Saturday, May 22, 2010

Better taxation in Spain

There's (finally) talk about raising the taxes on the rich in Spain. Compared to the US system, taxes in Spain are painfully easy to avoid. When I came here, I sat down with a Spanish tax advisor who walked me through all the ways that the wealth tax (which was still there at the time) and income taxes could be avoided to a large extent.

Given the level of tax evasion in Spain, I think it's unfair to raise taxes without significantly increasing enforcement.

Here's what Spain could do:

  • All those loopholes? The US closed them as much as 20 years go. Go plagiarize the US tax code.
  • Get rid of the 4 year statute of limitations for tax fraud. The US has a 3 year statue of limitations for unintentional mistakes (6 years for mistakes larger than 25% of income), but has NO statute of limitations for fraud. In Spain, as long as you stonewall investigators for a couple years in court (pretty easy with the slow court system if you have a decent lawyer), escaping prosecution is almost too easy.
  • Require a government certificate for non-resident status. This would be similar to a NIE, but only for tax identification purposes. Allowing people to register bank and investment accounts just by passport number is stupid. Eg if you have good enchufe at your bank, it's still possible to get a non-resident account, even as a Spaniard. If you have a non-Spanish passport, even easier.
  • Require deductible business expenses to be paid by bank transfer or credit card. Sure, businesses can still hide cash income, but at least their business customers have the incentive to not pay in cash.
  • Require bank transfers (at least within Spain) to be free of charge.
  • Don't allow big ticket items like cars to be paid for in cash.
  • Institute a "finders-fee" for reporting tax fraud. Snitches would get paid a percentage of taxes recovered.

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