At the height of Spain's construction boom it was not uncommon for a briefcase of 500-euro bills to be offered as part payment for property by buyers striving to save on taxes.
That culture of ducking the taxman is deeply-engrained in Spain and is becoming a headache for Prime Minister Mariano Rajoy, threatening to force him to go back to the drawing board on budget plans which are crucial to the future of the euro.
The government made a 3-point hike of valued-added tax the main thrust of the 65-billion-euro package of spending cuts and tax increases put on the table in July. The VAT rise alone was designed to raise 22 billion and put Spain on track to meet its EU-agreed deficit targets until 2014.
But in a country where undocumented cash transactions with restaurants, garages and builders are the norm and more than 18 billion euros a year is believed to be lost due to VAT fraud, it looks far too optimistic.
"In
Germany, if you saw your neighbour defrauding the tax office, you'd report them. In Spain, they are heroes," one small businessman told Reuters standing in his
company warehouse in the southern city of Seville, asking to remain anonymous.
Almost one in four taxable euros is hidden from the authorities in Spain, according to tax inspectors union Gestha.
Those are vital sums for a government fighting to deflate one the
euro zone's highest deficits and facing a 20 percent drop in revenue since the 2008 financial crash; the Treasury collected only 161 billion euros in tax last year, compared to around 200 billion euros in 2007.
Some of that is naturally due to the stagnation of Spain's economy over the period, but off-the-books trade has also risen as
businesses and consumers seek to squeeze costs or the price they actually pay for goods and services.
The black economy is now worth around 23 percent of the gross domestic product, compared to an average of around 13 percent across the European Union's 27 members and that may only increase as Spain's economy sinks deeper into recession.
"Sadly, the current economic situation means fraud is on the rise, while the measures will just lead to new kinds of fraud," says Gertrudis Alarcon, head of the Spanish arm of tax consultancy i2 Integrity, authors of a new report on the black economy.
"The new measures ... won't necessarily produce the revenue increase hoped for."
ACCEPTED
Transparency International ranks Spain in the middle of Europe's table of most corrupted countries, below
Greece and Italy, but above northern countries many of which are the least corrupt in the world.
Around one in six of all 500 euro notes, the highest euro denominated bill in circulation in the monetary union, were issued by the Bank of Spain, evidence of their use in off-the-book property acquisitions.
More than 15 percent of drivers don't ask for, or are not offered, a receipt for work done by a mechanic in order to knock VAT off the bill, according to one study by industry associations GT Motive and Cetraa.
In hotels and restaurants, it has been a normal
practice for years to have a "caja B", a parallel cash register where undeclared revenues are kept. People talk openly about it and restaurant owners say upping VAT will only increase the financial pressure that makes them do it.
"We have no other choice than to issue some bills with the new VAT and others in 'caja B'," said Alfredo Gomez, who owns a restaurant in the centre of Madrid.
Jesus Lizcano, head of Transparency International in Spain, says the country's position on the corruption tables slipped during the years of the property boom, precisely because of transactions related to housing speculation, but has stabilised in the last few years.
But he says tax avoidance also reflects the same underlying distrust of central authority in Spain that lies behind what is one of Europe's most decentralised Federal political systems.
"It's a similar situation in all of southern Europe, and really just forms part of the Latin culture," he said.
ANTI-FRAUD MEASURES
In an attempt to raise extra cash from the dodgers, the conservatives have banned cash transactions worth over 2,500 euros, and introduced a fiscal amnesty for offshore accounts, amongst other measures.
But, while all agree more efforts must be made to reduce non payment, few believe they can realistically increase revenue sufficiently to help cut the deficit.
According to estimates by economist at Washington University in St. Louis Michele Boldrin, raising Spain's tax collection rate to that of Sweden's would only increase revenue by two or three percentage points of GDP, or by around 30 billion euros.
"This alone wouldn't fix our deficit problems and could take up to a decade to achieve," Boldrin said.
