Methods Used to Detect Tax Fraud

The Spanish Tax Agency (AEAT) combines advanced technology, traditional inspections and international cooperation to combat tax fraud. Digitalisation and the use of Big Data and artificial intelligence have strengthened its detection capabilities, reducing the scope for tax evasion and avoidance.

1. Technology and Big Data tools

The AEAT has introduced advanced technologies to analyse large volumes of data and identify suspicious patterns.

• SII (Immediate Supply of Information on VAT): collects invoicing data from large companies in real time, reducing opportunities for VAT fraud.
• Form 720 and monitoring of assets abroad: taxpayers must declare assets held abroad, enabling the AEAT to detect undeclared assets.
• Analysis of inconsistencies using AI algorithms: data from different sources (banks, real estate agencies, Social Security, etc.) are compared to detect discrepancies.
• Large-scale data screening: the AEAT cross-checks information from various databases to identify inconsistencies in tax returns.

2. Reviewing tax returns and cross-checking information

The Spanish tax system allows automatic data matching across different public administrations and private sources.

• Banking data: income and bank transactions are compared with personal income and corporate tax returns.
• VAT monitoring: discrepancies are analysed between the VAT declared by businesses and the VAT claimed as deductible by their customers.
• Income and wealth: the authorities check whether a taxpayer’s declared income and assets are consistent with their lifestyle.
• Third-party reports: information from customers and suppliers (forms 190, 347 and 349) is used to identify undeclared income.

3. Artificial intelligence and machine learning tools

The AEAT has improved its detection capabilities through artificial intelligence and machine learning, enabling it to:

• Identify anomalous patterns in transactions and invoicing.
• Predict fraud based on the histories of taxpayers with prior irregularities.
• Analyse business networks to detect shell companies or fictitious invoicing.

4. Inspections and direct enforcement action

When irregularities are detected, the AEAT can act through various procedures:

• On-site inspections: audits of businesses and individuals whose activities are considered suspicious.
• Requests for information: requests for documents to verify income and expenses.
• Searches and seizures: in serious cases, assets or bank accounts may be seized.
• Limited-scope reviews: examination of tax returns where there are indications of errors or fraud.

5. International cooperation and monitoring of tax havens

Spain participates in international tax information exchange networks:

• Automatic Exchange of Information (CRS and FATCA): makes it possible to obtain information about Spaniards’ bank accounts abroad.
• Tax-haven lists: businesses and individuals operating in low-tax jurisdictions are monitored.
• Cooperation with the OECD and the EU: measures target aggressive tax planning by multinational companies.

6. Digital tax-fraud control tools

In response to the growth of the digital economy, the AEAT has developed specific strategies:

• Cryptocurrency monitoring: transactions involving Bitcoin, Ethereum and other cryptocurrencies are tracked through Form 721.
• Online platform reporting: platforms such as Airbnb, Wallapop and Amazon are required to report their users’ income.
• Monitoring influencers and content creators: income from social networks and platforms such as Twitch and YouTube is analysed.

7. Tackling employment and invoicing fraud

• Monitoring cash payments: cash payments over €1,000 are prohibited in transactions between businesses.
• False invoices: schemes involving the issuance of false invoices to inflate deductible expenses are identified.
• Underground economy and undeclared employment: inspections target high-risk sectors such as hospitality, construction and retail.