Below is a translation of a very powerful opinion editorial published in Vozpópuli by Ignacio Ruiz-Jarabo, the former director of the Agencia Tributaria (AEAT) in Spain.
Those responsible for the Tax Agency , and therefore the Ministry of Finance , have been very, very lucky to have had the public complaint made by the international law firm Amsterdam & Partners coincide with the general knowledge of the nauseating smell that is permeating the Spanish environment, emanating from Ferraz and Moncloa.
Thus, the stench emanating from the headquarters of the PSOE and the Government – yes, Sánchez , from the Government, or isn’t this the place where public contracts have been irregularly awarded with bribes paid to your fellow passengers in the Peugeot? – is partially obscuring in public opinion the courageous position that Amsterdam & Partners has adopted regarding the way in which the Tax Agency carries out its function of applying the Spanish tax system.
From the outset, as can be deduced from the positions I have long held, I basically agree with what the international firm has denounced. Yes, I also believe that in Spain the legal regulation of the legal-tax relationship is extremely asymmetrical, since in tax matters the State is everything and the individual—the taxpayer—is nothing. I also believe that for years the Tax Agency has ruthlessly abused this unlimitedly privileged legal position. And I also believe that the way in which the variable remuneration of tax inspectors is set constitutes an unacceptable anachronism that objectively—I emphasize this term—leads to malfeasance by the officials involved.
And in essence, this is the content of the complaint being filed by Amsterdam & Partners. So yes, essentially—regardless of the terms used by the complainants—I basically agree with the content of the complaint. When it comes to taxation, Spaniards are not citizens but subjects subservient to the power of a new feudal lord or a new absolutist king: the current Tax Agency.
It also happens that among the events that have occurred since the first press conference of international lawyers, there are several that are of interest to the issue at hand, and which I therefore consider reasonable to comment on.
The first is the resignation of the president of the Regional Economic and Administrative Court , the highest internal body of the Ministry of Finance responsible for the administrative review of actions issued by the Tax Agency. Several months ago, an online newspaper began to reveal disturbing details about his conduct related to his relationship with a businessman who had filed a complaint with the TEAC against actions issued by the AEAT (Spanish Tax Agency). He allegedly paid significant sums to companies owned by the aforementioned president in exchange for facilitating the success of the claims filed.
In this matter, the AEAT’s inaction for so long is surprising, especially given that the newspaper that filed the complaint has been providing specific details of the case. And, beware! The TEAC is not a personal body but a collegial body, so if there had been improper acquittals, its president would not be the sole person responsible for issuing them. And while it is not true that the president of the TEAC is Minister Montero’s number two, it is true that he is a very important authority in the Ministry of Finance. He has high-ranking status, his appointment corresponds to the Council of Ministers, and his role is clearly significant.
We’ve also recently learned of a report from the Institute of Economic Studies that has debunked the fallacy long championed by the Ministry of Finance and the Tax Agency. Both argue that the scale of litigation caused by the latter’s actions is minimal, arguing that the percentage of assessments appealed is minimal, around 1%. I’ve already stated publicly that using tax assessments as the unit of account to measure litigation caused by the AEAT is a trap . No one appeals a tax assessment when the cost of appealing it—tax advisor, lawyer, solicitor, etc.—exceeds the amount of the action being appealed. And, therefore, I stated that the unit of account to be used should be the percentage of the euros assessed that are the subject of the appeal.
Well, that’s what the IEE (Spanish Tax Institute) has done in its report, and the result obtained is that 20% of the total amount settled by the AEAT is being appealed—not 1%. That is, using the appropriate unit of account, it turns out that the litigation caused by the AEAT’s actions is twenty times greater than that provided by the official measurement : 20% versus 1%. Almost nothing! And another issue: the IEE has also stated that 60% of the AEAT’s settlements that are challenged end up being annulled—either administratively or judicially—a matter that says very little about the respect for legality present in its settlement acts and constitutes a clear justification for repealing the legal presumption of veracity granted to them and, consequently, the indiscriminate automatic enforceability enjoyed by the settlements issued by the AEAT.
