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Article published in The Best January 2013
Recreational yachts, in particular those registered outside Spain are currently the object of an investigation being carried out by Spanish Tax authorities. This article explains the investigation measures carried out by the Spanish Inland Revenue (AEAT), as well as details of the tax inspector's procedure and constructive options for the taxpayer
The imperious need for financial resources affecting countries in the current economic crisis has forced tax authorities, the Spanish Inland Revenue (AEAT) to tighten up on tax fraud and tax avoidance investigations as well as any potential irregularities. Yachting is and has been for a long time the object of scrupulous examinations by the Inspección de Tributos, Spanish tax Inspection authorities ,in line with Government approved annual inspection plan. Initially the aforementioned plans were aimed solely at Spanish national yacht owners, the idea being to uncover irregularities and fraud in the payment of the "Impuesto Especial Sobre Determinados Medios de Transporte" a Special Tax on Certain Means of Transport (particularly charter yachts) and the price of boat conveyancing, subject to VAT or ITP – Spanish transfer tax. However, the Spanish government has taken a turn to focus on revising the tax situation as regards yachts registered outside Spain but navigating Spanish waters and/or moored in Spanish ports.
The object of the investigation is to establish whether or not the foreign registered yacht is in a regular location as regards VAT and the Special Tax on Certain Means of Transport. Going back to the situation when the user of the yacht is a resident in the European Union and navigating these waters, independently of whether the yacht is private or commercial, VAT still has to be paid (and deducted in certain cases). Another scenario is that the user can benefit from the temporary importation system, the IEDMT, applied when the yacht is based in Spain for the use of a resident or for commercial purposes.
These measures are taken either directly by the Inspección de Tributos or through the Inland Revenue (AEAT) or Guardia Civil patrols, targeting these users, mainly by the following course of action:
1) Retention and inspection of documents when the boat is at sea or in port, requesting boat documentation and identification for all individuals aboard.
2) All marinas obligated to report of any yachts registered under a foreign flag moored in the marina, including the length of stay, details of the owner and/or user (bearing in mind temporary importation is limited to a maximum 18 months).
Once the investigation is over, the acting body will initiate the corresponding proceedings recording any evidence of tax evasion. In particular:
1) The presence of residents in Spain as users of the yacht.
2) Possible residency or tenancy of property belonging to a foreign yacht owner
3) Yacht stay for period of time in excess of the length of stay permitted by the temporary importation regulation.
4) Any commercial activity in Spain involving the use of the boat
In some cases, when the irregularity detected is blatant, the patrol will order the yacht immobilised until the situation is resolved.
In every case, any action taken by the Customs or Guardia Civil will be referred to the AEAT where the information obtained will be classified with details of the identified persons and the name of the yacht registered on their database, the point at which the real tax investigation process will begin.
The first step will be the summons for further documentation or a sound explanation from the alleged offender. Although the person or persons under investigation have the right to withhold information, collaboration with the AEAT is obligatory. Failure to comply may entail a bigger fine if evidence of an irregularity is detected. Its worth taking note of the fact that when the person under scrutiny is a foreigner, problems such as language difficulties and lack of knowledge of Spanish legislation may inadvertently trigger incorrect answers with tax related consequences, at which point (assuming there is no tax adviser aboard) it will be necessary to contract an professional adviser. The subject matter of the actions and formalities carried out by the tax inspector or Guardia Civil constitutes evidence, which in turn requires evidence to the contrary as proof to resolve the situation.
If the documentation and declarations indicate any irregularity to be inexistent, the documents will be kept on file or in the opposite case, officials will proceed with the following investigation procedure. The process can last as long as 12 months, with the AEAT obliged to specify the date in the event the investigation runs over the allocated time. During the process, the presumed offender will have to appear when required by the court and present any requested documentation. Evidently the court also has right to requirements and present documentation to other persons or companies to request information considered to be relevant to the case.
The procedure is finalised by court action which may or may not include liquidation, depending on whether there is evidence of unpaid tax or not. Once the tax infringement is detected, the usual procedure is to impose a fine, requiring a separate enquiry. The minimum fine, according to the law, is 50% of the liquidation. In other words, if a 300,000 euro yacht is liquidated by the IEDMT, which amounts to 36,000 euros the minimum fine would amount to 18,000 euros.
In turn, proceedings may be agreed, approved or disapproved. Agreed is when an agreement is reached with the AEAT resulting in a reduction of the imposed fine. Approved is when no prior agreement is reached but the accused subsequently recognises the appropriateness of the proceeding and in disagreement with the liquidation. At this stage, the procedure carried out by the Administración de Tributos is finalised and an appeal can be made to the Tribunales Económico-Administrativos against the liquidation and fine. These courts are non jurisdictional bodies (without judiciary power), independent of Government and usually open to more reasonable criteria.
Lastly, depending on the decision made by the TEAR a court case may be brought against the state through the courts of justice. These official bodies end up refining Spanish law, called upon to interpret the laws by applying the general principals of rights and legal precedents. All in all, to restrain the need for confiscation imposed at times by the government, to interpret the real intention of government legislation when an activity is said to be subject to taxation or not. For example, if a Spanish resident spends a single day of his or her life aboard a foreign friend's boat, whether or not that resident has to pay the IEDMT is at the whim of a legislative body, likewise if a foreigner with a holiday home in Spain is also to be targeted by the IEDMT.
In either case, let's not forget Spain is still a state subject to the rule of law and the Government is obliged to conform to this ruling which states that the application of the law is based on approved terms and conditions. Not forgetting it is the role of the Government to examine the constituent facts of imposed taxes. The taxpayer has the right to defence and given the complexity of the matter it is important to seek proper legal advice from the start. Putting legislation, and at times language aside, any declaration can be detrimental to the cause, as we've already pointed out, anything the inspector puts on record represents proof to be used in the liquidation process.
Author's note: this article, based on law, presents a general and illustrative evaluation of the topic in question. The author disclaims responsibility for the consequences arising from using the content of this article in genuine cases, in the event of which you are advised to seek legal advice.
Yamandú R. Caorsi. Lawyer
Tax and yachting consultant in Spain
Blas de Lezo Abogados
"Spanish Shipping and Maritime Law Firm of the Year"