The government would have to concentrate on small - as much as large-scale fraud - where techniques on keeping your earnings from falling in to the hands of the Treasury differed.
"(For larger fortunes) the problem is more tax avoidance than evasion. Whether it's illegal, paralegal or on the borders of legality, many can reduce tax debts substantially using available loopholes," he said.
The fiscal amnesty meanwhile has been broadly criticised for sending the wrong message to law-abiding tax payers and, possibly worse, for not raising the money it's designed to.
The amnesty aims to raise up to 2.5 billion euros by offering a low tax rate of 10 percent to anyone declaring hidden income but it has seen less than 1 percent of that after only 115 people legalised undeclared funds, according to Gestha.
The Treasury did not want to comment on this figure and said it will give a full breakdown when the amnesty period is over end-November. the height of Spain's construction boom it was not uncommon for a briefcase of 500-euro bills to be offered as part payment for property by buyers striving to save on taxes.
That culture of ducking the taxman is deeply-engrained in Spain and is becoming a headache for Prime Minister Mariano Rajoy, threatening to force him to go back to the drawing board on budget plans which are crucial to the future of the euro.
The government made a 3-point hike of valued-added tax the main thrust of the 65-billion-euro package of spending cuts and tax increases put on the table in July. The VAT rise alone was designed to raise 22 billion and put Spain on track to meet its EU-agreed deficit targets until 2014.
But in a country where undocumented cash transactions with restaurants, garages and builders are the norm and more than 18 billion euros a year is believed to be lost due to VAT fraud, it looks far too optimistic.
"In
Germany, if you saw your neighbour defrauding the tax office, you'd report them. In Spain, they are heroes," one small businessman told Reuters standing in his
company warehouse in the southern city of Seville, asking to remain anonymous.
Almost one in four taxable euros is hidden from the authorities in Spain, according to tax inspectors union Gestha.
Those are vital sums for a government fighting to deflate one the
euro zone's highest deficits and facing a 20 percent drop in revenue since the 2008 financial crash; the Treasury collected only 161 billion euros in tax last year, compared to around 200 billion euros in 2007.
Some of that is naturally due to the stagnation of Spain's economy over the period, but off-the-books trade has also risen as
businesses and consumers seek to squeeze costs or the price they actually pay for goods and services.
The black economy is now worth around 23 percent of the gross domestic product, compared to an average of around 13 percent across the European Union's 27 members and that may only increase as Spain's economy sinks deeper into recession.
"Sadly, the current economic situation means fraud is on the rise, while the measures will just lead to new kinds of fraud," says Gertrudis Alarcon, head of the Spanish arm of tax consultancy i2 Integrity, authors of a new report on the black economy.
"The new measures ... won't necessarily produce the revenue increase hoped for."
ACCEPTED
Transparency International ranks Spain in the middle of Europe's table of most corrupted countries, below
Greece and Italy, but above northern countries many of which are the least corrupt in the world.
Around one in six of all 500 euro notes, the highest euro denominated bill in circulation in the monetary union, were issued by the Bank of Spain, evidence of their use in off-the-book property acquisitions.
More than 15 percent of drivers don't ask for, or are not offered, a receipt for work done by a mechanic in order to knock VAT off the bill, according to one study by industry associations GT Motive and Cetraa.
In hotels and restaurants, it has been a normal
practice for years to have a "caja B", a parallel cash register where undeclared revenues are kept. People talk openly about it and restaurant owners say upping VAT will only increase the financial pressure that makes them do it.
"We have no other choice than to issue some bills with the new VAT and others in 'caja B'," said Alfredo Gomez, who owns a restaurant in the centre of Madrid.
Jesus Lizcano, head of Transparency International in Spain, says the country's position on the corruption tables slipped during the years of the property boom, precisely because of transactions related to housing speculation, but has stabilised in the last few years.
But he says tax avoidance also reflects the same underlying distrust of central authority in Spain that lies behind what is one of Europe's most decentralised Federal political systems.
"It's a similar situation in all of southern Europe, and really just forms part of the Latin culture," he said.
