The well-known model 720 is an informative declaration which entered into force in 2012 and which must be submitted by natural and legal persons. tax residents in Spain and in which they must report assets held abroad.
It is, as we have said, an informative return that does not generate any tax liability, but from which significant penalties and financial consequences could be derived if it was not filed or was filed incorrectly or incompletely until recently.
However, following the judgment of the Court of Justice of the European Union (CJEU) of 26 January 2022, the penalty regime applicable to this Form 720 has changed substantially.However, it is important to remember that the obligation to file is still in force and the deadline for filing the declaration of assets held abroad in 2021 expires on 31 March 2022.
What should be declared in the 720 model?
Through Form 720, natural and legal persons are obliged to report the following information three types of assetsprovided that any one of the three blocks of assets exceeds the value of €50,000 as at 31 December:
- Accounts in financial institutions located abroad.
- Securities, rights, insurance and income deposited, managed or obtained abroad.
- Immovable property and rights to immovable property situated abroad.
Furthermore, once you have submitted the 720 form in the first year in which you are obliged to do so because the value of the assets exceeds the threshold of 50,000 euros, you are not obliged to report it again in subsequent years unless the combined value of any of the blocks varies, upwards or downwards, by more than 20,000 euros.
The return must be submitted by 31 March of the year following the period to which it relates.
The sanctions regime hitherto applicable
As we have mentioned, despite being a "mere" informative declaration, the consequences of not submitting the form on time when obliged to do so, or submitting it incorrectly or incompletely, entailed important consequences:
1. Existence of an unjustified increase in assets.
The first and foremost of the consequences was that all those assets not declared in the 720 form The funds to acquire it were automatically understood to have originated in a unjustified capital gain or undeclared income of the taxable person.
Thus, in the case of natural persons, such unjustified capital gain was imputed to the last personal income tax return not statute-barredThe taxpayer must pay tax on it in accordance with the tax rates of the general tax base. And in the case of companies, it was considered as undeclared income for corporate tax purposes.
This was unless the taxpayer could prove that the assets had been acquired with declared income or when he was a non-resident for tax purposes in Spain. However, the most striking aspect of the regime was that it did not matter whether the taxpayer could prove that the property was acquired in a year in which the statute of limitations had already expired, which eliminated, for all practical purposes, the statute of limitations.
2. Applicable penalties
And, apart from the unjustified increase in assets, the sanctioning regime of the 720 model established a series of sanctions:
1. A proportional tax penalty for having failed to pay the aforementioned personal income tax in due time, which amounted to an amount of between 100% or 150% of the unpaid contribution.
Without prejudice to the fixed tax penalties in the event that the declaration is incorrect, or is lodged after the deadline or not at allThe penalty was based on each piece of data or set of data not declared correctly, ranging from 5,000 or 100 euros per piece of data or set of data, with a minimum penalty of 10,000 or 1,500 euros.
As can be seen, this was a deeply burdensome sanctioning regime against which many appeals had been lodged.
The CJEU ruling on Model 720
In its recent judgment, the CJEU has come to conclude what has been maintained by a large part of the legal doctrine, that such a system of penalties is contrary to European Union law and the free movement of capital as disproportionate.
In particular, the CJEU, in its Judgment of 27 January 2022, in Case C-788-19concludes as follows:
- The sanctioning regime de facto nullifies the institute of prescription as the taxable person cannot claim that the asset was acquired in a prescribed year, which is contrary to the principle of legal certainty.
- The penalties provided for 150% of the quota not paid in time and which can also be added to the fixed penalties for each item or set of data not declared, are grossly disproportionate, taking into account that:
- Spanish law provides for a much less burdensome penalty regime for other reporting obligations in force in the Spanish tax system, so that the penalties for Form 720 are not commensurate with the penalties provided for in a purely national context.
- And, no similar regime is foreseen for the non-declaration of assets held in Spain.
- All this without forgetting that the mere fact that a resident has assets or rights abroad cannot give rise to a general presumption of tax fraud or evasion as the sanctioning regime of form 720 used to do.
However, the CJEU Judgment did not de facto annul the information return itself, the validity of which was not contrary to European Union law, provided that the penalty system was amended.
New regulation and sanctioning regime for the 720 model
The government has been quick to amend the penalty regime to bring it in line with the general penalty regime that the General Tax Law provides for other similar reporting obligations.
Thus, the Law 5/2022 of 9 Marchon "hybrid asymmetries" published on 10 March 2022 amends, inter alia, the penalty regime of model 720 in such a way that:
- The non-applicability of statutes of limitation for the imputation of unjustified increases is eliminated. and undeclared incomeThe unjustified capital gains of the tax period in which they are discovered will continue to be imputed, unless the taxpayer proves that he or she has been the owner of these assets since a date prior to the limitation period.
- And the specific sanctioning regime of the 720 model is eliminated, Both the fixed penalties and those proportional to the unjustified capital gain, in such a way that the general regime of the General Tax Law for information obligations becomes applicable, establishing fines ranging from 150 to 250 euros.
However, it should be remembered that all penalties and regularisations made by the tax authorities prior to the entry into force of the new system of penalties are contrary to Community law and, therefore, are subject to appeal.
In fact, in the coming weeks the Central Economic-Administrative Tribunal is expected to establish administrative doctrine The EU's new law is a good way for local and regional courts to begin to rule in accordance with it and thus speed up the avalanche of appeals that are reaching them.
The reporting obligation for cryptocurrencies: Form 721
With the entry into force of the Law on the Prevention of Tax Fraud, a fourth block was added to the obligation to declare assets abroad (form 720): the "..." and which refers to the "...".virtual currencies located abroad owned, held, beneficially owned, authorised or otherwise disposed of by persons or entities providing services for safeguarding private cryptographic keys on behalf of third parties, for holding, storing and transferring virtual currencies.
Finally, this reporting obligation will be documented on a different form: form 721, which will be specific to cryptocurrencies. and whose regulatory development is still pending approval, so that the aforementioned reporting obligation would not come into force until 2023, when it is expected that information on investments in cryptocurrencies must be disclosed in exchanges from other countries.
