In 1941, a German jurist named Ernst Fraenkel published a book from exile that would become one of the most important works of political theory of the twentieth century. Writing about the Nazi regime he had fled, Fraenkel described what he called the Dual State: a system in which two forms of authority coexist within the same institutional framework. On one side, the normative state — the realm of law, procedure, courts, and predictable rules. On the other, the prerogative state — a sphere of power that operates outside those rules, unconstrained by law, governing through discretion, fear, and the unpredictable exercise of coercive force.
Fraenkel’s insight was not that totalitarian systems abolished the law. It was subtler and more disturbing than that. The law remaining in place technically, and the courts continued to function and simple business contracts were enforced. Citizens could plan their economic lives with a degree of confidence. But alongside this normative order, a parallel authority operated with essentially no legal limits at all — and it was this parallel authority that determined what really happened when the interests of the state were at stake.
What makes this theory so relevant today, eighty years after it was written, is not its application to historical fascism. It is the degree to which Fraenkel’s framework illuminates something happening right now, in one of the founding members of the European Union, in a country that has been a parliamentary democracy for nearly fifty years. In their landmark new book Hacienda y el Estado Dual, international lawyer Robert Amsterdam and tax policy expert Dr. Christopher Wales argue, with rigour and with evidence, that the Spanish tax administration has constructed something that fits Fraenkel’s description with uncomfortable precision.
This book represents the findings of a two-year investigation drawing on legal analysis, comparative international data, case documentation, and institutional analysis. And its conclusion is one that should concern every citizen, every business, every investor, and every elected official in Spain.
Spain has built a fiscal dual state.
To understand what Amsterdam and Wales are arguing, it helps to be precise about what the dual state actually means in a tax administration context. The authors identify eight principles that define legitimate tax enforcement under the rule of law: legal authority, legal certainty, equality before the law, proportionality, the presumption of innocence, institutional independence, transparency and equality of arms, and effective remedy. In a normative administration — the kind that exists in Germany, France, the Netherlands, the United Kingdom, or the United States — each of these principles functions as a real-time constraint on administrative power. The tax authority must act within defined legal limits. Inspections must be grounded in an articulated legal theory. Taxpayers must have meaningful access to the evidence being used against them. Sanctions must follow a finding of liability, not precede it. And review must be available at a stage where it can actually change outcomes.
The prerogative dynamic emerges when these constraints are weakened — not necessarily abolished, but displaced, delayed, or inverted — so that coercive pressure is applied before legality has been independently verified. The law still exists. The rights are still written down. But they become available only retrospectively, after the coercive damage has already been done.
“The question is not whether Spain can point to laws, procedures, and rights. It can. The question is whether those legal forms actually govern administrative power when it is exercised. With too much frequency, they do not.”
This is the condition Amsterdam and Wales document in Spain. And what makes their analysis so powerful is that they do not rely on anecdote. They show the mechanisms — the specific institutional designs, incentive structures, procedural sequences, and governance failures — through which the prerogative logic has become routine.
The bonus system: coercion by design
Perhaps the most explosive chapter in the book concerns something that might seem dry at first glance: the AEAT’s internal remuneration system. In 2025, the AEAT concluded an agreement with its unions establishing a productivity bonus pool of 125 million euros for staff, linked explicitly to revenue collection targets above and beyond what would naturally result from economic growth.
The tax inspectors who decide how much additional tax you owe receive bonuses based on how much additional tax the agency collects. And when those assessments are later overturned by the courts — as they are with striking frequency — nobody gives the bonus back.
The implications of this design are not subtle. A system that rewards aggressive assessments but does not penalise legally unsustainable ones is not a system oriented toward accuracy. It is a system oriented toward escalation. The book cites a 2022 court order requiring the AEAT to reveal details of its bonus system — and describes the agency’s response as “a triumph of obfuscation.” What it eventually revealed showed inspectors competing against each other and their teams against other teams, all maximising their share of a closed bonus pool whose size is determined by financial collection targets.
No comparable tax administration in the world operates this way. The United States Internal Revenue Service is explicitly prohibited by federal law from using collection results in staff performance evaluations. HMRC in the United Kingdom ties performance to behaviour, accuracy, and professionalism, not revenue outcomes. Germany, Canada, Sweden — none of them link individual remuneration to assessed amounts. The AEAT’s model, the book concludes, is not merely unusual. It is structurally incompatible with the impartiality that tax enforcement requires.
