Tax Form 720 is now in the spotlight of both the European Court of Justice (yet to issue a final decision) and the Spanish courts
The Spanish legislator established in FY2012 the obligation for all taxpayers to provide information to the Tax Administration on assets they keep in other countries on a yearly basis. This obligation shifts into three specific groups: 1) accounts in financial institutions located abroad; 2) stocks, bonds, values, financial rights, and savings in insurance companies, deposited, managed or obtained abroad; and, 3) real estate or rights over real estate located abroad.
To ensure taxpayers comply with their obligation to disclose assets abroad, severe penalties are applied in case of non-compliance: fine of EUR 5,000 for each set of data referring to a non-declared, incorrectly declared or falsely declared asset, with a minimum fine of EUR 10,000 per group. In addition, the income discovered that has not been declared will be considered as unjustified capital gain (taxed at the maximum tax rate up to 52%) and attributed to the last fiscal but not elapsed year. This means, in fact, that that period of assessment will never expire for these undeclared goods and rights. Additionally, a 150% penalty on such tax burden and late payment interest would be imposed.
The European Commission started an infraction procedure against Spain in 2015 due to this penalty regime, considering it discriminatory and conflictive with the fundamental freedoms of the EU due to the fines imposed for failure are much higher than penalties applied in a purely national situation and the lack of any statute of limitation period. Despite the opinion of the European Commission, the Spanish Tax Authorities has not changed its regulations. However, the Spanish Courts has started to rule in favor of the taxpayers in that regard considering the penalty regime of the Form 720 disproportional and unlawful.
The High Court of Justice of Catalonia has nullified, in a recent decision, the sanction imposed for the late presentation of such declaration for considering that the Spanish Tax Authorities failed in justify the guilt of the penalty imposed. The same argument was used by the High Court of Justice of Extremadura in a recent decision.
These are important developments while awaiting a decision from the EU (once the European Commission has already brought the case to the European Court of Justice). In any event, for now the controversial penalty regime remains in force. For this reason, we recommend to continue filing such declaration on time to avoid any risk to be sanctioned. It is important to note that in such scenario, the taxpayer should pay or guarantee the amount of the penalty imposed until a favorable ruling of a Court would be issued in its favor.