Histories of Tax Evasion, Avoidance and Resistance Edited by Korinna Schönhärl, Gisela Hürlimann and Dorothea Rohde First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 selection and editorial matter, Korinna Schönhärl, Gisela Hürlimann and Dorothea Rohde; individual chapters, the contributors The right of Korinna Schönhärl, Gisela Hürlimann and Dorothea Rohde to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. The Open Access version of this book, available at www.taylorfrancis. com, has been made available under a Creative Commons AttributionShare Alike 4.0 license. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Schönhärl, Korinna, editor. | Hürlimann, Gisela, editor. | Rohde, Dorothea, editor. Title: Histories of tax evasion, avoidance and resistance / edited by Korinna Schönhärl, Gisela Hürlimann and Dorothea Rohde. Description: 1 Edition. | New York, NY : Routledge, 2023. | Series: Financial history | Includes bibliographical references and index. Identifiers: LCCN 2022035182 (print) | LCCN 2022035183 (ebook) | ISBN 9781032366739 (hardback) | ISBN 9781032366746 (paperback) | ISBN 9781003333197 (ebook) Subjects: LCSH: Tax evasion. Classification: LCC HV6341 .H67 2023 (print) | LCC HV6341 (ebook) | DDC 364.1/338--dc23/eng/20221020 LC record available at https://lccn.loc.gov/2022035182 LC ebook record available at https://lccn.loc.gov/2022035183 ISBN: 978-1-032-36673-9 (hbk) ISBN: 978-1-032-36674-6 (pbk) ISBN: 978-1-003-33319-7 (ebk) DOI: 10.4324/9781003333197 Typeset in Bembo by KnowledgeWorks Global Ltd. Contents List of tables and figures Contributors Acknowledgments The Ability and Intention of Not Paying Taxes in History: Some Introductory Observations viii ix xv 1 KORINNA SCHÖNHÄRL, GISELA HÜRLIMANN AND DOROTHEA ROHDE PART I Negotiating Lower Taxes, or No Taxes at All 17 1 Tax Evaders in Classical Athens? Attacks and Strategies of Defence in Attic Oratory 19 LUCIA CECCHET 2 The Alcabala Sales Tax Administration: Avoidance Strategies in Bourbon Colonial Mexico (1723–1754) 37 RODRIGO GORDOA DE LA HUERTA 3 Imperial Taxation and Local Agency: Tax Avoidance and Tax Resistance in Seventeenth- and Eighteenth-century Germany (Saxony and Thuringia) 51 RACHEL RENAULT PART II Resisting and Opposing Taxes 4 Not Paying Taxes in Roman Egypt KERSTIN DROß-KRÜPE 69 71 vi Contents 5 “Taxing” the Tribes in the Ottoman Empire: The Case of the Tribes of Mutki (1839–1908) 84 YENER KOÇ 6 Tax Evasion as a Means of Resistance in Occupied Greece, 1941–1944 99 VASILIS G. MANOUSAKIS 7 Women’s Protests against Colonial Taxation in the Eastern Provinces of Nigeria 115 DANIEL OLISA IWEZE PART III Avoiding Tax Avoidance: Counter Strategies by State Authorities 8 Verbally Resisting Taxes in Medieval England: Arguments, Anger and the (In)Ability to Prevent Tax Avoidance in the Reign of Henry III 135 137 CHRISTINA BRÖKER 9 How to Create a Taxpaying Spirit: A Transnational Examination of an US American and a Western German Tax Education Film in and after World War II 154 KORINNA SCHÖNHÄRL 10 “Exceptional” Tax Amnesties: A Common Swiss Way of Fighting Tax Evasion in the Twentieth Century 168 ANIKO FEHR AND SYLVAIN PRAZ PART IV Sparing the Rich and Companies from Taxation? 185 11 “There Is No Wrongdoing in Avoiding Taxes”: The Land Union’s Tax Resistance in Great Britain (1900–1930s) 187 ANNA GROTEGUT 12 Populist Ambivalence to Tax Evasion: The 1962 Campaign against Dividend and Interest Withholding in the US STEVEN A. BANK 203 Contents vii 13 “I Am a Professional Tax Evader”: Multinationals, Business Groups and Tax Havens, 1950s to 1980s 221 BORIS GEHLEN AND CHRISTIAN MARX 14 Tax System Credibility vs. Banking System Reputation?: Tax Evasion from Sweden to Switzerland in the Early 1970s 240 THIBAUD GIDDEY AND MIKAEL WENDSCHLAG Personal Names Index Subject Index 257 259 2 The Alcabala Sales Tax Administration Avoidance Strategies in Bourbon Colonial Mexico (1723–1754)1 Rodrigo Gordoa de la Huerta 2.1 Introduction From the late sixteenth century until the first decades of the nineteenth century, the sales tax known as the alcabala was one of the most important revenue sources of Spanish America.2 This fiscal instrument was imposed on all mercantile transactions, mainly on sales and barters of European and Asian goods at a tax rate that shifted from an original 2% – established in 1575 on all transactions – to a 6% fixed rate by the 1630s.3 Due to the impact of the alcabala on most of the commercial activities in all cities, towns and villages of Colonial Mexico, and the absence of a customs system or centralised administration by the Spanish royal treasury, Spanish merchants controlled the sales tax administration by signing tax farming contracts to reduce tax payments. Other strategies of fiscal reduction or evasion existed, as discussed below.4 These practices have so far not been comprehensively studied by Mexican or Spanish historiography. Instead, there are a number of specific studies on the sales tax administrations in Mexico City (controlled by a powerful merchant elite represented by a traders’ guild) and in Puebla.5 There are also some monographic studies about tax fraud and its judicial consequences in Mexico City.6 Overall, we have an incomplete understanding of the structure and function of the sales tax administration before the Bourbon Reforms from the late eighteenth century, as the existing studies have focused on general income trends and on the relation between tax farming and the interests of local merchant and mining elites. Otherwise, research has focused on the 1 This research was supported by public funds from the Mexican state, particularly the Fondo Sectorial de Investigación para la Educación (Proyecto “Gobierno y administración de la Real Hacienda de Nueva España, siglo XVIII” A1-S-18810) of the Consejo Nacional de Ciencia y Tecnología (CONACYT) (Mexico). 2 Garavaglia and Grosso (1987, 6). 3 Sánchez Santiró (2013, 132–135). 4 Valle Pavón (1999). 5 Valle Pavón (1997); Celaya Nández (2010). 6 Schell Hoberman (1991); Bertrand (1999). DOI: 10.4324/9781003333197-4 38 Rodrigo Gordoa de la Huerta origin of New Spain’s administrative structure in the late seventeenth up to the eighteenth century.7 In contrast and in addition to the existing literature on Colonial Mexico’s tax administration and on tax fraud in Mexico City, this chapter aims to offer a comprehensive analysis of the main strategies used by taxpayers to reduce or avoid the alcabala during the first half of the eighteenth century. This period was in between the Habsburg reign in Spain and Spanish America during the seventeenth century, and the transition into Bourbon rule. The chapter begins with a description of the origin, tax base and the application of the alcabala system in Colonial Mexico, in order to understand why practices to avoid, evade or reduce its payment had important economic, social and political implications. Second, it reflects on the establishment of the first administrative structures in Colonial Mexico based on a mixed system composed of royal treasuries, accounting offices and courts, and a great diversity of tax collectors: tax farmers, district judges and royal officers.8 The last section of the chapter is a concise analysis of some tax avoidance strategies, mainly legal and judicial practices based on a casuistic legal system that included tax disputes. 2.2 The Alcabala Sales Tax: Origin, Tax Base and Its Application in Colonial Mexico The alcabala sales tax was established in 1323 as a temporary contribution to finance the Castilian Crown’s war expenses, and was integrated as a regular part of the royal treasury in the fourteenth century. This sales tax was levied at a 10% rate on the sale, barter and movement of merchandise, with a broad range of exemptions concerning food and other goods (weapons, books, riding horses, etc.).9 In 1522, during the first stage of Spanish expansion into the continental region of the so-called Indies, Emperor Charles V gave the Spanish settlers a royal exemption from the alcabala payment.10 However, during the rule of King Philipp II, the Spanish Crown suffered a severe financial and political crisis which was accentuated between 1568 and 1571.11 In November 1571, the king sent a royal decree to his vassals in the Indies and declared that his royal treasury was “[…] exhausted because of the many and continued expenses destined to sustain great armies and armadas for the defence of Christianity and the preservation of his kingdoms and lordships”.12 7 8 9 10 TePaske and Klein (1987); Garavaglia and Grosso (1987); Sánchez Santiró (2013). Celaya Nández (2010); Gordoa (2019, 65–100). Sánchez Santiró (2013, 131). This sales tax was established in 1323 as a temporary contribution to finance the Castilian Crown’s war expenses. It was integrated into the royal patrimony in the fourteenth century. Garavaglia and Grosso (1987). 11 Muro Romero (1982, 47–68); Ramos (1986, 1–61). 12 Royal decree of Philip II, signed 1 November 1575, as cited by: Garavaglia and Grosso (1987, 65–66) (Author’s translation). The Alcabala Sales Tax Administration 39 Three years later, in 1574, the Viceroys of New Spain (México) and Peru (Perú) were ordered to establish the collection of a 2% sales tax in the Indies, as a response to the financial crisis.13 The king appealed to the loyalty and love of his vassals and reminded them that their Castilian counterparts were paying as much as 10% in sales taxes on the value of most of the goods traded in the kingdom.14 This colonial version of the sales tax was imposed on a broad variety of trade goods, most of them of European origin. The collection of this fiscal revenue was regulated by the 1571 decree issued by Philipp II, and by other laws like the Castilian Laws and the Leyes de Indias. The alcabala was imposed on “all goods sold and contracted in the Indies […] and all freights brought to our lands, all the first and successive sales of all the products from plantations, cattle raising and craftsmanship sold, bartered and hired in our domains”.15 Despite the apparent universality of this sales tax, the moral and political order of