Do I have to declare foreign assets in Spain if I am a Spanish resident?

In 2012, Minister Cristóbal Montoro created the Model 720 of the Tax Agency, which made it compulsory to declare foreign assets abroad with the aim of fighting against fraud.

This model was approved by Order HAP/72/2013, of January 30, which approves model 720, informative declaration on assets and rights located abroad, referred to in the eighteenth additional provision of Law 58/2003, of December 17, General Tax Law, and determines the place, form, deadline and procedure for its presentation. In particular, this Order establishes that individuals and legal entities resident in Spanish territory, permanent establishments in such territory of non-resident individuals or entities and the entities referred to in Article 35.4 of Law 58/2003, of December 17, General Tax Law (inheritances, communities of property, etc.) are obliged to file Form 720 provided that the balance at December 31 exceeds 50,000 euros.

Such filing must be made telematically between January 1 and March 31 of the fiscal year following the one to which the information refers, and must contain data on:

  • Foreign bank accounts (regardless of the number of account holders).
  • Shares and similar
  • Bonds or loans
  • Investment companies and funds
  • Life or disability insurance, when the insurance company is located abroad.
  • Property, usufruct, time-sharing, etc.

*Vehicles and jewelry are excluded.

It should be noted that when the obligor has already filed form 720 on one occasion, it should not be filed again unless some of the declared goods or rights have been sold or in the case that the declared goods and rights increase their value by 20,000 euros.

The penalty regime foreseen by the Order in case of non-declaration of assets and rights abroad for a value equal to or higher than 50,000 Euros entails millionaire fines of 150% of such non-declared assets or rights. In addition, in the case of late or erroneous declarations, the penalty regime is very strict with respect to the other informative taxes. Specifically, a fine of 5,000 euros must be paid for each of the data that should have been included in the form, with a minimum of 10,000 euros. In the case of having been filed after the deadline and of not having been requested to that effect by the Tax Agency, the penalty is 100 euros for each item of information, with a minimum of 1,500 euros. It is also worth mentioning that in the case of failure to file the tax return telematically, penalties are also foreseen.

Free movement of capital

Recently, the CJEU has declared in its judgment on case C-788/19 that this harsh penalty regime is contrary to European Union law. According to Press Release No. 18/22 issued by the CJEU on January 27, 2022, Spain is considered to have failed to comply with its obligations under the free movement of capital on three grounds.

  1. The first ground referred to by the Court refers to the statute of limitations. The CJEU rejects the non-applicability of the statute of limitations provided for in Form 720, since it allows the Tax Administration to proceed without time limitation to regularize the tax due. This situation violates the fundamental requirement of legal certainty.
  2. The second ground referred to is the amount of the penalties. The Court considers that the penalty of 150% to be applied to the tax liability, calculated on the amounts corresponding to the value of the assets and rights not declared abroad, confers on it an extremely repressive character, and that its cumulation with the fixed fines additionally provided for may lead, in many cases, to the total amount of the amounts owed by the taxpayer exceeding 100% of the value of his assets or rights abroad. This constitutes a disproportionate impairment of the free movement of capital.
  3. The third ground raised by the CJEU concerns the proportion of the penalties in relation to those imposed for other national reporting obligations. The Court of Justice states that, by sanctioning non-compliance with fixed fines, the amount of which is not proportionate to the penalties provided for similar infringements, in a purely national context and the total amount of which is not limited, they establish a disproportionate restriction on the free movement of capital.

Spain will now have to adapt its legislation with respect to Form 720 to EU law, since the judgment does not annul the obligation to declare in Form 720 assets and rights abroad to the value of 50,000 euros, but declares that the system of non-applicability of the statute of limitations and the amount of penalties is contrary to law. Recently, the Minister of Finance, María Jesús Montero, has reacted to the ruling by declaring that the regime of non-applicability of the statute of limitations and the amount of penalties is contrary to law.

Recently, the Minister of Finance, María Jesús Montero, has reacted to the ruling of the CJEU and has assured that the intention of the Executive is to approve the modification of the rule before the end of the filing deadline for this fiscal year, on March 31. If the adaptation of the national legislation is not carried out, the European Commission may resort to the courts again and ask for financial penalties to be imposed on Spain, since the same Commission already urged the national modification, whose illegality now declared may entail millionaire refunds to taxpayers.

 

Orience Legal Department