The Spanish Tax Agency has at last accepted the annulment of the penalties imposed on residents who are liable for Spanish tax for late declaration or non-declaration of their assets abroad. The European Court of Justice has ruled that such penalties were contrary to EU law, and the Spanish Council of State has ratified that decision.
Table of contents:
- Steps taken to cancel penalties under Tax Form 720
Refund of penalties
For whom is Tax Form 720 intended?
The points on which the ECJ ruling is based
How can the ruling benefit Andorra?
The ECJ’s ruling C-788/19 was delivered on 27th January 2022 and ruled in favour of the plaintiffs. It declared that Spain had infringed the free movement of capital by imposing very high fines for failure to declare assets abroad. It should be remembered that these fines amounted to 150% of the value of the assets, plus a fixed amount.
In December 2022, the tax authority also ruled that maintaining these sanctions would be contrary to Article 25 of the Spanish Constitution:
“No one may be condemned or punished for acts or omissions which, at the time they were committed, did not constitute a crime, misdemeanour or administrative offence under the legislation in force at the time“.
The General Tax Law relied on this article to request the automatic annulment of the law, as it considered that it affected the rights and freedoms protected by the Constitution.
The report of the Council of State
The legal department of the tax agency then asked the Minister of Finance to declare the law null and void. Finally, on 23rd April 2023, the Council of State declared the penalties that had been imposed null and void. It thus agreed with the Legal Service that they were contrary to the Constitution, as they had been declared contrary to EU law by the Court of Justice of the European Union.
The nullity of the penalties having been established, people who have paid these surcharges or fines may request a retroactive refund from the Tax Agency.
This is provided for in the European ruling, which allows residents who are liable for Spanish tax, who possess assets abroad, and who have been fined, to make their claims. On the basis of the statute of limitations relating to the acts for which they had to pay, they can claim wrongful penalties for obtaining unjustified capital gains of 150% and for failure to declare or late declaration.
The Catalan delegation will proceed to the automatic refund of the fines, in accordance with the decision of the High Court of Justice of Catalonia.
Tax Form 720 is an informative declaration that residents who are liable for Spanish tax have had to fill in since 2013 if they own goods and assets abroad that are worth more than 50,000 euros. It was introduced as a measure to combat fiscal fraud and money laundering abroad. What appeared to be a simple informative formality, as it was not a settlement form, had a very harsh penalty system with no limitation period. Failure to comply with the disclosure requirement was punishable by a fine of 150% of the value of the property or asset. There was also a fixed penalty of €5,000 for each undeclared item or group of items, with a minimum of €10,000, and a fine of €100 for each item or group of items declared late, with a minimum total of €1,500. Many residents of Spain found themselves in this situation simply because they owned a home in their country of birth.
Tax Form 720 is still in force
It should be noted that the filing of Form 720 is still mandatory, with the usual deadline of 31st March. It must be filed by residents who are liable for Spanish tax and who have, outside Spain, accounts, shares, investment funds, insurance, income, real estate and/or rights over real estate. It does not have to be filed if the value of the assets is less than 50,000 euros.
According to the ruling, fines for failure to declare assets abroad should equate to and be similar to those imposed in the national territory. In addition, the four-year statute of limitations should apply.
The Court of Justice of the European Union has ruled that the Spanish law requiring residents who are liable for Spanish tax to declare their assets or rights abroad is contrary to EU law. It considers that the obligations arising from the principle of the free movement of capital have been infringed, because:
• Taxpayers cannot rely on the statute of limitations if it is considered that they have not complied with their obligation to declare, or have done so incorrectly or after the deadline. This has allowed the tax administration to regularise the tax due without any time limit and without the existence of a statute of limitations in favour of taxpayers.
• Fines of 150% of the tax, calculated according to the value of the assets or rights abroad, are applied in the event of failure to file the informative return, incomplete filing or late filing. In addition, they are cumulative with penalties of a fixed amount. The Court of Justice considered that the high percentage of the fine made it extremely repressive.
• Spanish law imposes very high penalties for failure to comply with the obligation to declare assets and rights abroad. And they do not take into account the penalties imposed for similar offences at national level.
The abolition of the penalties imposed by Tax Form 720 should have a positive impact on Andorra, especially on the market for rented housing. It will allow many properties owned by Spanish residents who had previously been anonymous, to come to light. Owners will be able to let their properties if they wish, without the pressure of having to pay heavy fines for undeclared earnings abroad. However, they will have to declare these lettings.