Spain to Prohibit Cash Payments for Professional Services of Over €2500

President Mariano Rajoy at the Congress of Deputies this morning

Spain to Prohibit Cash Payments for Professional Services of Over €2500
Violators will be fined 25% of the quantity paid illegally; Rajoy announces in Congress that this anti-fraud program will be approved Friday
El País: El Gobierno prohibirá a los profesionales el pago en efectivo de más de 2.500 euros
Cristina Galindo reporting from Madrid April 11, 2012

The anti-fraud plan the government has finalized in order to alleviate the public deficit by raising tax revenues, and which will be accompanied by the first fiscal amnesty in two decades, will include the prohibition of cash transactions of values greater than €2500 for between professional businessmen. Henceforth, such payments will have to be made by card or bank transfer. According to President Mariano Rajoy’s statement in Congress today, violators will face a fine of 25% of the amount paid illegally.

Housing is using this measure to impede the traffic of black money (most of all in the form of €500 bills) inside commercial operations, and in the case of businesses, to obstruct them from resorting to false invoices, a typical kind of fraud that occurs when a business that pays IRPF (income tax) by a system of modules sends a bill for a service that it did not render so that another company can claim a tax exemption from a VAT (Value Added Tax) which it did not actually pay. This anti-fraud measure, which the Council of Ministers will approve Friday, aims to collect €8.171 billion in tax that otherwise would not have been paid in 2012; this would help the country meet its deficit targets set by Brussels (5.3% of GDP this year and 3% in 2013).

The measure announced today is inspired by limitations on cash payments ratified in Italy (€1000) and France (€3000 for professional services and €1500 for salary payments) in 2011 and 2010, respectively. Though fiscal inspectors don’t know the fine print yet, they consider any initiative that complicates the transfer of cash an improvement. “While it is not a panacea in itself, it is a positive measure,” said sources in the National Housing Inspection Organization, which represents 95% of the 1500 inspectors. “We will have to see whether the €2500 cap is too high or not; it’s still early,” the association added.

According to the experts at the Ministry of Housing (Gestha), this maximum should be lowered again to €1000, the maximum in Italy, whose underground economy is comparable in size with Spain’s. In addition, some experts stated in a communique that the measure will just be wet paper in the fight against fraud, because it would still make more economic sense to get caught and pay the fine than it would to follow the law: “Fraud saves one from paying the corporate tax (which is up to 30% of an import) and the VAT (from 4-18%), which means savings that are greater than the 25% which would be the maximum penalty for those caught by Housing.” Sources in the inspectors’ organization stated, however, that once the fraud is discovered, and the fine paid, the corresponding taxes would also be charged while the money is regularized.

“Restricting cash operations is always a good measure in the fight against fraud,” argues Valentín Pitch of the Register of Tax Advisors (REAF). This is the first time that limits on cash payment have been established in Spain. Until now, the fight against black money had concentrated on the controversial €500 bills, which make up 70% of the cash in circulation, and in reinforcing vigilance toward bank income.

The government announced the limitation of cash payments without making the quantities concrete on January 7 when it presented its battle plan against fraud.

Rajoy advanced this measure during parliamentary question time in response to a question by the spokesman of the United Left, Cayo Lara, about fiscal amnesty. Regarding amnesty, the president also qualified that he would not bring about a total amnesty but rather one in which parties which brought money to the surface would pay an 8% penalty – for businesses – or a 10% penalty – for individuals. He defended this measure by saying “it makes sense for our current situation.”

He also insisted that it is an “exceptional measure” which would only be valid in 2012 and which responds to a moment in which Spain needs to reduce the public deficit to 3% of the GDP in 2013, making it “very important” that Spain improve its revenues.

According to what Vice President Soraya Sáenz de Santamaría explained a few months ago, the plan will place special importance on the lists of tax evaders provided by countries that have left the list of fiscal paradises, like Andorra, Panama, and the Dutch Antilles. Nevetheless, the goal for collections stated today is below the current goal: €8.171 billion rather than €9.400, a decrease of 13%.

During another part of the control session, the Minister of Housing, Cristóbal Montoro, announced that the next trimesterly report of state revenues and expenditures would be published “very soon”, and it would show each Autonomous Community’s effect on the state ledger “to increase transparency”.

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In his response to a question by Basque representative Arantza Tapia on the floor of Congress, Guindos pointed out that from 2009 to 2011, there have been “implicit cuts” in R&D&D, which means the drop in subsidies since 2009 is greater than the 26% it appears to be in the 2012 budget.

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