The Court of Justice of the European Union (CJEU), in its judgment of 27 January 2022, Case C-788-19, considers that national legislation requiring Spanish tax residents to declare their assets or rights located abroad is contrary to EU law since, although pursuing a legitimate interest (i. e. tax control and the fight against fraud), the mechanisms chosen by Spain are disproportionate to achieve that aim.

What does the judgment say?

In its judgment, the CJEU analyses three aspects:

  1. Taxation of undeclared income, declared after the deadline or with errors, without the possibility for the taxpayer to rely on prescription
  2. The 150% penalty on the alleged unjustified capital gains imputed to the taxpayer who fails to comply with the obligation to declare, which could also be cumulated with the fixed penalties
  3. Fixed penalties of 5,000 or 100 euros for each data or set of data, with a minimum of 10,000 or 1,500 euros, established according to the case of not declaring, declaring erroneously declaring or out of time.

The CJEU established that it is not valid for the tax administration to be able to act without a time limit, as this violates the principle of legal certainty, especially in the case of non-compliance with a formal obligation.

The penalties imposed are disproportionate, in particular, the fixed penalties exceed those laid down in the General Tax Law for other reporting obligations.

The disproportionate penalty regime and the imputation of alleged unjustified capital gains, without the possibility of applying prescription, could dissuade Spanish residents from investing abroad.

Is the obligation to file Form 720 still mandatory?

The presentation of the Model 720, which expiration date is March 31, 2022, remains mandatory.

The CJEU considers the obligation to report assets and rights located abroad to be justified, in order to guarantee tax control and the fight against fraud.

The Ministry of Finance has informed that the regulations governing Form 720 will be modified, in line with the ruling of the CJEU on the statute of limitations and the proportionality of penalties.

This change may provide taxpayers with an incentive to regularize returns that have not been filed and/or rectify errors or omissions.

Can it be claimed?

The procedure will depend on the situation of each taxpayer. It will be different in each case if the appeals are underway, if the penalty is within the deadline for appealing or if the penalty is already final, so we advise you to analyze each case.

If you have any questions about how to complete the Model 720 or you want to initiate a complaint about the penalties imposed, do not hesitate to contact Arintass professionals.

Ramón Sánchez

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