Form 720: is it Legal?
Form 720 (Modelo 720) was adopted on 29.10.2012 as part of the measures against tax evasion and fraud.
The law distinguishes between 3 groups of goods requiring information:
- Accounts abroad.
- Securities, rights, participation, insurance, annuities and deposits managed or invested abroad.
- Rights in rem or real estate abroad.
Who is obligated to provide information?
The obligation to provide information applies not only to the holders of such rights and property but also to representatives, agents or other natural or legal persons who may have them at their disposal.
The obligation to provide information does not apply if the values in the three groups do not exceed the sum of 50,000 euros. However, if this amount is exceeded in one of the groups, all goods in this group must be mentioned.
In the case of bank accounts, the amount is valid on 31.12. or the average of the last quarter, both for the declaring year.
In subsequent years, only changes of more than 20,000 euros compared to the previous year are subject to information requirements.
Of course, this information must correspond to the assets declared in the wealth tax.
This pure obligation to inform about foreign assets has two consequences, which have to be considered:
1. The high penalties threatened
The penalties threatened for incorrect or incomplete or missing information are from 5.000 euro for each missing information with a minimum of 10.000 euro. For late declarations, the penalty is reduced to 100 euro per information with a minimum of 1.500 euro. The penalty also applies regardless of whether the assets have been declared in the income or wealth tax. This means that if a taxpayer has a holiday home in France and does not complete the 720 models, he must pay a penalty of at least 10,000 euros, although the amount is increased because the date of purchase, the purchase price or the address of the property have not been declared. And it can get even worse.
The tax office assumes that the property or assets were acquired with undeclared funds and credits this amount as unjustified income in the income tax return so that this amount is taxed at a rate of 52% until 2014 and 47% today. A penalty of 150% will be added to this calculated tax, plus interest on arrears. In our example, this means that a taxpayer who acquires an apartment in 2001 and has a value of 300,000 euros can easily expect a penalty fee that exceeds the value of the property.
2. No limitation period
Although all other taxes that have to be declared to the State in Spain become statute-barred after 4 years (after the last due date, i.e. 4.5 years in practice), the provisions of Form 720 (Modelo 720) stipulate that this statute of limitations explicitly does not apply to the above criminal provisions. This means that the tax office can still enforce the penalties mentioned above at any time, even if the house was purchased in France during a tax period that has long since expired.
In order to prevent the acquisition of unjustified funds from being accepted, the taxable person must prove that he has taxed the means of purchase, which is not always easy. The burden of proof lies with the taxpayer. However, the penalty can also be circumvented if the taxpayer proves that he was not liable for income tax.
Are threats of punishment illegal?
The European Commission assumes that the aforementioned threats of punishment violate European law and opened sanction proceedings.
It has been announced in Brussels that sanction proceedings will be initiated against these “disproportionate” penalties and that Spain will be warned that the obligation to provide information on goods within the EU (EEE) may violate EU law.
The lack of a statute of limitations for goods within the EU or the EEE is disproportionate. The Spanish administration already has this information within the framework of the exchange of data within Europe, with the exception of Switzerland and Andorra.
But the Government has stated that it does not intend to change the declaration of assets abroad and continues to apply the 720 models. The truth is that, to date, and despite the demolishing opinion of the European Commission, no regulatory changes have been introduced to make the Model 720 compatible with EU law.
European Commission’s opinion has no effect on the validity and effectiveness of the rules laid down by the Member States, nor on the acts which have been produced in application thereof.
Although this obligation to provide information will sooner or later be declared null and void by the institutions in Brussels, it is nevertheless advisable to provide it at the moment. You can contact our office for any doubt or clarification you may have in this regard.