In brief
- An audit is not criminal proceedings, but what is said, handed over or consented to during it may end up in a criminal case.
- The company must provide the documents requested. That does not oblige anyone to give improvised explanations or an individual to confess to facts.
- To enter protected premises, including the registered office, the Tax Agency needs informed consent or a court authorisation. A mere failure to object is not consent.
- The tax offence starts at €120,000 per tax period. The social security offence starts at €50,000, adding up four calendar years.
- Once the start of the audit has been notified, the regularisation that avoids the offence is no longer available. A reduced sentence still is, if the debt is paid and the facts admitted in time.
Being audited by the Tax Agency (Hacienda) or the Labour and Social Security Inspectorate does not mean that the company is under criminal investigation. Many audits end with no action, an assessment, an infringement report or an administrative penalty. However, certain facts may go beyond that sphere and lead to a criminal complaint (denuncia or querella).
That is why the audit stage matters. The explanations given, the documents handed over and the way in which entry is authorised may affect any later criminal proceedings.
An audit is not yet criminal proceedings
Tax inspectors may examine returns, accounts, invoices, records, computer files and any other information relevant for tax purposes. The company must attend to the officials and provide the documents requested (Article 142 of the General Tax Act).
The Labour and Social Security Inspectorate may also visit workplaces without notice, require the employer or its representatives to appear and examine contracts, payslips, working-time records, contribution documents and electronic files. It may also adopt interim measures to prevent evidence from disappearing or being altered (Article 13 of Act 23/2015 on the Labour and Social Security Inspection System).
The duty to cooperate does not mean that the employer must improvise statements, admit unfavourable facts or answer, without advice, questions that go beyond the documents requested. The company must cooperate in an orderly way, but its legal advisers should control the scope of the audit from the outset.
Entry to premises and access to devices
The rules are not the same for both inspectorates. To enter business premises, the Tax Agency needs an entry order from the competent administrative authority unless the company consents (Article 142(2) of the General Tax Act). Where the premises are the taxpayer’s constitutionally protected home, which may also be the company’s registered office or certain of its premises, consent or a court authorisation is required (Article 113 of the General Tax Act). The Labour Inspectorate may enter workplaces freely and without notice. It only needs express consent or a court authorisation where the workplace is also the home of an individual (Article 13(1) of Act 23/2015).
Before signing any consent, check which areas it covers, which documents and devices may be examined and whether there is an administrative or court authorisation. Valid consent requires prior and express information, and a mere failure to object does not amount to consent. The Constitutional Court annulled a tax inspectors’ entry into a company’s registered office because its directors were not told that they could object, nor that the inspectors were carrying an administrative authorisation, which on its own did not permit entry. The evidence derived from that entry was tainted (Constitutional Court Judgment 54/2015 of 16 March).
The option of refusing consent to enter protected premises must not be confused with a general right to prevent the audit. An unjustified refusal to provide documents or to allow lawfully ordered steps is an obstruction offence (Article 203 of the General Tax Act and Article 50 of the Social Order Infringements and Penalties Act). The right response is to record any objection where appropriate and seek advice immediately, not to confront the officials or to destroy, alter or hide information.
The right not to incriminate oneself: its real scope
The right not to testify against oneself and not to plead guilty is one of the guarantees of Article 24(2) of the Spanish Constitution. During an administrative audit, however, it does not operate as a general right to remain silent in the face of any request for documents.
In practice, the company will normally have to hand over the accounts, books, invoices, employment records and other documents relevant for tax or social security purposes that are lawfully requested. What should be avoided are spontaneous explanations, improvised legal assessments and answers by an individual that could become a personal confession.
Particular care is needed with agreed assessments (actas de conformidad). Signing one has consequences. However, the Constitutional Court has held that agreement given in one procedure in order to avoid criminal proceedings cannot be used as a confession in a different procedure in which disagreement was expressed (Constitutional Court Judgment 54/2015 of 16 March).
The distinction between the company and its directors matters. Documents requested from the company may later be used in criminal proceedings, although that does not automatically mean that a director has confessed to an offence. The company should appoint a single point of contact, ask for the steps taken to be recorded in formal minutes (diligencias) and consult a criminal lawyer as soon as expressions such as “evidence of an offence”, “intent”, “sham”, “false invoices”, “undeclared work”, “double accounting” or “fraud” appear.
