The CJEU rules against Spain, radically reducing the pernicious effects of non-compliance with the information obligations of model 720

The CJEU rules against Spain, radically reducing the pernicious effects of non-compliance with the information obligations of model 720

The Court of Justice of the European Union (CJEU) pronounces in its ruling of January 27, 2022 on case C-788/19 against the Kingdom of Spain, in relation to the regulations that regulate the declaration of assets abroad, through form 720, understanding that there is a clear violation of the fundamental principle of the European Union (EU) of free movement of capital.

Indeed, in the EU there are mechanisms for the exchange of information and administrative assistance between the different Member States, regarding information on the assets and rights that Spanish tax residents have abroad. Despite this, since 2013, the need to declare, using the well-known '720 model', the assets and rights that Spanish residents may have abroad was imposed in Spain.

The specific regulation on the declaration of assets and rights abroad has been very controversial in Spain, to the point that the legality of some of its aspects has been questioned before the CJEU, which in its recent ruling has declared itself contrary to the Kingdom of Spain. In it it establishes that the legal requirements imposed are contrary to and restrictive of the fundamental community principle on the free movement of capital. This is why, as a result of the Judgment, several precepts of the legal regulation on the aforementioned declaration of assets and rights abroad are reduced, and even in certain aspects without effect.

Firstly, the Judgment refers to the fact that failure to provide information on income obtained abroad can be considered “unjustified capital gain.” In this regard, the CJEU seems to be favorable to the current regulation, understanding that it is not disproportionate.

Secondly, in relation to the current practical imprescriptibility of assets and rights acquired prior to the limitation period, the CJEU concludes by ruling that it is contrary to the principle of legal certainty, for violating the legal certainty of the taxpayer with a prescription already won.

Likewise, the CJEU also rules on the sanctioning provisions established directly for cases of non-compliance with the declaratory obligation. The Judgment concludes that they are extremely repressive, establishing sanctions of 150% of the undeclared “capital gain”, as well as fixed-amount sanctions, which do not take into account at any time the proportionality of the undeclared asset. These burdensome sanctioning provisions could lead to a possible scenario in which the taxpayer would have a tax burden greater than the value of the assets established abroad.

For this reason, the Court has understood that the sanctions established in the current regulation were contrary to the principle of free movement of capital, by limiting the interest of residents in Spain to invest in other Member States, proceeding to declare the sanctions contrary to EU law. sanctioning precepts and those related to tacit imprescriptibility.

As a consequence of the above, the door is opened for, depending on the case, some means of claiming the sanctions imposed and for the regularization of assets and rights abroad that were not previously declared for fear of suffering disproportionate sanctions.

The Government has introduced six proposals for legal modifications to the regulations that regulate model 720 in order to limit the limitation period to 4 years and replace the existing illegal sanctioning regime.

Tax Department.

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