the Spanish Crown led to many subjects being exempted, such as the clergy, monasteries, religious orders and the “Indian” population. Exemptions were also applied to some basic goods like maize, bread, riding horses, books, weapons and mint silver.16 The exemption for the Indian population was first declared as provisional, but it remained until 1821. This fiscal benefit was established as a royal privilege to those vassals considered as “miserable people” and because of the heavy tax burden that the natives already suffered due to other taxes such as the tributo (a sort of poll tax imposed on all male vassals from 18 to 50 years of age), the servicio (compulsory work that was later permuted into a monetary expense), the medio real (an increase on the tribute destined to pay judicial representation) and the diezmo eclesiástico (tithe).17 Despite this “gracious act”, the fiscal exemption only applied to the first sale of maize, chili, beans, salt, baskets and other local products. If an Indian trader sold Spanish (European) or Asian goods, the alcabala was imposed on the transactions.18 As I explain below, the complex structure of this exemption system was an opportunity for some Spanish traders to use indigenous proxies in small trade deals. Once the particular exemptions had been made, the royal treasury began with the collection of the alcabala at a fixed 2% tax rate that lasted from 1574 until the 1620s. Soon, during the seventeenth century, the financial turmoil caused by constant military expenses led to two successive increments in the tax rate. The Thirty Years’ War (1618–1648) had a direct impact on the alcabala rate modifications. As part of a financial project destined to involve New Spain and Peru in the Hispanic monarchy’s military expenses, the Count-Duke 13 Ramos (1986, 1–61). 14 Artola (1982); Garavaglia and Grosso (1987). 15 Royal decree of Philip II, signed 1 November 1575, as cited by Garavaglia and Grosso (1987, 67) (author’s translation). 16 Garavaglia and Grosso (1987, 68). 17 Miranda (1980); Sánchez Santiró (2013, 130–140). 18 Garavaglia and Grosso (1987, 11–18). 40 Rodrigo Gordoa de la Huerta of Olivares decided to create a new armada and a land army in the Spanish possessions in America in order to defend the Peruvian and Mexican viceroyalties from Dutch and English attacks. Both defensive projects were financed by the Spanish American vassals.19 One of the main elements of this fiscalmilitary project consisted of an initial increment of the sales tax rate from 2 to 4%. This rise in alcabala was known as the Unión de Armas, which referred to the destination of these funds: the construction of a naval force to defend the Caribbean. The sales tax rate increment met with considerable opposition from Mexico City’s council and the traders’ guild. After a long dispute, the tax rise was negotiated with both of them. The negotiation involved the signing of a new tax farming lease between the royal authorities and Mexico City’s council, as detailed below. The Unión de Armas was first collected together with the alcabala between 1632 and 1633. This alcabala rise was insufficient to cover military expenditure in the Americas. As a response to the growing military costs, King Philip IV ordered a special tax increment to sustain the Spanish fleet, the Armada de Barlovento.20 Again, the Crown faced an intense period of negotiations with Mexican and Peruvian elite groups and corporations to find a way (arbitrios) to finance the new armada. After a series of unsuccessful tax reforms, both the royal authorities and the local corporations determined that the best way to finance the growing military spending in the Indies was to increase the alcabala rate from 4 to 6%.21 The final 6% tax rate continued without significant changes in the 1630s and was upheld until 1748. The 6% rate was charged in most of New Spain’s territory, with some exceptions like the Campeche port in south-eastern New Spain and the Septentrional villages and towns, considered as a “war zone” or borderland with the so-called indios bárbaros or semi-nomad Native American cultures. In these territories, the sales tax remained at its original 2% rate as a way to promote Spanish expansion to the north. Such developments demonstrate that the alcabala was a tax that was deeply related to military spending in the colonies. By the mid-eighteenth century, the alcabala represented the most important source of fiscal income in Colonial Mexico and could only be compared in quantity and importance with the tributo.22 2.3 The Alcabala Collection: Tax Farming and the Royal Administration The collection of the alcabala was managed through an internal customs system known as suelo alcabalatorio.23 This system divided New Spain into several internal fiscal districts known as alcabalatorios. These districts were composed 19 20 21 22 23 Alvarado Morales (1983); Sánchez Santiró (2012). Sánchez Santiró (2013, 136). Ibid., 136–138. Ibid., 130. Ibid. The Alcabala Sales Tax Administration 41 by a variable number of suelos that each had a