MadridThey say that the island of Jersey, the largest in the English Channel, is full of large fortunes seeking to pay less tax than in their home country. In fact, for the CEOE, Jersey is considered a tax haven because of its tax policy. Madrid is not Jersey, mainly because it has no sea. Both, however, attract a large amount of wealthy people.
At least 6,000 large fortunes moved to the state capital in four years, between 2011 and 2015, as a result of the tax reduction policy applied by the region and which the People's Party regional administrations have been proud to lead for almost two decades. The figure is included in the study Tax Havens, Taxes on Assets and Mobility by the team of academics Clara Martínez, David Agrawl and Dirk Foremny.
The research, published in December, concludes that while the collection capacity of the regions that share a common tax system (all except Navarre and the Basque Country) began to weaken in 2011, that of Madrid increased and did so precisely by moving tax domiciles to the capital. Madrid managed to obtain an average of 4% more in income tax collection in those years. In contrast, the rest of the communities lost weight and an average of 375 respondents in each of them left, the study notes.
The researchers, however, went further: in a scenario where there would have been no mobility due to a question of downward tax competition, collection would have increased by an average of up to 5% in the State as a whole, explains Clara Martínez, a researcher at the Columbia Business School and author of the study, to the ARA. She and her colleagues were dedicated to collecting data through the Tax Agency on the wealth tax, created in the late 70s.
Martínez explains that they did so since 2011 because that was the year in which, after its suspension during 2008 and until 2010, regions reintroduced the wealth tax. All of them? No, Madrid was the exception, and since then this tax is 100% rebated. An attraction for large fortunes that goes hand in hand with some sections of income tax and a tax on inheritance and donations that is lower. The complete data to which they have had access reaches 2015; however, in the case of Madrid there has been no change in this tax. "We have no doubt that the trend will have continued," says Martínez.
The two Castillian and Andalusian regions are at the forefront of the changes in tax domiciles. In the case of Catalonia, a Fedea study estimated that 458 high income taxpayers moved to Madrid between 2006 and 2012.
Even so, not all people from a region who decide to have a tax domicile in Madrid to pay less tax move there. An important group are the so-called fictitious transfers, says Martínez, who explains that "it is very difficult to know exactly how many there are". Only in the Valencia Region the Tax Agency investigates 60 false transfers that cost 74 million euros, while Catalonia has open 73 files for infractions, according to the last data of the month of December.
The Tax Office tracks them: it follows the bank accounts, the movements of cards or checks the consumption of light and water. An exercise that turns the workers into a kind of tax Sherlock Holmes. The effects of these transfers are multiple: a drop in revenue that has a negative impact on the rest of the communities and an increase in regional inequality, since the capital concentrates more and more wealth. Martinez adds that downward competition will not change the current trend.
The most recurrent traps of false transfers to avoid the law
"It is not easy to detect them because they are highly mobile for business reasons and this makes inspection difficult," a source at the Tax Office explained to the ARA. The inspectors are dedicated to connecting personal items with other economic ones. They collect data on electricity consumption, the location of the purchase or even where the car undergoes its MOT. "You'll understand that we can't give much more detail for obvious reasons," says the same source, who chooses to be discreet when it comes to explaining how they trace large fortunes who seek ways to avoid paying taxes, sometimes outside the law.
While the deduction process cannot be known, the results of some of the inspections that have uncovered false transfers can be. "Once we went to knock on the door of a tax payer who in theory lived abroad and had a second home in Spain. When we asked him for the address of his usual residence he had to read it on his ID card because it didn't come to his mind. Logically, he did not live there". The same source also explains the case of a person who had told them that "for health reasons he had to change his climate and move to another community". The inspectors, however, saw that the medical consultations were continuing in the community of origin and then checked the movements of the bank account as well. Or the case of the owner of a "super car" who continued to incur daily car expenses in the community of origin and not where he was domiciled for tax purposes.