FORM (MODELO) 720 NATIONAL LEGISLATION REQUIRING SPANISH TAX RESIDENTS TO DECLARE THEIR OVERSEAS ASSETS IS CONTRARY TO EU LAW

31 Jan FORM (MODELO) 720 NATIONAL LEGISLATION REQUIRING SPANISH TAX RESIDENTS TO DECLARE THEIR OVERSEAS ASSETS IS CONTRARY TO EU LAW

The Court of Justice of the European Union declares that Spain has failed to fulfil its obligations under the principle of free movement of capital. The obligation to submit ‘Form 720’ and the penalties for failure to comply with or for partial or late compliance with that obligation, which do not have an equivalent in respect of assets or rights located in Spain, establish a difference in treatment between Spanish residents according to the location of their assets. As that obligation is likely to deter, prevent or restrict the opportunities for residents of that Member State to invest in other Member States, it constitutes a restriction on the free movement of capital.

The Court notes that the legislation at issue appears appropriate for ensuring the attainment of the objectives referred to above because, despite the existence of mechanisms for the exchange of information or administrative assistance between the Member States, the level of information available to them concerning assets held by their tax residents abroad is, overall, lower than that available to them concerning assets located on their territory. However, in the Court’s assessment that legislation goes beyond what is necessary to achieve those objectives in three respects:

In the first place, the Court considers that Spain has failed to fulfil its obligations under the free movement of capital by providing that the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets and rights located abroad entails the taxation of undeclared income corresponding to the value of those assets as ‘unjustified capital gains’, with no possibility, in practice, of benefiting from limitation.

In the second place, the Court considers that Spain also failed to fulfil its obligations under the free movement of capital by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to a proportional fine of 150% of the tax calculated on amounts corresponding to the value of those assets or those rights held overseas. That fine may be applied concurrently with the flat-rate fines which apply to each missing, incomplete, incorrect or false data item or set of data which should appear on ‘Form 720’.

In the third place, the Court finds that the Spanish legislature also failed to fulfil its obligations under the free movement of capital by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to flat-rate fines the amount of which is disproportionate to the penalties imposed in respect of similar infringements in a purely national context and the total amount of which is not capped. The amount of those fines is EUR 5 000 per data item or set of data which is missing, incomplete, incorrect or false, with a minimum of EUR 10 000, and an amount of EUR 100 per data item or set of data declared late or not declared digitally where so required, with a minimum of EUR 1 500.

At Emilio Pino – Abogados, we are trained and prepared to demand from the tax authorities the reimbursement of the amounts unduly charged through the 720 form