centralised regional tax office established at an important village or town, the cabecera. In addition to this territorial division, the alcabala collection was organised in four different ways: (1) direct administration by royal officers, (2) collection by district judges, and two modalities of tax farming, (3) the arrendamiento (individual tax farming by a leasing contract) and (4) the encabezamiento (corporate tax farming managed by city councils and the trade guild).24 Both forms of tax farming remained operational from the 1590s until the centralisation and suppression of the alcabala tax farming system in 1776.25 Since the establishment of the alcabala in New Spain in 1574, the Crown had designated the royal treasury officers as being at the top of the administrative procedure. The collection of the alcabala posed many difficulties due to the vast territory of the viceroyalty and the inexistence of an effective customs system. Despite the original intention to establish a unified system of collection and accounting control under the royal treasury, the royal officers soon faced a complex reality, far from the original project. In view of the limited territorial authority, the high costs of establishing a network of direct delegates or tax collectors, and the weak effective control of these royal officers who were only based in Mexico City and some towns located in its outskirts, the fiscal authorities decided to delegate the sales tax administration to district judges or alcaldes mayores.26 This indirect system caused a series of abuses and frauds that soon affected the royal treasury in Mexico City. As a response to these problems, the royal authorities decided to create a special court and accounting office, the contaduría de alcabalas.27 This accounting office conducted administrative tasks and possessed jurisdictional authority as a fiscal tribunal. In addition, between 1587 and 1593, the Crown negotiated the first tax farming leasing contracts with the city councils of Mexico and Puebla.28 The tax farming system given to the councils and the local trade corporations, the encabezamiento, had first been successfully used in Spain by King Philip II in 1568 as an alternative to direct administration. Due to the success of the general tax farming system or encabezamientos generales in the Castille region, in 1593, the sales tax farming system was also established in Mexico, together with the creation of the traders’ guild in Mexico, as colonial traders were the main taxpayers.29 Between 1600 and 1615, all the main cities of New Spain were designated by the Crown to collect the alcabala. The tax farming system was established in the cities of Puebla (1601), México (1602), Oaxaca (1603) and Zacatecas (1603).30 Only the royal treasuries installed to collect the sales taxes in the 24 25 26 27 28 29 30 Smith (1948); Valle Pavón (1997); Valle Pavón (2016). Sánchez Santiró (2001a). Celaya Nández (2010). Gordoa (2019). Valle Pavón (1997); Celaya Nández (2010). Valle Pavón (1997). Pastor (1977). 42 Rodrigo Gordoa de la Huerta mining centres remained under the control of royal officers because of the strategic impact of the mining activities for the Spanish Empire. In some towns, the sales tax administration was delegated to local traders in a system known as arrendamiento, mainly in towns with a small Spanish population.31 This multiplicity of tax collectors, and the great distance between some towns and villages in Colonial Mexico and the capital, caused many collection difficulties and a great deal of fraud. During the late seventeenth century and the first decades of the eighteenth century, the Audiencia de Mexico (the appeals or high court) and the contaduría de alcabalas (the sales tax tribunal) received constant complaints about excessive charges, fraud and bankruptcies.32 The most notorious case was the bankruptcy of the main sales tax administration: that of Mexico City. The alcabala from the Mexican capital were administered by the traders’ guild from the late 1660s onwards, after the Mexican city council proved unable to pay the city’s debts to the royal treasury and declared bankruptcy. By 1693, the traders’ guild had obtained a new tax farm from Mexico City’s tax administration to levy the alcabala. This corporation controlled the alcabala in the viceregal capital until 1754, with the signing of subsequent tax farming contracts.33 The rest of New Spain’s towns, villages and cities remained under different administrations managed by district judges, individual tax farmers and royal officers. Thus, during the first half of the eighteenth century, the alcabala was levied by a great diversity of administrations, controlled by different kinds of tax collectors and with a limited customs system. The only cities that had internal customs offices were Mexico and Puebla.34 Tax farming by traders’ guilds played a major role. In addition to a heterogeneous and decentralised administration, the lack of effective supervision offered a perfect opportunity for tax evaders, whose strategies were constantly reported to the contaduría de alcabalas (the specialised accounting office and tribunal) and to the Audiencia de Mexico (Appeals Court). Even though there is enough evidence to portrait some of the main strategies of tax evasion (hiding commodities, trafficking products during the night in Mexico City’s outskirts, introducing contraband into coastal towns, etc.), taxpayers had an even wider range of strategies to avoid or reduce their tax burden in some specific situations. These cases will be analysed in the following. 