared on the HSBC list.

Significantly for Madrid, Andorra, which is wedged between France and Spain, was among offshore centers to get removed in 2009 from the O.E.C.D.’s list of “uncooperative tax havens.” Andorra has agreed to cooperate in  cross-border fraud investigations.

Mr. López Carbajo welcomed such agreements, but also cautioned against expectations that they would yield vast additional revenues for Spain.

“These accords were signed under huge international pressure and because the countries wanted to improve their image,” he said. “I have no doubt that these countries will continue to resist full cooperation as hard as possible, so we must really ensure that the end result is not that they get a better reputation without actually handing over a lot more information.”

In terms of image, meanwhile, Mr. Owens from the O.E.C.D. said that, by fighting fraud more efficiently, governments in Madrid and elsewhere “are also showing citizens that the costs of getting out of the crisis are fairly shared.”