Public notaries obliged to state form of home-purchase payments to prevent money-laundering
Ignacio Lillo / SUR IN English
Quantities of money paid in advance must also feature on the document signed by the public notary
The Law for the Prevention of Fiscal Fraud demands the computerisation of all house registering
The ‘Caja B’ (literally: the B Box or Fund) refers in Spanish to the wide-spread practice of unregistered financial transactions, frequently involving the purchase and sale of property. Although lukewarm attempts have been made in the past to combat the practice, the recent money-laundering and corruption scandals in Marbella (the Malaya and Ballena Blanca cases) have prompted the tax authorities to take more effective action against fiscal fraud, and the result is a new law which came into force on 1 December, providing the authorities with new legal weapons in their battle against fiscal fraud. The most relevant point in the new law is the obligation by public notaries to state the means of payment in a property transaction and hand over this information to the tax authorities if requested to do so.
According to the Professional Organisation of Tax Inspectors in Spain, a total of 4,000 million euros slips through the tax net in this country each year in non-payment of Value Added Tax alone.
The new law covers other aspects of fiscal fraud as well, we are told by Andrés Tortosa, deacon of the College of Public Notaries, in that it requires all financial transactions to be documented, including payments made in the initial stages of a property sales promotion, for example. “This is very important,” he says, “because it means that accounts will be kept of all previous payments made, so that all amounts will have to be justified, and donations and loans cannot be hidden.”
The money trail
The law will allow for the identification of those people or entities to whom the money belongs, and if the original source of the money cannot be identified, then this too is stated on the relevant documents,” says Tortosa.
In his view, the principal value of the new law is that it will allow the tax authorities to trace the origin of money used in property and other transactions. “The aim of the tax authorities is to know all about the operation in question, from the initial deposit up to the final payment in the public notary’s office,” he adds.
The new law brings the 1862 Law of Public Notaries up to date, obliging all public notaries to computerise all data they handle and make it available to the General Council of Public Notaries, to be accessed by the relevant authorities in the fight against fiscal fraud and money laundering. Certain changes will have to be made by public notaries to comply with the terms of the new law, although the use of the most beneficial formulas is still perfectly legal. The law is not aimed exclusively at irregularities in property market transactions, but widens the definition of a tax haven and demands that all people or entities carrying out an economic activity in this country pay taxes in Spain, even if their main offices are outside the country.
A large part of the new law deals with financial operations carried out between people or entities which are related in some way, and they will be forced to pay taxes according to market value. The deacon of the College of Public Notaries points out a loop-hole in the law. “The legislation seems to have ignored the officially registered unmarried couples, which is a reality in today’s world,” he says. In such cases, failure to declare this ‘marital’ status and pay the corresponding taxes will result in a fine of 1,500 euros for each piece of data omitted, 5,000 euros for the complete omission or 15 per cent of the undeclared amount estimated by the tax authorities.
The new law falls short in certain respects, according to some public notaries, in that it covers property transactions as bricks and mortar, but not as boats, aircraft, stocks and so on, which may also represent wealth. “There is a gap in the legislation, because not only should the tax authorities keep track of real-estate transactions, but other property as well,” says Andrés Tortosa. He reminds us of why we all pay taxes. “Less dishonesty should result in the state being in a position to lower taxes for everybody, and to improve public services.”
The anti-fraud law
The main points of the new law, which came into force on 1 December, are the following:
Property transactions
Public notaries: They are now obliged to state exactly how house-purchase payments are made (whether by cheque, in cash, by bank transfer or by any other means) and to inform the fiscal authorities of the same.
Previous payments: They are also obliged to take note of any previous payments made, such as in the case of special promotions or off-plan purchases, and if unable to do this, they must inform the authorities of the situation.
Registering: Public notaries are obliged to register and file the details of all property transactions, especially in the case of those involving public institutions.
Others
Identity: The law tightens control over the identity of people and companies involved in financial transactions.
Tax havens: People or entities that carry out their principal economic activities in Spain must pay taxes in Spain, even if their headquarters are in another country.
Associated entities: Financial operations carried out between related people or entities must pay taxes at normal market value. No special mention is made of so-called ‘parejas de hecho’, meaning officially registered unmarried couples.
Everybody not happy Not everybody is happy with the new law. The Professional Organisation of Tax Inspectors claims that the fact that public notaries are obliged to register the forms of payments made in property transactions will not detect the use of laundered money in such cases. “The deeds of the property are registered in a financial transaction involving money accounted for, but secret payments have often been made beforehand,” they say. The public notaries also recognise that the new law will not clarify the relationship between the various parts involved in the transaction, although they agree that more control is being exercised in this respect.
The tax inspectors also claim they do not have the human, technical or material resources to fight tax evasion properly, and believe that the fines imposed by the courts are too low.
With regard to Value Added Tax, they believe that there is not enough being done to combat the so-called ‘carrousel fraud,’ which refers to the practice of companies opening and closing for business before the tax authorities catch up with them. They call for mayors and urban planning councillors to be named on planning permits.
December 28, 2006 | Category: Real Estate and Investment