2.4 Alternatives to Fiscal Evasion: Negotiation, Fraud and Judicial Controversy There is a vast corpus of judicial documents in Spanish and Mexican archives that are vivid testimonies of the constant struggle between taxpayers and tax collectors. Faced with authorities who sought to collect the alcabala as part of the royal treasury’s revenue (either as officers of the king or as tenants who 31 32 33 34 Garavaglia and Grosso (1987); Gordoa (2019, 65–100). Ibid. Valle Pavón (1997); Sánchez Santiró (2001b). Valle Pavón (1997); Celaya Nández (2010). The Alcabala Sales Tax Administration 43 had to comply with a contractual agreement with the royal treasury), the contributors (mainly the Spanish merchants in Colonial Mexico) employed a series of strategies to avoid paying a tax which they considered to be pernicious to commercial activities, given its direct impact on the circulation of goods and the final prices.35 In New Spain, a great diversity of taxpayers were confronted with the alcabala, such as merchants, hacienda owners, real estate owners, slave traders and livestock owners. The following section focuses on the tax evasion strategies used by a particular group of contributors in New Spain: the merchants, who were organised in local corporations or diputaciones de comercio. Such a focus provides a first glance into the multiple cases of smuggling, tax evasion and tax resistance which we can find in the Latin-American archives of the Spanish colonial period, and which indicate the complex economic, social and political reality portrayed in the fiscal documents of the Spanish Crown. In the face of such a burdensome tax (6% of the total value of all the goods traded by a merchant), the New Spain merchants developed a series of strategies that fit the “abide, but do not comply” formula, or that were supported by a legal tradition of the Ancien Régime in which privileges, particular rights and a complex casuistry prevailed. In this jurisdictional order, written norms coexisted with traditions or local customs; these were then interpreted by a judge whose ruling prevailed in a particular case.36 The first strategy employed by Spanish merchants to reduce or avoid payment of the alcabala was to become tax collectors themselves. Through their representation in the traders’ guild of Mexico and the Diputaciones de comercio (trade deputies), the richest merchants controlled the most important cities and towns of the viceroyalty and managed to gain control of sales taxes through the signing of leased agreements in towns.37 This sales tax farming system consisted of a fixed fee to be paid annually by all local merchants who owned a store. The tax collectors were under the control of a specialised court known as the contaduría general de alcabalas. For a good part of the eighteenth century, merchants negotiated the conditions under which they would collect and deliver annual fixed fees on all their commercial activities with the representatives of the royal treasury. Under this management modality, merchants and landowners in the viceregal cities established a second fixed fees system with the local tax collector known as igualas.38 This deal involved each trader paying an annual fee based on an average annual income, contained in a document known as relación jurada. The relaciones juradas had a double function: first, as an accountable source designed to calculate the amount of taxes that a certain merchant had to pay to the local tax farmer or alcalde mayor; second, as a judicial document, since each trader declared under oath that the tax information provided was true. 35 36 37 38 Garavaglia and Grosso (1987). Garriga (2004, 13–44). Valle Pavón (1997); Archivo General de Indias (from now on: AGI), México, 711. Sánchez Santiró (2001, a). 