If the Tax Agency sees a possible tax offence
A tax offence may arise where the tax evaded exceeds €120,000, an amount calculated for each tax or return period, without prejudice to other requirements and to the aggravated forms (Article 305 of the Criminal Code). The Tax Agency may send the file to the Public Prosecutor or refer the matter to the court. It may also issue a tax assessment linked to the offence, separating the elements allegedly constituting an offence from those that do not (Article 305(5) of the Criminal Code and Article 250 of the General Tax Act).
The proposed assessment linked to the offence must allow the taxpayer 15 calendar days to make representations (Article 253(1) of the General Tax Act). That assessment cannot be appealed like an ordinary tax assessment: the final amount linked to the offence is determined by the criminal court (Article 254(1) of the General Tax Act). Criminal proceedings do not stop collection either. Suspension must be requested from the court and, as a rule, requires security. Only exceptionally may security be waived, in whole or in part, where enforcement could cause irreparable or very serious harm (Article 305(5) of the Criminal Code).
If the risk comes from social security
An offence against the social security system may arise where the contributions evaded, the improper refunds or the improper deductions exceed €50,000. Unlike the tax offence, that figure is calculated by adding up the amounts evaded over four calendar years (Article 307(1) and (2) of the Criminal Code). The mere filing of contribution returns does not in itself rule out fraud if other facts prove it.
The Inspectorate may issue assessment and infringement reports, and the authorities may continue assessing and collecting the debt even while criminal proceedings are pending. The court may only suspend the administrative procedure if security is provided or, exceptionally, waive security in whole or in part where enforcement could cause irreparable or very serious harm. The administrative assessment will ultimately be adjusted to the outcome of the criminal proceedings (Article 307(4) of the Criminal Code).
Is it still possible to regularise?
The regularisation that bars criminal prosecution requires the full debt to be acknowledged and paid before the start of the audit or investigation has been notified (Articles 305(4) and 307(3) of the Criminal Code). Once the audit has been notified, that route is therefore closed for the debts it covers.
What remains open is a substantial reduction in sentence. The courts may impose a penalty one or two degrees lower if, within two months of being summoned by the court as a suspect, the debt is paid and the facts are admitted before the court (Articles 305(6) and 307(5) of the Criminal Code). The decision whether to pay, admit or defend should be taken once the criminal strategy has been defined.
First recommended steps
Faced with an audit carrying possible criminal risk, the company should channel all communication with the inspectors through one person, keep a copy of every request and set of minutes, secure the integrity of its files and prevent any retrospective changes to the accounts. It is also advisable to draw up a timeline of the facts and to keep the technical tax or employment response separate from the criminal strategy.
An audit may be the beginning of a criminal problem. Approaching it from day one with a criminal law perspective helps protect the rights of the company and its directors, avoid unnecessary admissions and prepare the defence with a consistent strategy.
Frequently asked questions
Do I have to let the inspectors in?
The Labour Inspectorate may enter workplaces without notice. For business premises, the Tax Agency needs an entry order unless the company consents. For constitutionally protected premises, including the registered office, it needs informed consent or a court authorisation (Articles 113 and 142(2) of the General Tax Act). Objecting to entry into protected premises is not the same as obstructing the audit.
Can I refuse to answer during an audit?
The company must provide the documents lawfully requested. But nobody is obliged to testify against themselves or to plead guilty (Article 24(2) of the Spanish Constitution): avoid spontaneous explanations and take advice before answering questions that go beyond the documents.
When can an audit end in a criminal offence?
For tax, when the tax evaded exceeds €120,000 per tax period (Article 305 of the Criminal Code). For social security, when the amount evaded exceeds €50,000 over four calendar years (Article 307 of the Criminal Code). Beyond the figure, there must be fraud: owing money is not enough.
Can I regularise once the audit has started?
Not so as to rule out the offence: that regularisation must take place before the start of the audit is notified (Articles 305(4) and 307(3) of the Criminal Code). A sentence one or two degrees lower is still possible if the debt is paid and the facts admitted within two months of being summoned by the court as a suspect (Articles 305(6) and 307(5) of the Criminal Code).
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