On 27th January, 2022, the Court of Justice of the European Union ruled on the Spanish tax form 720, which obliges holders of accounts in financial institutions, securities, assets, property, virtual currencies or life assurance with a purchase value that exceeds 50,000 euros, and who are resident in Spain, to inform the Spanish Tax Agency about their property and other assets abroad.
According to the CJEU, the terms of the form are contrary to EU law, so Spain will have to make changes to the declaration form.
Table of contents:
- What is the Spanish tax form 720?
Reasons for the complaints about the Spanish tax form 720
The ruling of the Court of Justice of the European Union on tax form 720
Changes to the Spanish tax form 720 after the ruling
How does the European ruling on the Spanish tax form 720 affect Andorra?
It is an informative declaration that Spanish residents have to fill in showing the assets which they own outside Spain. It was created in 2012 and forms part of the “Normativa Reguladora de la declaración de bienes y derechos en el extranjero” the purpose of which is to fight fraud and tax evasion.
Completion of Spanish tax form 720 is compulsory for natural and legal persons who have the duty to report to the Tax Agency their movements abroad. On the form they have to report bank accounts, securities, assets, life assurance, income and property with a value of €50,000 or more.
The period in which taxpayers were supposed to regularise their situation was from the date when the regulations were was published in October 2012 until April 2013. From that moment onwards, everything that did not appear in this document incurred a fiscal offence with no statute of limitations.
The law inflicts heavy penalties on people who fail to declare, or who declare incorrectly or late. These heavy fines have led to many complaints to the European Commission.
The regulations provide for a fixed penalty of €5,000 per incomplete, undeclared or erroneous item or set of data, with a minimum of €10,000 per set. In addition, if the declaration is not submitted on time, the regulations provide for a fine of €100 per item or set of data declared after the deadline, with a minimum amount of €1,500.
In addition, there is also a 150% surcharge for unexplained capital gains.
In other words, the penalties may exceed the value of the assets.
No limitation period
There is no statute of limitations, and the administration can enforce the penalty without time limit. So if an asset is not declared, one faces these penalties even if that asset was received in the past and was not declared on the Spanish tax form 720 from 2012.
It should be borne in mind that the statute of limitations only expires for crimes of terrorism and genocide (in the case of fiscal offences, the statute of limitations usually expires after 4 years).
These measures affect both Spanish residents who invest in assets abroad and those who own them in their home countries.
Due to these facts, the European Commission opened an investigation in 2015, listening to the complaints of Spanish residents. In 2017, it ordered the Spanish Government to change the regulations within two months. And finally, in 2019, the case reached the European Court of Justice.
After almost three years, the ruling on the Spanish tax form 720 has been made public, highlighting the following irregularities in its application:
Restraint on the free movement of capital
The judges of the European Court found that Spain’s measures to fight tax evasion are disproportionate. They run counter to the right of free movement of capital within the European territory. The penalties can become a deterrent for Spanish residents who would like to acquire assets abroad. These penalties therefore hinder the movement of capital within the European Union because these Spanish residents will prefer to invest in their own country.
An illegal law
The European Court of Justice has ruled that the penalties for failure to complete the declaration, and for late or incorrect completion, and the non-applicability of statutes of limitation, are all unlawful. The financial penalties are excessive and can in many cases amount to as much as 100% of the value of the assets and rights abroad. Furthermore, the Court considers that the non-applicability of statutes of limitation infringes the legal certainty of individuals, since the administration can challenge a time-barred act at any time.
For these reasons, the CJEU concludes that the Tax Agency is going beyond its power to control and fight money laundering.
Finally, Spain has taken a position and has proposed to change the terms of the Spanish tax form 720, although it will continue to be mandatory. The form will be modified to conform to the ruling of the European Court of Justice.
Spain undertakes to reduce the financial penalties, which may not exceed 50% of the amount defrauded. In addition, the non-prescription of the offence disappears and the Spanish tax form 720 is adapted to the other fiscal offences that are time-barred after four years.
These changes should enter into force a few weeks after they are approved by the Spanish Congress, and will apply to proceedings that began on 1st January 2020 and have not yet been completed.
This change will be positive for many Spanish residents who own residential property in Andorra, as they will be able to regularise their situation. It will also be advantageous for the country, as it will enable new homes to be put onto the market, either for rent or for sale.
In addition, people who wanted to have a second residence in Andorra but were held back by the penalties of the Spanish tax form 720 form will now be able to proceed with greater peace of mind.
In this article we tell you about the benefits of investing in real estate in Andorra.
And not only about buying a flat in Andorra, but also about creating a company in Andorra and continuing to live in Spain. In this article of our blog we explain how to do this.
If you are interested in investing in Andorra, Advantia can help you with the formalities and procedures.