What do El Corte Inglés and the online platform Airbnb have in common? They provide information to the tax administration

01.2019

While most people were preparing to celebrate the end of 2017, the Official State Gazette published, on 30 December of that year — entering into force the following day — an amendment to the General Regulation on Tax Management and Inspection. This reform introduced the new Article 54 ter, which obliges online platforms that intermediate in short-term property rentals, such as Airbnb, to provide the Spanish Tax Administration with detailed information on the income obtained by the owners of the properties listed on their platforms. From January 2018 onwards, these platforms have been required to submit this information through a specific form, whose approval was announced in the weeks that followed.

This raises two questions: why has the Tax Administration decided to demand this information in a sector that, until recently, was largely irrelevant from its perspective? And what does El Corte Inglés have to do with all this?

To answer these questions, it is necessary to go back several years. The Tax Administration came to understand that, in order to verify the accuracy of taxpayers’ declarations, it needed regular information from the payers of income. Without that information, it was far more difficult to monitor those who received such income. Initially, employers were required to report annually to the authorities the remuneration paid to their employees.

Later, banks were obliged to provide information on income paid to their clients in the form of interest, dividends, capital gains from managed funds, and contributions to pension plans that they themselves administered. Subsequently, notaries were required to report on the transactions in which they participated, such as sales, and the incorporation or dissolution of companies. Likewise, real estate appraisal companies were obliged to communicate the assessed values of properties they had valued, to prevent sellers from declaring sale prices below the actual market value.

In time, this process expanded. Companies involved in economic transactions that demonstrate the consumer’s financial capacity were also required to provide the Tax Administration with detailed information, allowing it to verify that taxpayers declared the income corresponding to their expenditures. In short, those who spend much must have earned much. For this reason, the Tax Administration considers it essential to ensure that such income has been duly taxed. As can be seen, this is not direct control over the taxpayer, but rather indirect oversight carried out through the information held by third parties with whom the taxpayer interacts.

Even El Corte Inglés was eventually affected by this trend. The National High Court, in its judgment of 26 July 2012, upheld the Tax Administration’s demand that El Corte Inglés provide detailed information on purchases made by certain customers using its store cards, in order to verify the consistency between their declared income and reported expenditure.

This judgment brought to a close a process initiated years earlier by the Central Economic-Administrative Tribunal (TEAC), which had established the legal framework under which the Administration could lawfully request such information. Two TEAC decisions are particularly noteworthy — those of 10 and 25 June 2009 — which examined the legality of requests made to a credit card management company and to a bank, respectively.

In the first case, the credit card company was asked to provide details of all transactions carried out by customers exceeding €6,000 in each of the years 2006 and 2007, including the client’s name, the nature and value of the transactions, and the bank account from which they were charged. In the second, a Spanish bank was requested to provide data on account holders with balances of €3 million or more during the same period.

The TEAC annulled the first request, considering that the data sought were excessive, lacked tax relevance, and were disproportionate — since spending €6,000 per year (equivalent to €500 per month) does not in itself indicate significant economic capacity. By contrast, the second request was upheld as proportionate and justified, since account balances of €3 million clearly reflected substantial financial capacity and affected only a limited number of individuals. This latter decision was subsequently confirmed by the Supreme Court in its ruling of 20 November 2014.

In this way, a complex and structured system for gathering information has been gradually built up, ensuring a constant flow of data to the Tax Administration. The so-called “informative declaration” — which does not itself result in any payment of tax — has become the backbone of Spain’s tax system, as it provides the Administration with the necessary information to verify taxpayers’ returns.

Finally, this same logic has been extended to digital property-rental platforms. Many of these companies are not tax residents in Spain, yet they possess an asset of great value to any Tax Administration: information about the rental income earned by property owners.

As in previous cases, these companies initially resisted collaboration but ultimately accepted their role as “collaborating entities”. Consequently, every property owner renting through such platforms must now be aware that the Tax Administration has access to all relevant data about the transaction — property location, days rented, income obtained, and so forth. Moreover, regional tax authorities, such as that of Catalonia, also benefit indirectly, as they can more effectively monitor the application of regional levies such as the tourist tax.

In conclusion, the Tax Administration has extended its monitoring powers to a sector — short-term tourist rentals — which until a few years ago was marginal but has since grown exponentially thanks to the rise of digital platforms.

++ Article originally published in German in the magazine “Economía” in December 2018, issued by the German Chamber of Commerce in Spain ++