14 March 2019.- The Tax Agency has launched a major nationwide operation against tax fraud in the furniture manufacturing and marketing sector. Operation "Iroko" marks the start of inspections on a total of 119 companies and 38 related individuals and administrators of the companies being investigated, starting with the entry and search of 112 premises across the fifteen common territory Autonomous Communities in Spain.
The scheme, being rolled out by the Agency, will affect both furniture factories and retail and wholesale traders across the sector, in: Andalusia (34), Aragon (6), Asturias (3), Balearic Islands (1), Canary Islands (6), Cantabria (1), Castilla-La Mancha (1), Castilla y León (5), Catalonia (20), Extremadura (2), Galicia (5), La Rioja (1), Madrid (6), Murcia (5) and the Community of Valencia (16). Activities began when the premises of the companies under inspection opened, and they were attended by Tax Inspectors and Data Audit Units (UAI), with the aim of gaining direct access to accounting documentation and information, as well as auxiliary information, including IT systems used for data processing.
Previous experiences of operations has shown that the actual attendance of officials at company premises or residences where economic activity is taking place and business management is carried out leads to a more effective fight against the shadow economy. Due to being an action of an administrative nature, the entry and search operations do not entail arrests.
Since 2013, the furniture market has experienced five consecutive years of growth, linked to a property market boom. In 2017 the sector generated a turnover of more than 4.3 billion euros and all manufacturing subsectors had increased revenues.
In this context, the Tax Agency's Financial and Tax Inspection Department carried out overall analysis of the furniture sector, cross-referencing data and analysing companies working in wholesale and retail manufacturing and marketing.
The study included an analysis of Corporation Tax returns: gross margins on sales, net margins, procurement margins, cash transactions (mainly in bank accounts held by the companies), and card payments, as well as other indicators of financial capacity observed relating to administrators, account authorities, or partners.
Irregularities in inventories
Previous inspections carried out in the furniture sector, both in wholesale and retail manufacturing and marketing had also exposed certain distortions in sales and inventories which provided clear proof of undeclared sales.
Based on this analysis and previous experiences, Agency investigators observed that certain companies were manipulating their accounts in terms of their inventories, with the aim of declaring modest levels of profits, thus leading to them concealing hidden sales. There were also indications that the group of companies under investigation today could have been using masking software, allowing them to manipulate both inventories and actual sales.
This has all been behind the design of operation "Iroko", coordinated by the Tax Agency's Inspection Department, with more than 400 Inspection Department civil servants taking part in the entry and search operation, including UAI staff, National Fraud Investigation Office staff, and with additional support of the police and 120 Agency Customs Surveillance officers.
Working towards improved voluntary compliance
Along with the regularisation of tax fraud that has finally been actioned, all the sectoral activities put into place by the Tax Agency in recent years have a second goal. Namely, to give the relevant sectors deterrent messages, in an attempt to foster a change in attitude among business owners, to make them rethink their activities and improve their subsequent tax compliance during the voluntary payment period, in line with the general guidelines of the 2019 Tax and Customs Control Annual Plan. The development of future tax control plans - with a focus on repeated avoidance behaviours - will depend on the shift in attitudes of business owners, said the Treasury.