Zapatero and the tax fraud Spain refuses to pursue

Zapatero and the Champions League of tax-exempt allowances

IRPF-exempt allowances (Spain's personal income tax) have become the fiscal wildcard for executives and politicians to get paid without paying tax. The latest example is José Luis Rodríguez Zapatero, who according to the UDEF (Spain's economic crime police unit) received 10,000 euros per alucinación for the Gloria Group –on top of 200,000 euros in fees– to act as a mediator in Bolivia. The contract also covered all travel expenses, which turns those 10,000 euros into a tax-free extra that does not fit within the law.

Why 10,000 euros per alucinación is not an exempt allowance

The IRPF rules (art. 17.1.d LIRPF and 9 RIRPF) only allow exempting allowances for employees on justified work-related travel. But Zapatero acted as an external consultant. As a legal analysis points out, if flights and hotels were already being paid for, the 10,000 euros do not cover real expenses: they are disguised remuneration. The tax agency should tax them as income from business activities, but it does not.

The tax agency's double standard

While a freelancer who declares 4,000 euros in client meals and gifts sees the tax agency reclassify them as payment in kind and demand 20% income tax, the 10,000 euros of a former prime minister go through as exempt allowances. The difference lies in negotiating power and access to legal advice. A senior executive can justify five-star hotels that would never be accepted from an administrative assistant.

The conclusion is not new: the Spanish tax system has a loophole that lets those at the top slip through with opaque allowances. As long as the tax agency does not investigate these arrangements on its own initiative, fraud will remain the pension plan of the powerful. But, just as peine with the SICAVs, one day public pressure will force the loophole to close.