About the Shakira Tax Fraud Cases in Spain
Unfortunately, it seems like the tax problems for Shakira in Spain have gone from bad to worse. It turns out that the Spanish Tax Authorities are preparing a new tax fraud case against the global entertainer. It is important to note that Shakira has not been convicted of any crime and that these are mere allegations. Concerning the allegations against Shakira, the Spanish government takes the position that Shakira should be subject to taxes on her worldwide income as a resident of Spain. Meanwhile, Shakira takes the position that since she did not reside in Spain sufficiently to be considered a Spain resident in those tax years, she should not be subject to taxes on her worldwide income — but rather on her Spanish-sourced income. Let’s briefly walk through what the government’s position is as to why Shakira should face tax fraud charges.
Worldwide Income Taxes in Spain
Unlike the United States tax system, which follows a Citizenship-Based Taxation (CBT) tax model, the tax laws for individuals in Spain on personal income mirror that of many foreign countries. In general, Taxpayers are not taxed on their worldwide income by this Spanish tax authority unless they are considered to be residents of Spain. Thus, just because a person is a citizen of Spain does not mean that Spain has the opportunity to tax all of the person’s worldwide income. Rather, the individual must be a resident of Spain for a certain amount of days (and meet various requirements) to be subject to a worldwide income tax. To compare, in the United States, with CBT it means if you are a U.S. citizen or resident — even if you do not reside in the United States — you are typically subject to US tax on your worldwide income, unless an exception, exclusion, or limitation applies.
NRIT vs PIT
In Spain, the tax rules are commonly referred to as non-resident income tax (NRIT) and personal income tax (PIT). When a person is a non-resident of Spain, they are only subject to tax and Spain on their Spanish-sourced income. Conversely, when a person is considered to be a resident in Spain, they are taxed on their worldwide income at progressive tax rates similar.
Where was Shakira’s Primary Residence at this time?
One of the main contentions by the government in Spain is that Shakira’s primary residence was in Spain and therefore she should be subject to tax in Spain on her worldwide income. In essence, they are claiming that Shakira spent more than half the year in Spain and therefore is subject to PIT and not NRIT (further alleging that traveling for her touring may not be sufficient to avoid PIT). Issues involving whether or not the home was her primary residence, where her family resided, and where the focus of her economic interests will all impact whether Spain was considered her residence during this time.
* It should be noted that since the government is seeking an 8-year sentence, this can put Shakira in a precarious position since the two-year incarceration exception for first-time tax offenders may not apply.
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