The immigration phenomena has meant that many people who lack official papers are working clandestinely without declaring their earnings to the Tax Authorities or the Social Security. This has important consequences:

Illegal workers do not pay social security contributions and neither do their employers.
They also do not pay anything to the Tax Authorities for the income they have received.
Because illegal workers are generally paid less money this creates unfair competition with the people and companies who are working legally.
They do not have any labour rights or protection in the Social Security System.
Any accidents in the workplace involving illegal workers can result in a prison sentence for the persons who contract them illegally.

Many foreign homeowners in Spain do not pay taxes on the incomes they receive, neither in Spain nor their own country. For example many of them use their property for part of the year and the rest of the time it is rented either through an agency or by themselves on the Internet. This income is difficult to conceal as:

The Tax Authorities are focusing their attention on economic activity that is carried out on the Internet, for example houses that are rented to tourists etc…
Water and electricity consumption shows whether houses are being rented or not.
Through the Land Registry it is possible to find out who is the owner of any property. Any person has access to this information in the Land Registry not just the Tax Authorities
Town Halls also have a register of properties and their owners. Many people do not even know that they must pay an annual municipal tax to their Town Hall.

The national office of tax inspection also aims to get other European countries to collaborate against tax havens and their hidden or undeclared money. An investigation carried out in seven countries of the European Union revealed that the black economy accounted for more or less 15%. In some countries such as Spain and Italy, this figure is between 15-20%. It is because of this that the national office of tax inspection focuses its investigations on all cases where there is undeclared money in the economy. International connections and coordination with other countries on the exchange of relevant information is fundamental in order to discover tax frauds. Apart from this, a European Community normative is being created to help combat this.

Many companies only declare to the Tax Authorities a part of the income that they have generated. The Tax Authorities is aware of the commercial possibilities that are open to them due to the development of Internet. The development of business via Internet has meant that tax inspections centre their focus on international business exchanges.

The community tax IVA, which in the Canary Islands is known as IGIC, has meant that important undeclared incomes can be discovered, above all those related to the Tourism sector. An exchange system known as VIES ( European VAT Exchange System) has been created to fight against tax evasion.

The Spanish Tax Authorities are currently involved in a process of modernisation which looks to control not only within in its own Spanish borders but also with the collaboration of other European countries, what is known as the ‘black economy’.