“The combination of economic incentives linked to collection, the concentration of investigative and decision-making authority, and the difficulty of obtaining timely independent review create a system that encourages escalation and makes neutral re-evaluation structurally less likely.”
The inspection: a one-sided process
The chapter on what actually happens during an AEAT inspection is one of the most difficult to read, because it describes, in concrete institutional detail, a process that bears almost no resemblance to what a fair administrative procedure should look like.
Inspections begin without a clearly articulated legal premise. The AEAT proceeds under broad mandates that do not require the agency to define its legal theory before it starts gathering evidence — meaning the theory develops to fit the evidence rather than the evidence being gathered to test a theory. Inspectors control the minutes of meetings and can object to the inclusion of facts they would prefer not to have recorded. Taxpayers are required to provide years of complex financial information at absurdly short notice — often five to ten days — while the AEAT routinely ignores its own legal deadlines with no consequence. The threat of criminal referral is used as a negotiating lever, even in cases where there is no prima facie evidence of criminal intent.
And at the end of this process, when the inspector finally presents the proposed assessment, the taxpayer is typically given a matter of weeks to respond to a case the agency has been building for years. In secret.
“The administration constructs its case over time and largely in secret, while the taxpayer must respond under tight deadlines and under the threat of sanctions.”
Compare this to France, where the Charte du contribuable vérifié enshrines transparency, dialogue, and a structured exchange of views throughout the inspection. Or Germany, where taxpayers have a guaranteed right to be heard before any adverse ruling, and where the right to inspect the administrative file is legally defined. Or the United Kingdom, where information requests must be “reasonably required” to verify the taxpayer’s position — a proportionality test that can be challenged. In Spain, by contrast, the inspector’s view of what is relevant defines the scope of the investigation, and the taxpayer discovers what that view is only at the end.
The book also documents the abuse of the concept of “simulación” — a legal doctrine that allows inspectors to disregard the legal form of a transaction or business structure if they consider it to be a sham. In principle, simulación exists to combat genuine fraud. In practice, the book shows, it has become a routine weapon used against small businesses, entrepreneurs, and professionals, allowing inspectors to substitute their own commercial judgment for the taxpayer’s — often on the basis of insubstantial evidence, and with the effect of triggering maximum sanctions and potential criminal exposure simultaneously. The result is a Kafkaesque situation: if you resist, you face prosecution; if you capitulate, you are admitting fraud.
Paying to appeal
If the inspection produces an assessment you believe is wrong, you have rights. You can appeal. This is, after all, a democracy with an independent judiciary. But the practical reality of exercising those rights in Spain is so burdensome as to make them, for many taxpayers, effectively inaccessible.
To suspend enforcement of the assessment while you appeal — to prevent the AEAT from immediately seizing your assets — you must pay the full amount assessed, or provide a bank guarantee for the full amount. Not a partial deposit. Not a proportional guarantee. The entire sum. And then you must navigate two successive administrative review bodies — the TEAR and the TEAC — before you can reach an independent court. The TEAR and the TEAC are not independent courts. They are administrative bodies within the same ministerial apparatus as the AEAT. The Court of Justice of the European Union has already held that the TEAC does not meet the standards of independence required to be considered a “court or tribunal” for the purposes of EU law.
After the administrative phase — which typically takes around three years — you can finally reach a proper court. The total process, from initial assessment to final judicial resolution, routinely takes five to ten years. During that entire period, your capital is either tied up in a bank guarantee or the AEAT has already taken it.
“The delay caused by the obligation to appeal first through the economic courts is perceived as a procedural obstacle rather than an effective remedy, and many taxpayer victories only occur once litigation reaches the courts.”
In France, a taxpayer can request a sursis de paiement — a suspension of the tax collection — and it is generally granted on request, without full prepayment. In Germany, suspension is available where there are serious doubts about the assessment. In the Netherlands, the tax in dispute is normally deferred without advance payment while appeal is pending. In Italy, the disputed amount can often be suspended on payment of a proportion — sometimes a third. Spain’s system, the book concludes, is a pronounced outlier, and it operates in practice as a powerful instrument of coercion: settle or face years of financial exposure you may not survive.
