In a court order issued on November 7, 2014, in an appeal against an order for an abbreviated trial, the Provincial Court of Palma de Mallorca analyzed the participation of the quotaholders of companies in tax fraud and money-laundering within the companies. The facts investigated which could constitute tax fraud and money-laundering consist of the use of a scheme of companies to simulate costs higher than those actually generated and so conceal income arising from the companies’ commercial activities, with the relevant tax savings. Money-laundering would take place in the attempt to use the tax money saved in order to give the appearance of legality to the funds. The two accused, the presumed main perpetrators of the crimes, were quotaholders and directors of several of these companies and coordinated their actions through their companies for the purposes indicated. These two quotaholders’ wives were also indicted: the investigating judge saw indications that they may have cooperated in the commission of the crimes. Though in both cases the accused wives were quotaholders of some of the companies, only one of them worked in any of the companies: she was in fact a director of some of them. The defense counsel of both the accused wives appealed the change of the investigation into an oral hearing. In the ruling on the appeals filed, the Provincial Court clearly distinguishes between the participation of the wife who held and exercised positions of responsibility in the scheme of companies and the participation of an accused who only held quotas in some of the companies but did not take part in either management or administration. The first of the accused wives was in charge of human resources of some of the companies. It is deemed then that there are well-founded indications that she could have known that the companies were declaring fictitious employees in order to gain tax advantages, such as the freedom to amortize. She was also involved in sending and receiving the billing issued by other fiduciary companies. The Provincial Court confirms the accusation against this wife for tax fraud and money-laundering, as it sees that she and her husband agreed and therefore shared in the willful misconduct to keep the money presumably embezzled, to be laundered subsequently, as can be deduced from the attempts to conceal its origin and pertinence. The second accused wife was a quotaholder, with her husband, in one of the companies in the scheme and held a position on the Board of Directors (merely decorative, in any event) and never took part in the management of any of the companies. Nevertheless, in the case under consideration, based on a report of the Tax Agency, the Provincial Court held that the company of which the two wives were quotaholders was a shell corporation without any business structure, and its purpose was to channel the husband’s income. In the Court’s opinion, the company could have been created as a one-person affair, but the fact that the two spouses held equal proportions of its capital indicates that there was an agreement between them so that half of the husband’s income would be for the wife. Therefore, the Court concludes that “what is behind this shell is a marriage which abuses a company in order to obtain tax advantages and at the same time amend their economic regime (making it community property).” The wife’s possible criminal liability does not lie in her status as quotaholder of the company, but in the risk created in using and owning a stake in a family-owned business which is a mere shell corporation. The Court also states that the wife’s holding a stake in the company sought to use her as a “tax shield” to keep the companies from being investigated by the Tax Agency, supported by her notoriety and influence. Objectively speaking, both wives were accomplices in the fictitious companies and contributed to and benefited from the tax fraud: the shell corporations’ cash was distributed among all the quotaholders without declaring the distribution of a dividend in their income tax. Furthermore, the scheme of companies operated as well through foundations, which are prohibited from distributing dividends, and the shell corporations were used to channel the foundations’ profits and distribute them among the quotaholders. The Court holds that the wives may have acted with an indirect intention, since holding a stake in the shell corporations meant accepting a probable risk that tax fraud was being committed through these companies by concealing income to be declared and deducting expenses unduly (for example, the wives would charge family expenses on the company’s credit cards). In reference to money-laundering, of which the second wife is also accused, the Provincial Court disagrees with the investigative judge and holds that the amount spent by the wife as a consequence of tax savings is of negligible importance; likewise, according to the Court, it cannot be concluded that the purpose of the expense (family expenses) was to launder or conceal the money from the tax payment not made. Thus, since the money was spent on family expenses, the Court holds that the requirements for money-laundering are not given: the money was not used to conserve or transform the goods received, but was a simple expense or consumption of services not particularly luxurious, but rather normal or ordinary. In this case, the disposal of the tax money not paid would exhaust the crime of tax fraud. By Víctor Mercedes, Enrique Silvente and Cecilia González (Baker & McKenzie Barcelona)
Victor Mercedes co-heads Baker & McKenzie's Litigation & Insolvency Practice Group in Barcelona and has more than 12 years of legal experience. He is also an associate professor at University Pompeu Fabra, teaching business litigation, corporate and arbitration law in different business programs. Mr. Mercedes has authored and co-authored various publications on procedural and public law, tax and administrative law. Prior to joining the Firm, Mr. Mercedes worked in the State Advocate-General’s Office in Tarragona and later served as State Advocate in Barcelona during which time acted for over 2000 disputes before different courts (Civil, Commercial, Criminal and Administrative). He was also a member of the National Administrative Observatory for Tax Crime, Contraband and Punishable Insolvencies of the Spanish Ministry of Economy and Finance. He is ranked and recommended as a leading lawyer in dispute resolution, restructuring and insolvency and corporate crime in Best Lawyers, Chambers Europe (2012,2013,2014) and Chambers Global (2012,2013,2014) and in Legal 500.