720 Form - penalties declared unlawful
After a long wait, the European Court of Justice's ruling has finally seen the light of day. It harshly criticizes certain relevant aspects of the 720 Form.
Let us remember that the 720 Form is a declaration that have to file all those persons residing in Spain who have assets and/or rights abroad for an amount greater than €50,000.
Certainly, this is a Model that wants to cover information that goes beyond the purpose for which it was created (the fight against fraud and tax evasion). An example of this is that this €50,000 limit includes the value of the whole assets, even if the declarant's participation is minimal.
In November 2015, the European Commission initiated an infringement procedure against Spain in relation to certain aspects of the 720 Form, on the grounds that it violated the right to the free movement of capital.
This procedure concluded with a reasoned opinion in February 2017, which questioned the most controversial aspect of the 720 Form: its penalty regime, which has caused so many headaches for Spanish residents. Especially to those foreigners who moved their residence to Spain and when the famous 720 Form reached their ears, the deadline for declaring their assets abroad had usually already passed.
On the occasion of the conclusions reached by the Commission, it also requested Spain to modify the internal regulations.
Do you think they did? Ladies and gentlemen, we are in Spain...
As a consequence of the passivity of this country, the Commission was forced to file in October 2019 an appeal for non-compliance before the European Court of Justice.
Now the Court, in the same line as the Commission's opinion, has declared contrary to law and, mainly, to the free movement of capital, the penalties system that the Treasury has been applying to taxpayers who forget to declare their assets abroad, declare them incorrectly or inaccurately, or even if they declare them, but out of time.
The European Court of Justice has ruled on three issues:
Accepts that undeclared income can be considered as unjustified gains, although it rejects the non-applicability of statutes of limitation. That is to say, if an undeclared income corresponds to a prescribed year (when more than 4 and a half years have passed, approximately), this income cannot be regularized.
Considers disproportionate the fixed penalties for a return not filed, filed after the deadline or with incorrect data. This is because the penalties that the law provides for breaches in relation to the 720 Form are much higher than those provided for any other declaration regarding national assets or income.
Declares totally out of place the fine of 150% of the value of assets or rights not declared or declared incorrectly or inaccurately. In many cases, this fine could mean that the taxpayer would have to pay an amount much higher than the value of his assets abroad.
Although the European Court of Justice questions the regulations governing the 720 Form in general, it does not consider the declaration itself to be illegal, but only its penalty regime.
We will have to wait and see how the Spanish regulations are modified in this regard.
Even so, it is very good news to end January with. Many taxpayers will rest easy from now on.
Balagué-Sala Lawyers