ANTI-FRAUD MEASURES
In an attempt to raise extra cash from the dodgers, the conservatives have banned cash transactions worth over 2,500 euros, and introduced a fiscal amnesty for offshore accounts, amongst other measures.
But, while all agree more efforts must be made to reduce non payment, few believe they can realistically increase revenue sufficiently to help cut the deficit.
According to estimates by economist at Washington University in St. Louis Michele Boldrin, raising Spain's tax collection rate to that of Sweden's would only increase revenue by two or three percentage points of GDP, or by around 30 billion euros.
"This alone wouldn't fix our deficit problems and could take up to a decade to achieve," Boldrin said.
The government would have to concentrate on small - as much as large-scale fraud - where techniques on keeping your earnings from falling in to the hands of the Treasury differed.
"(For larger fortunes) the problem is more tax avoidance than evasion. Whether it's illegal, paralegal or on the borders of legality, many can reduce tax debts substantially using available loopholes," he said.
The fiscal amnesty meanwhile has been broadly criticised for sending the wrong message to law-abiding tax payers and, possibly worse, for not raising the money it's designed to.
The amnesty aims to raise up to 2.5 billion euros by offering a low tax rate of 10 percent to anyone declaring hidden income but it has seen less than 1 percent of that after only 115 people legalised undeclared funds, according to Gestha.
The Treasury did not want to comment on this figure and said it will give a full breakdown when the amnesty period is over end-November. the height of Spain's construction boom it was not uncommon for a briefcase of 500-euro bills to be offered as part payment for property by buyers striving to save on taxes.
That culture of ducking the taxman is deeply-engrained in Spain and is becoming a headache for Prime Minister Mariano Rajoy, threatening to force him to go back to the drawing board on budget plans which are crucial to the future of the euro.
The government made a 3-point hike of valued-added tax the main thrust of the 65-billion-euro package of spending cuts and tax increases put on the table in July. The VAT rise alone was designed to raise 22 billion and put Spain on track to meet its EU-agreed deficit targets until 2014.
But in a country where undocumented cash transactions with restaurants, garages and builders are the norm and more than 18 billion euros a year is believed to be lost due to VAT fraud, it looks far too optimistic.
"In
Germany, if you saw your neighbour defrauding the tax office, you'd report them. In Spain, they are heroes," one small businessman told Reuters standing in his
company warehouse in the southern city of Seville, asking to remain anonymous.
Almost one in four taxable euros is hidden from the authorities in Spain, according to tax inspectors union Gestha.
Those are vital sums for a government fighting to deflate one the
euro zone's highest deficits and facing a 20 percent drop in revenue since the 2008 financial crash; the Treasury collected only 161 billion euros in tax last year, compared to around 200 billion euros in 2007.
Some of that is naturally due to the stagnation of Spain's economy over the period, but off-the-books trade has also risen as
businesses and consumers seek to squeeze costs or the price they actually pay for goods and services.
The black economy is now worth around 23 percent of the gross domestic product, compared to an average of around 13 percent across the European Union's 27 members and that may only increase as Spain's economy sinks deeper into recession.
"Sadly, the current economic situation means fraud is on the rise, while the measures will just lead to new kinds of fraud," says Gertrudis Alarcon, head of the Spanish arm of tax consultancy i2 Integrity, authors of a new report on the black economy.
"The new measures ... won't necessarily produce the revenue increase hoped for."
ACCEPTED
Transparency International ranks Spain in the middle of Europe's table of most corrupted countries, below
Greece and Italy, but above northern countries many of which are the least corrupt in the world.
Around one in six of all 500 euro notes, the highest euro denominated bill in circulation in the monetary union, were issued by the Bank of Spain, evidence of their use in off-the-book property acquisitions.
More than 15 percent of drivers don't ask for, or are not offered, a receipt for work done by a mechanic in order to knock VAT off the bill, according to one study by industry associations GT Motive and Cetraa.
