In English Voices From Spain

Independent and broke

Published originally in Spanish. Luis Garicano, Francisco de la Torre. El Mundo

Catalonia lacks a tax authority of its own capable of collecting great taxes. It has neither taxpayers’ data nor a legal code. 

There’s a direct link between the flight of major Catalan companies and Carles Puigdemont’s ‘suspended/reversible’ declaration of independence. It’s true, as many have noted, that the recent relocation of these companies’ main offices can have only a minor effect on tax revenue in a unified state such as Spain. The corporate tax, except in Navarra and the Basque Country, is a state tax collected by the national tax authority, as well as the only great tax whose revenue is not shared with Spain’s devolved regions.

Yet the most relevant consequence of this change has gone unnoticed. Few have realised that this exodus nails the coffin on any possible dream of an independent state.

The reason is rather simple: a state is only viable if it is able to collect taxes in order to finance its expenditure. In the event of Catalan independence, the first measure the regional government would have to take to ensure its authenticity would be to demand that its citizens and businesses pay their taxes.

Such a step would have been difficult enough before last week. Catalonia has no tax office of its own capable of collecting great taxes, i.e. income, corporate, sales and special taxes. The regional government lacks the IT system and the staff, not to mention the legally obtained information necessary to collect them. It also lacks a legal code, which is what sets taxes apart from other coercive payments.

With the flight of Catalan companies, what was already a fanciful dream has become completely impossible. Large businesses are directly responsible for a great deal of tax revenue. Approximately 3,000 companies registered with the Large Taxpayers Central Office, those with a turnover of more than €100 million, account for about 50% of corporate tax revenue, and one third of income tax withholdings and sales tax revenue. In the case of fuel taxes, 90% is collected in Madrid, where the major oil companies have their tax residence — regardless of where their refineries are or where you might fill your tank.

But more important than tax revenue is the information provided by large companies and major banks. Most of the information managed by the central tax authority is provided by large companies. This is the information that goes into draft tax returns and allows the state to force other businesses and professionals, whether they like it or not, to declare their sales and turnover.

Imagine CaixaBank receiving a letter from a new Catalan tax authority, demanding that it hand over its Catalan employees’ withholding taxes. Before the relocation of the bank’s main offices, separatists could dream of a possible conflict of jurisdiction between a purported Catalan legislation and the Spanish one. Now, CaixaBank is a foreign company to this purported legislation. The response would be, ‘Ask our headquarters in Valencia.’ The problem is that even separatists cannot dream of demanding such data, let alone the money, from a company which, from its own perspective, is foreign. They would have to ask the other country’s administration — in this case the Spanish one — to request the information and transfer the money. In a Catalonia signatory to no international conventions or agreements, this is beyond the wildest science fiction.

In short, even if it is only the corporate tax that is paid by large companies, it’s impossible to collect taxes from the rest without at least some cooperation from the former. If one lacks access to their money and information because their main offices are located abroad — in a country with which no conventions have been signed — then most taxes will be impossible to collect. Without large companies, even if the regional government had a tax authority (which it doesn’t), tax collection is impossible.  

Further, the flight of Catalonia’s banks and their observance of Spanish law means any account set up by the regional government to collect taxes can be blocked or shut down with just an administrative letter of authorization.

Relocating their offices is not that simple for smaller companies. If subjected to the simultaneous demands of two different administrations intending to collect taxes from them, they would by and large have to file for bankruptcy. For these companies, it’s not as easy as moving their activity to one of their ‘other’ offices, because they have no such thing. If they want to follow in the steps of the large companies to skirt the enormous legal uncertainties they face, they have no choice but to physically leave.

Indeed, this exodus is already underway. The longer this period of ambiguity and legal uncertainty drags on, the larger the number of companies that will be forced to leave. In the middle and long term, high-paying staff, small services companies and economic activity in general will gradually abandon Catalonia. This makes us all poorer, but it will especially impoverish the Catalan people.

It’s high time this madness ended. The independence process is a happening with only one viable plan: the Leninist dictum ‘the worse, the better’, breaking everything, impoverishing everyone and sowing discord among Catalans to force a supposed negotiation. It’s like the separatists are saying, ‘We love Catalonia so much we want to see it destroyed’. This path is sheer folly and must stop now.



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