44 Rodrigo Gordoa de la Huerta In case of inconsistencies, or if a tax farmer sued a taxpayer, these relaciones were used as evidence.39 The tax farming system was usually managed by local merchant elites. Hence, the members of the diputación de comercio had great fiscal advantages over their foreign competitors. The fixed annual fees established for each merchant were significantly lower than the actual tax fee that merchants from other cities had to pay, because this system modified the nature of the tax itself. Instead of the indirect – sales – tax based on trade, so-called igualas were imposed as a direct income tax, based on individual commercial capital. To complete the quotas agreed with the royal treasury, the tax farming and tax collecting merchants exerted fiscal pressure on minor merchants by means of the exhaustive collection of alcabala del viento, which was the tax charged to merchants without a fixed location. This collection was executed by an armed deputy with coactive functions.40 When they were unable to achieve a beneficial outcome through negotiations with the authorities, leasing contracts and the igualas system, colonial merchants resorted to several strategies of tax avoidance. One of these strategies concerned the use of indigenous middlemen to sell their products, thereby abusing the royal privilege that the Crown had granted to the native population at the end of the sixteenth century and that had exempted indigenous groups from the duty to pay the alcabala while they were charged with other taxes such as the tributo, as has been noticed above.41 This exception had been decreed by King Philip II, who pointed out that “for the time being”, the Indians did not have to pay alcabala “for what they sell, negotiate or hire, if it is not from Spaniards or from people who owe alcabala”. But, as the royal decree continued: “… if they sell something that is not from Indians, but from other persons, they will have to pay alcabala”. If the indigenous vendors tried to circumvent the law and to cover up such deals, they were to be admonished.42 The warning implied in this law can be read as indicating a fraudulent practice that had spread throughout the New Spain Viceroyalty. It consisted of monopolising certain merchandise and hiring a series of indigenous minor merchants to pass on the products acquired by the Spaniards as consumer goods from their communities. One example of this widespread practice is provided by a judicial file against a merchandise hoarder in the indigenous town of Ixmiquilpan (Central Mexico).43 On 4 March 1748, Miguel de Larrainzar, tenant of the alcabala tax farm of the town of Ixmiquilpan, filed a complaint in the contaduría de alcabala tribunal against the gunpowder contractor of that region, Sebastián de Pavola. In 39 40 41 42 Ibid.; Gordoa (2019). Sánchez Santiró (2001, 6–41). Sánchez Santiró (2013). Recopilación de Leyes de los Reinos de las Indias, Libro viii, Título xiii, ley xxvi. (Translation by the author). 43 Archivo General de la Nación (hereafter: AGNMX), Alcabalas, vol. 181, exp. 3. The Alcabala Sales Tax Administration 45 this document, the first accused the second of having, for at least one year, repeatedly evaded the payment of sales taxes on all the products used to make gunpowder, mainly salt and sulphur. In addition, he presented several local residents as witnesses, who denounced Pavola and several neighbours for monopolising some of the most important staple products sold in the town: chili, beans and baked bread. According to these testimonies, the Spanish merchant Pavola had established absolute control over the sale of various goods in the market through a practice considered as fraudulent. At the time of installing the tianguis or market, Pavola bought all the products brought from other locations in New Spain by small retailers. Afterwards, several indigenous people came to him to distribute the merchandise and sell it on the town square. Hence, the indigenous traders were hired as frontmen – or middlemen – so that Pavola (or any other Spanish merchant) could avoid the alcabala. Such a circumvention strategy constituted a serious crime against the royal treasury. For his part, Sebastián de Pavola accused Larrainzar of slandering him and of wanting to ruin him through a series of excesses in the payment of sales taxes. The mutual accusations were serious since both had signed lease contracts (for the local sales taxes and for the production of gunpowder, respectively); thus, in legal terms, both were representatives of the Spanish Crown and members of the Mexican political and economic elite. The litigation extended for more than a year. According to the inquiries of the royal judge, the various means of tax evasion identified in Ixmiquilpan had practically ruined Larrainzar, the tenant of the local alcabala. The first tax avoidance strategy had been employed by Sebastián de Pavola directly, who through a legal ruse devised by his lawyers intended to evade payment of the alcabala on the sale of salt and other materials used in the manufacture of gunpowder. Pavola did so by appealing to a clause in his lease contract which declared a tax exemption concerning the sale of salt. However, the royal authorities discovered that the said contract had expired since the beginning of 1748, and that Pavola had not been appointed by the main gunpowder manufacturer as his representative. According to the royal officers, Pavola was, therefore, not a legitimate gunpowder monopolist. For this imposture, he should pay a fine of 1,000 silver pesos. The second form of tax avoidance was practiced by Pavola and other local Spanish merchants through the massive purchase of loads of chili and salt paid for by Pavola, and the subsequent sale of these goods in smaller quantities by several indigenous people. The natives posed as poor merchants who apparently sold the products from their parcels and who were awarded a few coins for their part in this game.44 Given the sheer quantity of individuals involved in this fraud, the judge of alcabala decided that it was convenient to grant coercive powers such as the seizure of property and the ability to imprison debtors to Larrainzar, instead of judging the fraudulent merchants separately. This case is just one example of several testimonies 44 AGNMX, Alcabalas, vol. 181, exp. 3. 