At the same time, a survey conducted by the Institute of Fiscal Studies has recently come to light, reflecting that 22% of Spaniards—one in five—believe that we would live better without taxes. Even more so, this percentage rises to 32%—one in three—among young respondents. If they still have time for reflection, the Ministry of Finance and the Tax Agency should reflect on the perverse effect their abusive practices have on the Spanish population. It is evident that if practices typical of medieval feudalism are used to enforce something as necessary as the existence of a tax system, they provoke significant portions of society to rebel against what is necessary.
And in this context, we have just learned of the letter from the Director General of the Tax Agency to all the institution’s employees, addressing the complaints filed by the law firm Amsterdam & Partners. In my opinion, there are quite a few unfortunate issues in the text, but to avoid being verbose, I will address only a few.
The director begins by pointing out that the advertisements and communications the firm has issued through the media have been paid for. So? Doesn’t the AEAT spend large amounts of money—in this case, public funds—on self-promotion campaigns that, by the way, don’t always turn out well? Recall the recent “Taxes Always Come Back” program featuring images of floods, which had to be withdrawn a few days after its broadcast began due to its coincidence with the dramatic Dana flood that devastated Valencia and neighboring provinces. So, denouncing the use of advertising paid for with private resources by an institution that does the same thing, but with public funds, is like seeing the speck in someone else’s eye without seeing the beam in your own.
At the same time, hiding behind a rancid and not entirely hypocritical nationalism, the director of the AEAT continues by asserting that the accusations by Amsterdam & Partners are directed against the AEAT “and, by extension, against Spain.” Fortunately, the Tax Agency is not Spain, but a public body that the current Spanish government is using to harass Spanish taxpayers, who are Spain, to the extreme.
The director continues by denying that there is excessive litigation in the AEAT’s actions regarding the application of the expatriate regime, stating that “only 30% of the audits have been the subject of a claim or appeal.” It is shocking that 30% of challenges seems so few, especially when the legal system provides financial incentives for not challenging the case by reducing the penalty if the assessment is not challenged.
However, perhaps the most serious aspect is what the letter says about the variable remuneration of AEAT officials on inspection duties. The director alludes to the fact that most OECD countries operate tax administrations with “variable remuneration systems based on the achievement of objectives.” To assert such a statement in contrast to the social criticism that exists in Spain—long before Amsterdam & Partners stated it—about the fact that the variable remuneration of tax inspectors is basically linked to the amount of debts settled resulting from their work is a clear manipulation of concepts.
No one objects to the Tax Agency (AEAT) operating by objectives . It is a common practice of any modern organization—public or private—that strives for effectiveness and efficiency. Nor does anyone object to the fact that the greater or lesser achievement of the objectives set determines whether an inspector receives a higher or lower salary. What is criticized, and criticized by many—I insist, even before Amsterdam & Partners did so—is that the objectives established for the units and officials of the Tax Inspectorate are dominated by the amount of debt they settle. Even more so, the fact that this is done regardless of whether, after the settlement and the collection of the financial incentive, the settled debt is annulled by administrative or judicial bodies. This is the outrage, not the fact that objectives exist and their compliance is incentivized.
In short, I do not agree with the content of the letter with which the director of the Tax Agency seeks to save the checkmate imposed on her by Amsterdam & Partners, a checkmate that follows others imposed on her by the Tax Agency itself . It is enough to recall, as an example, her unacceptable conduct in the case of the Prime Minister’s brother, a case that has revealed to Spanish society how extremely harsh it is with many—the average taxpayer—and so unrestrictedly soft with some—if their surname is Sánchez Pérez-Castejón.
The passage of time will tell whether or not the checkmate will ultimately prove fruitful. But let it be clear, this is not a checkmate to Spain, nor to the Tax Agency and its officials in general. It is a checkmate to the legal design of the regulation of its actions (where is the letter and spirit of the Taxpayer Rights and Guarantees Law approved in 1998?) and to the way the agency is currently run. The extraordinary abuse of the unjustifiable legal powers at the AEAT’s disposal, combined with the objective incentives for prevarication, has turned Spain into a veritable tax hell. This is what Amsterdam & Partners is denouncing.