Spanish tax form 720, assets declaration model

The Spanish tax form 720, is a declaration of overseas assets held outside of Spain that was made to help fight against tax evasion.

All-natural persons and corporate entities with residence in Spain, holding properties or interests located abroad when their value exceeds €50,000, must submit the form 720. It applies to individuals and legal persons who also own, control or have the power of disposition of foreign assets worth more than €50,000.

Regarding the assets to be declared in the Spanish tax form 720, it is necessary to distinguish these three different categories:

1. Bank accounts abroad and financial institutions opened, when the total balance of all the accounts exceeds €50,000.
2. Securities, collective investment schemes, life insurances and annuities, that are held abroad and exceed €50,000.
3. Real estates and interests in real estates with a purchase value that exceeds €50,000

You will need to report even if your share of assets is lower than €50,000 because the joint amount exceeds €50,000. With joint assets, each owner needs to declare the full value (not prorated) and indicate their percentage.

On the other hand, Spanish Form D6 is a mandatory declaration for holders of shares or securities of companies registered on a stock exchange abroad. The D6 form is an informative declaration, as it is not a tax declaration, the payment of taxes is not required. It is a declaration relating to investments in securities that are listed on an organized market abroad or when the securities portfolio remains under the custody of the investment holder.

The 720 Form is different and independent from Form D6, in fact, each form is regulated by different laws.

You should declare the form 720 again if you find yourself in the following situations:

• If the existing account balance, for each of the scenarios mentioned above, increases more than €20,000 concerning the last declared value.
• When you jointly own goods or assets in shared ownership with other titleholders, and the total amount of these assets exceeds the 50,000€ threshold.
• When you have ceased to be titleholder, representative, authorised person, beneficiary, a proxy or beneficial owner.
• When an asset is transferred, a bank account is cancelled, or new assets are acquired.

Form 720 should be submitted telematically from the 1st of January to the 31st of March of every year.

If, for example, a British taxpayer who is also a tax resident of Spain since the 2019 exercise, and he has assets abroad with a value of over €50,000, will have an obligation to present the form 720 between the 1st of January and the 31st of March of 2020.

Late, incomplete or non-submission is penalised with extremely severe fines. Every piece of information which is wrong or has been left out will generate a fine of €5,000 per asset, with a minimum penalty of €10,000.

Every mistake in the form 720 will cause a fine of €100 per data not provided, with a minimum fine of €1,500. To avoid any possible errors, we recommend you to find help from a professional tax advisor.

If the taxpayer files the statement outside the stipulated time limit, he/she risks that Treasury may assume the assets abroad constitute “an unjustified capital gain,” in which cases, the penalty amounts to 150% over said fee, “even if those assets and rights originate from prescribed periods.”

Interesting read: Checklist for Moving to Spain from the UK

At the beginning of 2017, the European Commission opened an infringement procedure against Spain (procedure number 2014/4330) in relation to Spanish tax obligation to declare assets abroad – known as Model 720 – imposing fines of up to 150% of the unjustified capital gain, violates five fundamental rights contained in the Treaty on the Functioning of the European Union (TEU).

“It establishes a discriminatory and disproportionate penalty regime for failing to file or filing late Form 720.”

The Commission concluded that the Spanish legislation infringes several European fundamental rights: the free movement of people (article 21 of the TFEU)and workers (article 45 of the TFEU and Article 28 of the European Economic Area Agreement – EEA), (article 49 of TFEU and article 31 EEA), the freedom to provide services (Article 56 of the TFEU and Article 36 of the EEAW) and the free movement of capital (article 63 of the TFEU and Article 40 of the EEIG).

We can add that other constitutional principles are also violated under this tax reporting system: legal security, judicial protection and economic capacity.

Courts are starting to cancel specific penalties and outstanding payments related to Form 720

• Ruling from the 16th of January 2019, Rec 4253/2016. The Spanish Central Economic-Administrative Court (TEAC) rejected to consider non-declared equity gains resulting from late submission of 720 Form. In this case, the court declared that the taxpayer had provided sufficient evidence that the foreign assets had been obtained with incomes sufficiently declared in the past.
• Ruling from the 14th of February 2019, 529/2016 TEAC. The court cancelled a fine worth 150% in favour of a taxpayer, who did report the foreign assets to the Tax Authority. As a result, the court ruled that the intention to evade taxes could not be proven.
• Another recent ruling from the Court of Castilla y León, 28th of november 2018, cancelled the fines deriving from late 720-Model submission, arguing that these were disproportionate.