46 Rodrigo Gordoa de la Huerta involving this type of fraudulent practice by Spanish merchants in regions dedicated to commerce and with a majority indigenous population. In addition to the use of indigenous merchants (regatones) as proxies for their commercial operations, local merchants also employed judicial strategies to delay or avoid the collection of alcabala. Among them was the tendency to extend the litigation process against the collectors for apparently violating their rights and by invoking the immemorial traditions granted to them, which were themselves a norm as valid as the royal laws. Such was the case of pig livestock traders in the Toluca Valley region in 1725, who accused the tax farmer, Nicolás de la Barrera, of making an improper collection of the alcabala, since it undermined the customs of the town of Tenango del Valle (México), which established that all livestock sold in Tenango was not to be affected by the sales tax until the animal was killed and that only the slaughtering and the meat were to be taxed.45 After several months of this kind of refusal from the livestock traders, Nicolás de la Barrera filed two lawsuits in the appeal court against the livestock traders and against other members of the local diputación de comercio: the shop owners and the bakers. Since the beginning of the tax farm contract in 1724, none of the Tenango merchants had paid their fixed rate on time, while some had paid a fraction of the previously agreed rates. When the tax farmer Barrera made inquiries, some merchants claimed that they had no obligation to pay their tax rate because their goods were exempt as was the case with livestock and bread.46 After six months of extrajudicial dispute, the tax farmer decided to sue all the tax debtors in the contaduría de alcabalas. Once the trial began, the Toluca tax debtors hired a lawyer from Mexico City and countersued Nicolás de la Barrera. These two lawsuits portrayed the different legal strategies applied by taxpayers to avoid the alcabala and the legal instruments that the tax farmers used to gain a favourable judgement either from the alcabala tribunal or the Mexican appeals court.47 First, the local merchants, in a desperate attempt not to pay the tax on the sale of pig livestock, appealed to customary law concerning the sale of livestock, as noted above. This implied that the sales taxes should be paid by the butchers of Mexico City.48 Invoking a particular tradition or custom was a valid legal argument in the Spanish legal system, since justice in the Spanish Empire was based on a multitude of norms, mainly Roman law, canonical law and customs. This system was based on a jurisdictional order in which a judge acted as an impartial public person.49 The sentences were given once the local or appeal judge had listened to both parties and compared all the laws. This judicial system was casuistic and particularistic, hence the use of custom as law was just as valid an argument as written laws.50 45 46 47 48 49 50 AGNMX, Archivo Histórico de Hacienda, caja 20, exp.4. AGNMX, Archivo Histórico de Hacienda, caja 20, exp.4. Rosenmüller (2019, 11–52). Quiroz (2005). Rosenmüller (2019, 11–30). Garriga (2004); Rosenmüller (2019). The Alcabala Sales Tax Administration 47 In this case, the alcabala judge acted as a first instance judge and heard both sides. The competing stories give testimony of two different conceptions about the “correct administration” of the sales tax.51 From the tax farmer’s perspective, the tax debtors had committed fraud against him and the royal treasury. He sustained his claims with reference to written laws and his tax farm leasing contract. According to colonial Spanish laws (Leyes de Indias), the livestock sale triggered alcabala, and its payment was mandatory in the place where the cattle or pigs were sold. In addition, Nicolás de la Barrera’s tax farm contract stipulated that, in case of tax avoidance or resistance, he could appeal to the district judge or alcalde mayor to imprison the debtors and confiscate their goods. In his contract, Barrera had for the time of his contract the faculty to compel the taxpayers with the district judge or with an armed deputy.52 But, instead of fulfilling Barrera’s request, the alcalde mayor of Tenango refused to arrest the livestock traders because the tax farmer allegedly disrupted the local order and excessively compelled the debtors to declare the value of their livestock. After the trial against the livestock merchants, Barrera had to