In hotels and restaurants, it has been a normal
practice for years to have a "caja B", a parallel cash register where undeclared revenues are kept. People talk openly about it and restaurant owners say upping VAT will only increase the financial pressure that makes them do it.
"We have no other choice than to issue some bills with the new VAT and others in 'caja B'," said Alfredo Gomez, who owns a restaurant in the centre of Madrid.
Jesus Lizcano, head of Transparency International in Spain, says the country's position on the corruption tables slipped during the years of the property boom, precisely because of transactions related to housing speculation, but has stabilised in the last few years.
But he says tax avoidance also reflects the same underlying distrust of central authority in Spain that lies behind what is one of Europe's most decentralised Federal political systems.
"It's a similar situation in all of southern Europe, and really just forms part of the Latin culture," he said.
ANTI-FRAUD MEASURES
In an attempt to raise extra cash from the dodgers, the conservatives have banned cash transactions worth over 2,500 euros, and introduced a fiscal amnesty for offshore accounts, amongst other measures.
But, while all agree more efforts must be made to reduce non payment, few believe they can realistically increase revenue sufficiently to help cut the deficit.
According to estimates by economist at Washington University in St. Louis Michele Boldrin, raising Spain's tax collection rate to that of Sweden's would only increase revenue by two or three percentage points of GDP, or by around 30 billion euros.
"This alone wouldn't fix our deficit problems and could take up to a decade to achieve," Boldrin said.
The government would have to concentrate on small - as much as large-scale fraud - where techniques on keeping your earnings from falling in to the hands of the Treasury differed.
"(For larger fortunes) the problem is more tax avoidance than evasion. Whether it's illegal, paralegal or on the borders of legality, many can reduce tax debts substantially using available loopholes," he said.
The fiscal amnesty meanwhile has been broadly criticised for sending the wrong message to law-abiding tax payers and, possibly worse, for not raising the money it's designed to.
The amnesty aims to raise up to 2.5 billion euros by offering a low tax rate of 10 percent to anyone declaring hidden income but it has seen less than 1 percent of that after only 115 people legalised undeclared funds, according to Gestha.
The Treasury did not want to comment on this figure and said it will give a full breakdown when the amnesty period is over end-November. the height of Spain's construction boom it was not uncommon for a briefcase of 500-euro bills to be offered as part payment for property by buyers striving to save on taxes.
That culture of ducking the taxman is deeply-engrained in Spain and is becoming a headache for Prime Minister Mariano Rajoy, threatening to force him to go back to the drawing board on budget plans which are crucial to the future of the euro.
The government made a 3-point hike of valued-added tax the main thrust of the 65-billion-euro package of spending cuts and tax increases put on the table in July. The VAT rise alone was designed to raise 22 billion and put Spain on track to meet its EU-agreed deficit targets until 2014.
But in a country where undocumented cash transactions with restaurants, garages and builders are the norm and more than 18 billion euros a year is believed to be lost due to VAT fraud, it looks far too optimistic.
"In
Germany, if you saw your neighbour defrauding the tax office, you'd report them. In Spain, they are heroes," one small businessman told Reuters standing in his
company warehouse in the southern city of Seville, asking to remain anonymous.
Almost one in four taxable euros is hidden from the authorities in Spain, according to tax inspectors union Gestha.
Those are vital sums for a government fighting to deflate one the
euro zone's highest deficits and facing a 20 percent drop in revenue since the 2008 financial crash; the Treasury collected only 161 billion euros in tax last year, compared to around 200 billion euros in 2007.
Some of that is naturally due to the stagnation of Spain's economy over the period, but off-the-books trade has also risen as
businesses and consumers seek to squeeze costs or the price they actually pay for goods and services.
The black economy is now worth around 23 percent of the gross domestic product, compared to an average of around 13 percent across the European Union's 27 members and that may only increase as Spain's economy sinks deeper into recession.
"Sadly, the current economic situation means fraud is on the rise, while the measures will just lead to new kinds of fraud," says Gertrudis Alarcon, head of the Spanish arm of tax consultancy i2 Integrity, authors of a new report on the black economy.
