Wednesday, July 6

European justice knocks down model 720 that requires declaring assets abroad


  • The Court of Justice of the EU rules that the restrictions on the free movement of capital that it imposes are disproportionate and the fines are very high

  • According to the ruling, Spanish legislation “goes beyond what is necessary” to guarantee effective tax controls and fight against fraud and tax evasion,

The national legislation that obliges tax residents in Spain to declare their assets or rights located abroad -from real estate to bank accounts, assets, own funds, assets of all kinds of entities as well as life and disability insurance- violates community law. The Court of Justice of the European Union has sentenced this Thursday against the controversial Spanish law, promoted by the former PP minister, Cristobal Montoro, considering that it imposes restrictions on the free movement of capital “disproportionate & rdquor; that go against EU law.

The ruling responds to the infringement procedure launched more than five years ago by the European Commission against Spanish legislation that obliges tax residents to declare their assets or rights with a value greater than 50,000 euros located abroad, through a named form ‘model 720’. Given the lack of solutions, Brussels denounced Spain before the CJEU in 2019, considering that certain aspects “were disproportionate & rdquor ;.

According to this law, residents in Spain who do not declare or declare imperfectly or late the assets and rights they possess abroad are exposed to significant fines. 5,000 euros for each omitted, incomplete, inaccurate or false data or set of data, with a minimum of 10,000 euros. In addition, for each data or set of data declared after the deadline or not declared by electronic, computer or telematic means when there was an obligation to do so, the tax administration imposes a penalty of 100 euros, with a minimum of 1,500 euros.

Unfulfilled obligations

In its ruling this Thursday, the court has ruled that Spain has breached its obligations regarding the principle of free movement of capital because the obligation to present the ‘model 720’ and the penalties derived from non-compliance, which have no equivalent in the case of goods or rights located in Spain, establish a difference in treatment among residents in Spain, depending on where their assets are located.

“This obligation may dissuade residents of that Member State from investing in other Member States, prevent them from doing so or limit their possibilities to do so, and therefore constitutes a restriction on the free movement of capital”, maintain the judges who recognize that , although the controversial legislation could be justified to guarantee the effectiveness of fiscal controls and fight against fraud and tax evasion, they conclude that it goes “beyond what is necessary” to achieve these objectives.

“disproportionate” options

The European judges consider, first of all, that the options chosen in terms of prescription are disproportionate because they allow the Tax Administration to proceed “without time limitation & rdquor; to the regularization of the appropriate tax for the amounts corresponding to the value of the goods or rights located abroad and not declared. This, they say, produces “an effect of imprescriptibility & rdquor; that allows the Treasury to question “a prescription already consummated in favor of the taxpayer, which violates the fundamental requirement of legal certainty & rdquor; and “goes beyond what is necessary” to ensure fiscal controls.

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Second, the Court of Justice criticizes the 150% penalty of the tax, calculated on the amounts corresponding to the expected value of the goods or rights abroad, because it can “accumulate with fixed-amount fines that are applied to each data or set of omitted, incomplete, inaccurate or false data & rdquor; to include in the form. The imposition of this sanction applies to those who have not complied with the information obligation and is sufficient to determine the existence of a infraction “very serious & rdquor; which is sanctioned with the aforementioned 150% fine, something “extremely repressive & rdquor; which can lead in many cases to the total amount of amounts owed by the taxpayer exceeding 100% of the value of their assets or rights abroad.

Finally, the judges conclude that the fixed fines provided are “very high” because non-compliance with mere declaratory or purely formal obligations is sanctioned and their total amount is not limited. The Court of Justice also recalls that the amount is accumulated with the proportional fine of 150% and concludes that the amount bears no proportion to that of the fines that sanction non-compliance with similar obligations in a purely internal context in Spain.



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