face another attempt to sue from a different group of taxpayers: the bakers, who had just bought the flour needed to make the bread for the Spanish population. According to the alcalde’s allegation, the sale of flour and bread was exempt from taxes because it was a staple product. Barrera ignored the customary law of this town, and therefore they resisted his claims constantly. In contrast, Nicolás de la Barrera denounced the local deputy for conspiring with the merchants against him, allegedly obstructing his administration and forcing him to declare bankruptcy. The main problem in this case seems to have been that the tax farmer was alien to the network of interests of local merchants. Maybe he originated from Mexico City or Spain. Not being local turned out to be a serious problem in this case, because the notion of justice held by the merchants from the village of Tenango differed from Barrera’s own conceptions. For the local livestock traders, the sale of their animals was exempt from the alcabala tax, not because of a specific written law, but because the custom was to delegate tax payment to the buyers in Mexico City. From their point of view, Nicolás de la Barrera was an abusive tax farmer because he did not respect the customs of his tax district. This was a serious accusation against the tax farmer by the locals. According to the lawsuit, Barrera’s abuses were so grave that he threatened the entire local economy and most of the villagers’ lives by charging abusive taxes on staple goods like bread and on the main economic activity of the region, namely the pig trade. The local merchants complained that if Barrera ignored local customs and decided to apply the written law, the livestock prices would rise and, thus, their main economic support would be compromised.53 51 Gordoa (2020). 52 AGNMX, Archivo Histórico de Hacienda, caja 20, exp.4. 53 AGNMX, Archivo Histórico de Hacienda, caja 20, exp.4. 48 Rodrigo Gordoa de la Huerta Despite such dramatic claims, the judge of alcabala issued a sentence against the allegations of the merchants. From his point of view, the custom was valid only if it was in accordance with the provisions of the laws of Castille and did not contravene other sources of law such as the Siete Partidas or the Leyes de Indias. By the end of 1727, the judge declared that all livestock merchants had to pay the alcabala in the places where the sale of the animals took place. Regarding the complaints of the bakers, he pointed out that the collection of sales taxes on bread was prohibited, but not on flour. If the tax farmer erroneously taxed bread in the future, he would be sanctioned with a pecuniary penalty of 300 pesos.54 Despite this seemingly clear ruling, the tax farmer could not get the locals to cover their debts, because they appealed to the Audiencia of Mexico. Although this appeal court reached the same conclusion as the alcabala judge, the merchants managed to avoid payment of the taxes until 1729. When Barrera, almost bankrupted by this lengthy dispute, ultimately gave up and handed over the tax farm to local merchants in 1730, the pig traders had their way. Despite not being successful in court, livestock traders were able to sell their animals without paying alcabala for the duration of the litigation. Once they were sentenced to pay the tax debts, the traders paid their arrears in instalments and in part, which represented a cost reduction in their commercial transactions, and a deferred payment of the tax. 2.5 Conclusion This chapter has offered an insight into the wide range of tax reduction or avoidance strategies employed by Spanish merchants in New Spain in order to decrease the economic impact of the sales taxes known as alcabala. These strategies were elaborated by the local merchants in a social and economic order regulated in a casuistic and particularistic context. The alcabala collection was determined by three types of juridical status: by ethnic origin, trade privileges and class or economic capacity.55 This discussion has focused on strategies that can be considered as an alternative to direct evasion. The economic actors used a series of legal and political strategies to avoid paying the alcabala. The first case was the abuse of ethnic privileges through the use of indigenous middlemen by Spanish merchants to sell certain products monopolised by local elites. This constituted a fraud against the royal treasury. Another strategy was through the royal courts. Since the Spanish judicial system was organised according to an Ancien Régime jurisdictional order, taxpayers could appeal to local laws and customs to protect their local interests against other economic agents, mainly tax collectors. 54 Gordoa (2019, 65–100). 55 Sánchez Santiró (2015, 165–186). The Alcabala Sales Tax Administration 49 Either through the royal courts themselves, or through the abuse of certain privileges, the Mexican merchants defended their economic interests against those of the Crown and their representatives. 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