The presumption of veracity
One of the most technically significant aspects of the book concerns the legal weight given to AEAT inspection reports in Spanish proceedings. Under the prevailing doctrine, the factual claims recorded by tax inspectors in official reports are presumed to be accurate unless the taxpayer can prove otherwise.
This is not a mere procedural technicality. It means that the narrative the AEAT constructs during an investigation — conducted in secret, over years, by inspectors who have financial incentives to maximise the assessment — arrives in any subsequent dispute already treated as presumptively correct. The taxpayer does not face an impartial trier of fact who will weigh the evidence of both sides equally. The taxpayer faces a proceeding in which the starting point is that the state is right.
None of Spain’s European peers operate this way. In France, the administration bears the initial burden of proof, and inversion of that burden requires demonstrated non-compliance by the taxpayer. In Germany, courts exercise free evaluation of the evidence — inspection reports have evidential value but are not binding. In the United Kingdom, there is a clear distinction between civil liability and sanctions, with HMRC bearing the burden of proof on penalties. In Portugal, taxpayer declarations and accounts are presumed accurate and can only be challenged on proof of irregularity.
“The evidentiary structure of tax enforcement shifts the practical burden of proof onto the taxpayer and allows liability to be built on administrative narratives that the taxpayer must rebut rather than facts the administration must establish.”
This presumption, combined with the bonus system, the inspection practices, and the barriers to appeal, creates something that is more than the sum of its parts. It creates a system in which the entire institutional logic runs in one direction: toward collection, before legality is established, at the expense of the taxpayer’s rights.
Why this matters beyond Spain
Amsterdam and Wales are careful to say that Spain is not unique. The forces that have produced the Spanish fiscal dual state — performance-oriented enforcement, expanding state access to financial data, weakening of taxpayer procedural rights, structural dependence on aggressive enforcement for fiscal revenue — are present in many jurisdictions. What distinguishes Spain is the degree to which they have combined into an entrenched institutional pattern.
That pattern has real economic consequences. The book cites World Bank survey data showing that 36.8 percent of Spanish businesses describe the tax administration as a major or severe constraint — compared to 10.2 percent in Belgium, 5.2 percent in Hungary, and 2.5 percent in Sweden. For foreign investors, the fiscal dual state is not merely a compliance cost. It transforms the country risk calculation. When the legal limits on administrative power cannot be relied upon, when the meaning of the law is only revealed through inspection, when defending a position requires years of expensive litigation with uncertain outcome — investment decisions change.
This is a book that demands to be read by tax lawyers, by corporate counsel, by accountants, by politicians, and by journalists. But it is also a book for citizens. Because what Amsterdam and Wales are ultimately describing is not a technical administrative dysfunction. It is a question about the relationship between the individual and the state. When coercive power is exercised before legality is established, when rights exist on paper but cannot be invoked in time to matter, when the citizen bears the cost of the state’s legal uncertainty rather than the state bearing that cost itself — that is a rule of law problem. It is, in the language Fraenkel would have recognised, a prerogative state in operation.
“Spain presents the defining characteristic of a fiscal dual state: legality frames the form of the system, while prerogative enforcement drives its operation.”
The reforms the book proposes are not radical. They do not call for the abolition of the AEAT or the dismantling of Spain’s tax system. They call for things that are entirely normal in comparable democracies: a bonus system that rewards accuracy rather than collection; a genuinely independent Taxpayer Advocate reporting to Parliament; the right to appeal without prepaying the entire disputed amount; an inspection process with real transparency requirements; sanctions that follow liability rather than preceding it; and a Taxpayer Rights Act with teeth.
These are not unreasonable demands. They are the baseline of a tax system that respects the rule of law. The fact that Spain does not have them — and that it has actively resisted having them for decades — is precisely what makes this book not just important, but urgent.
Hacienda y el Estado Dual is available now in pre-launch at four locations across Barcelona for Sant Jordi 2026. The general public launch follows next month. Read it. Share it. Because the first step toward reforming a system that operates in the shadows is making sure that the light gets in.