Part of my company's revenue is undeclared: will the buyer take it into account in the valuation, what risk am I taking on, and how do I regularise it before selling?

Quick answer

Capittal's view is that undeclared revenue does not add value in a sale: it takes value away. Buyers price a company on the EBITDA they can verify in the accounts, tax returns and bank statements, and they do not pay for income that cannot be evidenced. That tax history is also a liability that stays inside the company, which the buyer will cover with warranties, price holdbacks or a lower price. The sensible route is to regularise voluntarily before starting the process, ideally one or two financial years ahead, with proper tax advice. The recovered profit then becomes valuable and the risk stops weighing on the negotiation.

Will a buyer pay for income that does not appear in my accounts?

No. In an M&A deal, the price is built on normalised EBITDA taken from the accounts, the VAT and corporate income tax returns and the bank statements. No professional buyer, whether a private equity fund, a family office or a trade buyer, will accept an upward adjustment based on income the seller says exists but cannot document. For their lenders and auditors, anything that is not in the accounts simply does not exist.

Saying in a meeting that "the business earns more than you can see" does not help. It casts doubt on every other figure and usually makes the due diligence tougher.

If I sell the shares, why is it my problem and not the buyer's?

Because in a share deal the company does not change; only its owner does. Tax and social security liabilities from years that are not yet time-barred remain inside the company, and the buyer knows it. The usual response is to shift that risk back to you through one or more of these tools:

• Specific tax representations and warranties, with an obligation to indemnify if an assessment arrives.
• A holdback or escrow of part of the price for the period in which the tax authority can still audit.
• A specific indemnity for risks already identified in due diligence.
• A straight price reduction or, in serious cases, walking away from the deal.

In practice, you end up paying for the liability anyway, but on worse terms and with less room to negotiate.

How far back can the Spanish tax authority look?

The general limitation period for the tax authority to assess is four years under article 66 of Spain's General Tax Act (Ley 58/2003), counted from the end of the voluntary filing period for each tax. That period can be interrupted by actions of the authority or of the taxpayer. Where the amounts are large, criminal law also comes into play, with longer limitation periods. That is why buyers usually ask for tax warranties covering at least the whole open period.

How do I regularise voluntarily, and what does it cost?

The ordinary route is to file supplementary returns for the taxes affected (corporate income tax, VAT and, where relevant, withholdings) before receiving any request from the authority. In that case the late-filing surcharges of article 27 of the General Tax Act apply and no penalties are imposed. Under the wording in force since Law 11/2021, the surcharge is 1% plus an extra 1% for each full month of delay, up to 15% after twelve months, after which late-payment interest is added. The law also provides a reduction of the surcharge if it is paid on time and the conditions are met.

It is a real cost, but a limited and predictable one, very different from a penalty after a tax audit.

What if the amounts are large? Is there criminal exposure?

Yes. Article 305 of the Spanish Criminal Code makes it an offence to defraud the tax authority of more than 120,000 euros in tax per tax and period. For social security, article 307 sets the threshold at 50,000 euros over four calendar years. Article 305 itself provides that a full, spontaneous regularisation, acknowledging and paying the debt before the authority starts any action, excludes criminal liability. If you suspect you could be close to those amounts, do not improvise: get specialist tax and criminal law advice before you move.

What about VAT and wages paid off the books?

Hidden revenue almost always carries uncharged VAT, and often cash payments to staff who have not been registered for social security. These are separate liabilities: VAT is regularised through supplementary VAT returns, contributions through the Social Security Treasury, and there may be employment law consequences with the workforce. In due diligence, a gap between real headcount, payroll and activity is one of the first red flags. Review everything together, not tax by tax.

Does regularising increase the value of my company?

Usually, yes. The recovered profit becomes part of documented EBITDA and can then be valued like the rest. But be careful: the buyer will want to see that level of earnings sustained over time, so the regularised years and the following ones should tell the same story. A single clean year just before the sale reads as an anomaly, not a trend.

What is the next step if I am in this situation?

Start early. The recommended approach is to quantify the liability and regularise one or two financial years before launching the sale, so you reach due diligence with clean accounts and a credible track record. The NRRO group covers the tax and legal advice needed to do it properly. This article is for guidance only and does not replace tax or legal advice on your specific case.

Capittal Transacciones is an M&A mid-market boutique advising deals from 3 to 250 million euros from eight offices across Spain (Barcelona, Madrid, Girona, Lleida, Tarragona, Palma de Mallorca, Zaragoza, and Valencia), part of the NRRO group. Every deal is led directly by a partner, from start to finish. If you are thinking about selling, ask for a free and confidential valuation.