Spanish “Form 720” reporting overseas assets ruled illegal by the EU Court of Justice

Spanish “Form 720” reporting overseas assets ruled illegal by the EU Court of Justice

The controversial reporting form and the penalties and consequences for failure to comply with or for late filing, have been declared contrary to the principle of free movement of the capital laid down on the TFUE according to the judgement of the European Court of Justice issued the 27th January 2022.

The form 720 was first introduced in 2012, along with the Spanish tax amnesty of the same year, aiming to make more urgent the disclosure of concealed assets, normally deposited at foreign entities. For that purpose, the Spanish legislator imposed the obligation of reporting assets abroad on yearly basis through the controversial form, at the risk of having serious consequences and penalties:

  • Considering non-reported assets, or reported after the filing deadline, as unjustified capital gains for the earliest tax year which has not yet become time-barred, regardless of the income’s generation year that gave rise to the assets abroad.
  • Imposing fines of 150% on the tax due resulting from the unjustified capital gains in point above.
  • Imposing strong penalties for failing to comply or comply lately with the filing of form 720.

Under the scheme above, concealed assets deposited abroad have no limitation period when not reported in form 720 or reported lately, allowing the tax authority to charge taxes on income from a barred period. Taxation on concealed assets together with the strong disciplinary system led to re-assessments which final payment exceeded the value of concealed assets abroad.

The European Court of Justice, in the judgement issued the 27th January 2022, considers the abovementioned sanctioning regime around the form 720 contrary to the free movement of capital. Specifically, declares that the Kingdom of Spain has failed to fulfil its obligations under the EU principle of free movement of capital:

  • by providing that the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets and rights located abroad entails the taxation of undeclared income corresponding to the value of those assets as ‘unjustified capital gains’, with no possibility, in practice, of benefiting from limitation;
  • by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to a proportional fine of 150% of the tax calculated on amounts corresponding to the value of those assets or those rights, which may be applied concurrently with flat-rate fines, and
  • by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to flat-rate fines the amount of which is disproportionate to the penalties imposed in respect of similar infringements in a purely national context and the total amount of which is not capped.

The Spanish Minister of Finance, Mrs. María Jesús Montero, after the issuance of the judgement declared that legislation on form 720 will be amended accordingly before the end of this year filing period (31st March), as well as the legislation around the form declared contrary to the TFUE and remarked that the form 720 is still in force and must be filed as in prior years.

Mrs. Montero also declared that the Spanish Treasury collected €230M in penalties due to form 720 since 2013. If you are one of the affected by the penalties and taxes above now declared illegal by the EU Court of Justice, it is the moment to analyze whether it is possible to recover the undue payments.

Rafael Villena
Partner of The International Taxation Area

If you would like further information, please do not hesitate to contact our office by calling 91.205.44.25 or by sending an email to contacto@selierabogados.com

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