Europe forces Spain to modify the 720 tax form

Europe forces Spain to modify the 720 tax form

The High Court of Justice of the European Union (CJEU) considers that Spain has not complied with the obligations derived from the respect of the principle of free movement of capital.

By judgment of the CJEU of January 27, 2022, the European Court of Justice has determined that model 720, relating to the information of assets and rights located abroad, is contrary to EU law, since its penalties are totally disproportionate to the purpose pursued, which is none other than the fight against fraud and tax evasion.  

The reasons put forward by the European authority are based on three main grounds. The first of these grounds is determined because failure to comply with the reporting obligation results in the taxation of the undeclared income corresponding to the value of these assets as unjustified capital gains, without the possibility of invoking the statute of limitations. In this way, the time limitation on the extinguishment of tax obligations is eliminated, with the resulting violation of the principle of legal certainty.

Secondly, the penalty system provided for establishes amounts for penalties which, from the EU’s point of view, are extremely repressive and which, when added to the fixed fines additionally provided for, may result in the total amount of the amounts owed by the taxpayer exceeding 100% of the value of his assets or rights abroad, which constitutes a disproportionate impairment of the free movement of capital. 

The third ground raised by the CJEU focuses on the disproportionality of the amount of the fixed fines with the penalties foreseen for similar infringements, in a purely national context and whose total amount is not limited.

This hard blow received by the Ministry of Finance has led to the elaboration of a new model 720 adapted, this time, to the European regulations. In this way, the Plenary of the Congress of Deputies, taking advantage of the processing of a Bill modifying the Corporate Income Tax and the Non-Resident Income Tax, has approved an amendment introducing the figure of the statute of limitations and reducing the amount of the penalties derived from the non-compliance of the informative obligations.

All these amendments entail the disappearance of the unjustified gain and of the specific penalties for assets and rights located abroad. In this way, the regulations of Form 720 are brought into line with the General Tax Law. Therefore, the statute of limitations will operate in the same terms and under the same conditions as for other tax offenses and, since the specific penalties are eliminated, the general penalty regime provided for in the General Tax Law will also operate. 

In view of this new situation, the situation existing in 2012 is returned to, although with the only novelty, with respect to then, of the informative obligation, which continues to be in force.

Finally, through the approval, by the Congress of Deputies, of the Bill on Measures for the Prevention and Fight against Tax Fraud, in June 2021, the obligation to report on virtual currencies located abroad by means of form 720 was introduced; however, the lack of regulatory development on cryptocurrencies prevents the requirement of the informative obligation on such assets; in such a way that no information related to cryptocurrencies will have to be included in the informative declaration of assets and rights located abroad through form 720 related to the year 2021.