Spain's tax agency targets employees due to resource limits

Tax inspectors admit they target wage earners

The group signing off on tax settlements states it plainly: with current staffing levels and pressure to meet targets, inspections go where collection is easiest. Ransés Pérez Boga, president of the Organization of Tax Inspectors (OIH), acknowledged this during a course at the Association of Economic Information Journalists: scarce resources and objectives push them to focus on the most controllable groups, namely employees and those claiming housing purchase deductions. "With the number of staff we have and the pressure to reach targets, this is how we work," he said.

This is not a leak or a suspicion. It is an explanation from the head of the body conducting the inspections. And subsequent discussions over the years have only added chapters to this same idea.

What it means when Spain's tax agency looks more at employees than big business

The official version is that this fraud is smaller but profitable in the short term. Large companies find it easier to use tax avoidance schemes; individuals do not. In the medium term, the inspectors' president argues, the goal must be to pursue all taxpayers. Read coldly, this phrase is an admission: today, not everyone is being pursued.

A less friendly version, supported by several officials in the debate, points to the incentive mechanism: employee data is in their payslips and banks hand it over without resistance, which would raise the percentage of successful inspections and improve efficiency statistics. According to that same account, inspectors receive a productivity bonus proportional to the amount they regularize, and that bonus increases if the taxpayer agrees rather than appeals. Going for the easy option has a reward.

Why do inspectors say Spain's tax burden is low?

Because they compare. Spain ranks 19th out of 28 EU countries, while France is third with a tax burden of 45% and Germany tenth with 39%. Hence the diagnosis: there is a revenue problem because "the money" that should arrive does not. The group itself admits that any increase would go to paying debt, not new policies.

The nuance matters, because the comparison ignores each country's average salary. With salaries in France or Germany double those in Spain — at least according to those who reject the diagnosis — matching percentages on lower income is not free. And VAT, with its proliferation of reduced rates, does not help the treasury either.

The Corporate Tax hole: €436 million vs €3 billion

The government budgeted a 10% increase in Corporate Tax collection for 2016. It plummeted by 85%. In the first seven months of the year, €436 million was collected through this tax, compared to nearly €3 billion in the same period of the previous fiscal year. The result: the state deficit soared by 20% until July. Then came the admitted extension of the minimum rate, which would apply for "several years."

The Tax Technicians union (Gestha) put figures on the background: according to this group, large companies paid €173,370 million less in taxes between 2007 and 2014, a 58.2% drop in collection, attributing much of it to fraud and evasion. The most painful comparison, according to circulating headlines, is another: incomes below €60,000 already pay twice as much tax as companies.

Some counter that this data is misread, comparing profit percentages with turnover percentages, and that half of Spanish businesses were in loss during the crisis, with taxable bases falling from €170,000 million to €80,000 million. It is a reasonable technical argument. It is also an argument that does not explain why the treasury always fills up from the same side.

Employees earning €20,000 and millions sleeping in Switzerland

According to research by economist Gabriel Zucman, Spaniards have €160 billion in low-tax jurisdictions, of which €80 billion are in Switzerland. In parallel, according to cited information, Escrivá's reform would bring the burden on labor to 50% of income starting at €20,000, and according to OKDiario, the focus points to workers earning less than €35,200 a year.

Putting both things together, the portrait is uncomfortable: big money moves through jurisdictions that do not share information, and small money is deducted from the payslip before the worker sees it. When talking about shadow economy, it is worth remembering where it is truly submerged.

Cases that don't appear on a payslip

On the other side of the scale are names that rarely end up in a settlement for housing deduction: the law firm founded by former minister Cristóbal Montoro, investigated for whether he used his influence at Hacienda for clients' benefit; the brother of the Prime Minister, whose inspection arrived late according to published reports; a senior PSOE official flagged for using shell companies and straw men to hide income, again according to cited reports; or the owner of Banco Madrid, with the entity allegedly pointed to as a money laundering center.

To this is added a case file regarding payments in kind — including viagra and prawns, according to the case narrative — to tax officials in exchange for false certificates, with eight public servants charged for an alleged organized group collecting money from entrepreneurs and agencies. And a trickle of internal complaints within the Tax Agency itself. None of these pieces are closed.

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The declared goal remains pursuing all taxpayers in the medium term. It is the phrase repeated whenever asked why the salaried employee appears most in files. No one has yet set a calendar for that "medium term."