Moreover, the Regional Economic Court from Valencia has annulled several of these fines based on the fact that many taxpayers aren’t aware of this duty. To be accepted, the Tax authority must be able to prove the person guilty of not declaring foreign assets.

For all these reasons, Rosana tejada – tax advisor of Tejada Solicitors – recommends to fight back these penalties. Fortunately, it is possible to avoid these penalties if there is proof that the assets were generated before the person became a tax resident in Spain.

In the application of article 258, the Kingdom of Spain is called to adopt the necessary measures to comply with this circumstance within two months from the date of receiving the opinion.

The Commission is not aware that there is an equivalent exhaustive information obligation for resident taxpayers in possession of similar assets and rights located in Spain. Thus, taxpayers with residence in Spain owning similar assets and rights established in the country are not subject to comparable penalties.

Sanctions imposed in case of non-compliance or incorrect fulfilment of the information obligation are considerably more onerous than those applied in a purely internal situation of non-compliance or incorrect fulfilment of the tax obligations.

On the 23rd of December 2019, as a part of the C-788/19 appeal procedure, the European Commission urged Spain to modify the laws, claiming that:

1. Fines for either failing to report offshore assets and rights or for late submission were disproportionate.
2. Non-declared assets needed to be considered as non-justified capital gains that never prescribe, unless the taxpayer can prove that they were obtained when residing abroad or if they come from equity declared in Spain. Otherwise, this income would be considered for IRPF (income tax) and would be assigned to the last year which hasn’t been prescribed.

The final ruling of the Court of Justice of the European Union is expected to take about two years. In the meantime, the Tejada Solicitors team recommends appealing any sanctions related to the Model 720 submission, as most courts are following the European Commission’s trend.

 On 15 July 2021, the General Counsel of the European Union Henrik Saugmandsgaard has issued his conclusions regarding the procedure that the European Commission initiated against Spain in respect of Model 720, in these conclusions the General Counsel of the EU, considers the fixed fines for disproportionate breach of the obligations associated with model 720, such as:

• Non-presentation of the declaration.
• Untimely presentation of the declaration (presentation after the deadline, without prior requirement by the administration).
• Presentation of the return which contains incomplete, inaccurate but impromptu information corrected after the deadline by the taxpayer without prior request from the administration.

The EU General Counsel in his assessment considers that said breaches do not cause any economic damage or loss to the Public Treasury, for which he considers that the fixed fines are disproportionate for the reasons invoked by the commission

The law draft on tax prevention and tax fraud measures approved on 23 October 2020 includes, among other measures, a new obligation to provide information on virtual currencies ( Cryptocurrencies as Bitcoin) located abroad that are held, or for which there is a beneficiary or authorised status on 31 December 2020.

In the event of failure to comply with the obligation to provide information on virtual currencies located abroad, the penalty will be a fixed fine of EUR 5.000 for each data item or set of data relating to each virtual currency individually considered according to its class, with a minimum of EUR 10.000.

The penalty will be 100 Euros for each data or set of data referring to each virtual currency individually considered according to its class, with a minimum of 1,500 Euros provided that the declaration has been submitted after the deadline without prior requirement by the Spanish Tax Office.

The Court of Justice of the European Union (CJEU) delivered a ruling on Thursday, January 27, 2022, invalidating the sanctions generated from the duty to declare assets and rights abroad.

After the Model 720 sanctioning regime is overturned, the Spanish legislator will have to establish new, substantially inferior fines.

Similarly, the CJEU annuls the imprescriptibility of unjustified capital gains, specifically annulling the possibility that the Tax Administration can regularize the tax without any time limit, and thus there is the possibility of arguing that the assets and declared rights belong to prescribed exercises and that the administration has no way of regularizing the tax.

Penalties imposed by the Spanish tax agency, repealed following the ruling of the Court of Justice of the European Union (CJEU) which delivered a ruling on Thursday, January 27, 2022.

In 2015, it was known that the Treasury Department requested “a pensioner who voluntarily declared that he had about 340,000 euros prescribed in Switzerland”, aka about 439,000 euros (185,000 euros for IRPF (Income Tax Return for Individuals for its acronym in Spanish), interest and a fine of 254,000 euros, that is 150% of the fee).