"The new measures ... won't necessarily produce the revenue increase hoped for."
ACCEPTED
Transparency International ranks Spain in the middle of Europe's table of most corrupted countries, below
Greece and Italy, but above northern countries many of which are the least corrupt in the world.
Around one in six of all 500 euro notes, the highest euro denominated bill in circulation in the monetary union, were issued by the Bank of Spain, evidence of their use in off-the-book property acquisitions.
More than 15 percent of drivers don't ask for, or are not offered, a receipt for work done by a mechanic in order to knock VAT off the bill, according to one study by industry associations GT Motive and Cetraa.
In hotels and restaurants, it has been a normal
practice for years to have a "caja B", a parallel cash register where undeclared revenues are kept. People talk openly about it and restaurant owners say upping VAT will only increase the financial pressure that makes them do it.
"We have no other choice than to issue some bills with the new VAT and others in 'caja B'," said Alfredo Gomez, who owns a restaurant in the centre of Madrid.
Jesus Lizcano, head of Transparency International in Spain, says the country's position on the corruption tables slipped during the years of the property boom, precisely because of transactions related to housing speculation, but has stabilised in the last few years.
But he says tax avoidance also reflects the same underlying distrust of central authority in Spain that lies behind what is one of Europe's most decentralised Federal political systems.
"It's a similar situation in all of southern Europe, and really just forms part of the Latin culture," he said.
ANTI-FRAUD MEASURES
In an attempt to raise extra cash from the dodgers, the conservatives have banned cash transactions worth over 2,500 euros, and introduced a fiscal amnesty for offshore accounts, amongst other measures.
But, while all agree more efforts must be made to reduce non payment, few believe they can realistically increase revenue sufficiently to help cut the deficit.
According to estimates by economist at Washington University in St. Louis Michele Boldrin, raising Spain's tax collection rate to that of Sweden's would only increase revenue by two or three percentage points of GDP, or by around 30 billion euros.
"This alone wouldn't fix our deficit problems and could take up to a decade to achieve," Boldrin said.
The government would have to concentrate on small - as much as large-scale fraud - where techniques on keeping your earnings from falling in to the hands of the Treasury differed.
"(For larger fortunes) the problem is more tax avoidance than evasion. Whether it's illegal, paralegal or on the borders of legality, many can reduce tax debts substantially using available loopholes," he said.
The fiscal amnesty meanwhile has been broadly criticised for sending the wrong message to law-abiding tax payers and, possibly worse, for not raising the money it's designed to.
The amnesty aims to raise up to 2.5 billion euros by offering a low tax rate of 10 percent to anyone declaring hidden income but it has seen less than 1 percent of that after only 115 people legalised undeclared funds, according to Gestha.
The Treasury did not want to comment on this figure and said it will give a full breakdown when the amnesty period is over end-November. the height of Spain's construction boom it was not uncommon for a briefcase of 500-euro bills to be offered as part payment for property by buyers striving to save on taxes.
That culture of ducking the taxman is deeply-engrained in Spain and is becoming a headache for Prime Minister Mariano Rajoy, threatening to force him to go back to the drawing board on budget plans which are crucial to the future of the euro.
The government made a 3-point hike of valued-added tax the main thrust of the 65-billion-euro package of spending cuts and tax increases put on the table in July. The VAT rise alone was designed to raise 22 billion and put Spain on track to meet its EU-agreed deficit targets until 2014.
But in a country where undocumented cash transactions with restaurants, garages and builders are the norm and more than 18 billion euros a year is believed to be lost due to VAT fraud, it looks far too optimistic.
"In
Germany, if you saw your neighbour defrauding the tax office, you'd report them. In Spain, they are heroes," one small businessman told Reuters standing in his
company warehouse in the southern city of Seville, asking to remain anonymous.
Almost one in four taxable euros is hidden from the authorities in Spain, according to tax inspectors union Gestha.
