Providing sophisticated tax advice has become a risky business, according to the latest spate of incidents relating to tax advisors who have crossed, in the view of the Spanish Courts and authorities, the fine line between tax avoidance and tax evasion.
Last week, the Audiencia Nacional stated that Garrigues, the number one firm in Spain by turnover, has helped a number of CAM bank former directors cheat the Spanish “Hacienda”. The statement can deemed as being bold but then again, how else can you define the advice given to bent bank directors who were accused, and arrested shortly after, of setting up offshore companies in the Dutch Antilles to channel loans granted to themselves that were later syphoned off to these tax havens?
Last month, also the Madrid-based Audiencia Nacional held that Demetrio Carceller, a prominent businessman, has hidden the full extent of his income and wealth “since at least 1990” through a complex scheme, with companies in the Antilles, Panama and Madeira, in which he claimed alternatively to be resident in Portugal and Britain when it appears, lived in a Madrid penthouse, “avoiding as much as possible socializing in the capital”. The State Prosecutor also accuses his son, a straw man and…his lawyer of devising a tax defrauding arrangement, which included commercial centers in Arizona, and will be asking for 14 years imprisonment for each.
And also in Madrid the State Prosecutor, arguing a case against a lawyer accused of devising an illegal tax avoidance scheme, stated that the creation of an onshore (Spanish S.L.)/offshore (Delaware Co.) corporate structure to facilitate the transfer of shares (and the property with it) and hinder hypothetical tax inspections, the setting up of fictitious self-tenancy agreements between the company and the true owner and the proven lack of activity of the Spanish company are incriminating factors per se.
In Malaga, 8 businessmen and their lawyers are accused of setting up a “complex” maze of companies based in the Dutch Antilles (again!) to conceal the true owners of the Spain-based assets and the origin of profits received (profits that appears to have been generated from the Hotel Marbella Club). According to the Prosecutor, the accused law firm also advised to register cash contributions for the purpose of buying real estate as “corporate loans”, thereby illegally deducting fictitious interest from profits, to the tune of 2, 2 million Euros, in a not-so sophisticated tax scheme known as “left pocket pays right pocket”!
3 teachings we can derive from the above:
- Offshore companies are 99% of the times used to cheat someone: a Tax Office, a creditor, an ex-spouse or partner or a victim of a swindle. 1% of the times it is used to just conceal the identity of the true owner, as happens with Moroccans who are, in principle (except for the King of course), prohibited from having property abroad.
- The dividing line between tax avoidance and tax evasion is so difficult to pin down that you have to steer well away from the line.
- No lawyer or tax advisor, no matter how reputable or famous, should suggest or recommend you even get close to that line…
The Spanish Supreme Court, summarizing its stance in this matter, held the following
in conclusion, in the criminal sphere, fraudulent tax engineering has to be repressed when those activities are themselves deemed criminal, irrespective of the formalities used to carry them out.