More Spanish taxpayers have disclosed unreported income over the past two years as pressures on compliance have intensified, although previous tax amnesties by the authorities have had limited impact, international law firm Baker & McKenzie said in a recent note.

Last week, the Spanish government approved a tax amnesty programme. Until 30 November this year, individuals and corporate taxpayers will be allowed to voluntarily disclose unreported income or assets by paying a 10 per cent levy on the amount or acquisition value, with no criminal or administrative penalties, surcharges or interest.

Explaining the chances of the amnesty’s success, the law firm said in a note that previous amnesties in 1984 and 1991 had “no significant effect in terms of tax collection, as they involved the obligation to repatriate unreported income and invest it in public debt”.  

Baker & McKenzie said the new programme is different because it does not depend on the repatriation of the funds but is aimed at encouraging taxpayers to declare their formerly unreported assets and therefore increase future tax collections beyond the 10 per cent levy.

Spain’s tax amnesty move put its alongside countries such as Italy which have sought to recover revenues parked offshore. In Italy, the country has repatriated wealth several times and the latest tax amnesty in 2009 repatriated €135 billion, 98 per cent of which was from offshore tax havens, according to UK's Ledbury Research. The country’s new technocratic government announced in December that assets repatriated in 2009 will be subject to a one-off tax of 1.5 per cent. Other countries to have tried such amnesties include the US and UK.

Baker & McKenzie said momentum was building.

“It should be noted in this regard that over the last two years, in the context of the international pressure on tax havens and the move towards tax transparency and exchange of information, the Spanish tax authorities have noted a substantial increase in voluntary disclosure by taxpayers under the ordinary procedure, which remains in place and may be even more favourable in many cases than the new tax amnesty programme,” it said.

“The main advantage of the special tax amnesty programme may be the relief from the need to prove ownership of the relevant assets or funds on a certain date and the need to assess the specific type of income arising therefrom (as employment income, savings income, capital gains, etc.),” it said.

But there are limitations on how an amnesty works which ought to be considered before following the standard route of disclosing undeclared money, Baker & McKenzie said.  For example, it said the Spanish amnesty only covers taxable events subject to the Spanish personal income tax, corporate income tax and non-resident income tax. It points out that other taxes, such as VAT, wealth tax and inheritance and gift taxes are not covered by the programme.

Baker & McKenzie also pointed out that only taxable events produced to 31 December 2010 could be reported through the amnesty programme, as the ordinary term to file regular tax returns for events in 2011 and 2012 has not yet expired.