Those are vital sums for a government fighting to deflate one the
euro zone's highest deficits and facing a 20 percent drop in revenue since the 2008 financial crash; the Treasury collected only 161 billion euros in tax last year, compared to around 200 billion euros in 2007.
Some of that is naturally due to the stagnation of Spain's economy over the period, but off-the-books trade has also risen as
businesses and consumers seek to squeeze costs or the price they actually pay for goods and services.
The black economy is now worth around 23 percent of the gross domestic product, compared to an average of around 13 percent across the European Union's 27 members and that may only increase as Spain's economy sinks deeper into recession.
"Sadly, the current economic situation means fraud is on the rise, while the measures will just lead to new kinds of fraud," says Gertrudis Alarcon, head of the Spanish arm of tax consultancy i2 Integrity, authors of a new report on the black economy.
"The new measures ... won't necessarily produce the revenue increase hoped for."
ACCEPTED
Transparency International ranks Spain in the middle of Europe's table of most corrupted countries, below
Greece and Italy, but above northern countries many of which are the least corrupt in the world.
Around one in six of all 500 euro notes, the highest euro denominated bill in circulation in the monetary union, were issued by the Bank of Spain, evidence of their use in off-the-book property acquisitions.
More than 15 percent of drivers don't ask for, or are not offered, a receipt for work done by a mechanic in order to knock VAT off the bill, according to one study by industry associations GT Motive and Cetraa.
In hotels and restaurants, it has been a normal
practice for years to have a "caja B", a parallel cash register where undeclared revenues are kept. People talk openly about it and restaurant owners say upping VAT will only increase the financial pressure that makes them do it.
"We have no other choice than to issue some bills with the new VAT and others in 'caja B'," said Alfredo Gomez, who owns a restaurant in the centre of Madrid.
Jesus Lizcano, head of Transparency International in Spain, says the country's position on the corruption tables slipped during the years of the property boom, precisely because of transactions related to housing speculation, but has stabilised in the last few years.
But he says tax avoidance also reflects the same underlying distrust of central authority in Spain that lies behind what is one of Europe's most decentralised Federal political systems.
"It's a similar situation in all of southern Europe, and really just forms part of the Latin culture," he said.
ANTI-FRAUD MEASURES
In an attempt to raise extra cash from the dodgers, the conservatives have banned cash transactions worth over 2,500 euros, and introduced a fiscal amnesty for offshore accounts, amongst other measures.
But, while all agree more efforts must be made to reduce non payment, few believe they can realistically increase revenue sufficiently to help cut the deficit.
According to estimates by economist at Washington University in St. Louis Michele Boldrin, raising Spain's tax collection rate to that of Sweden's would only increase revenue by two or three percentage points of GDP, or by around 30 billion euros.
"This alone wouldn't fix our deficit problems and could take up to a decade to achieve," Boldrin said.
The government would have to concentrate on small - as much as large-scale fraud - where techniques on keeping your earnings from falling in to the hands of the Treasury differed.
"(For larger fortunes) the problem is more tax avoidance than evasion. Whether it's illegal, paralegal or on the borders of legality, many can reduce tax debts substantially using available loopholes," he said.
The fiscal amnesty meanwhile has been broadly criticised for sending the wrong message to law-abiding tax payers and, possibly worse, for not raising the money it's designed to.
The amnesty aims to raise up to 2.5 billion euros by offering a low tax rate of 10 percent to anyone declaring hidden income but it has seen less than 1 percent of that after only 115 people legalised undeclared funds, according to Gestha.
The Treasury did not want to comment on this figure and said it will give a full breakdown when the amnesty period is over end-November.
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MADRID, SPAIN - JUNE 10: Spanish Prime Minister Mariano Rajoy addresses the media at the Moncloa palace after requesting financial support from European Union ministers yesterday, on June 10, 2012 in Madrid, Spain. The Eurozone loan, to shore up its distressed banks, is thought to be in the region of 100 billion Euros. (Image credit: Getty Images via @daylife)
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