European justice drops model 720 to declare assets abroad

The national legislation which obliges taxpayers in Spain to declare their assets or rights 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 sentenced this Thursday against the controversial Spanish law, promoted by former PP minister Cristobal Montoro, as it imposes restrictions on the free movement of capital “disproportionate & rdquor; which is contrary to EU law.

The ruling responds to the infringement procedure launched by the European Commission more than five years ago against Spanish law requiring taxpayers to declare their assets or rights abroad, through a form called ‘model 720’. Given the lack of solutions, Brussels challenged Spain before the CJU in 2019, taking into account that certain aspects were “excessive & rdquor ;.

According to this law, residents of Spain who do not perfect or have declared or declare the assets and rights they own abroad are subject to substantial 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 fine of 100 euros, with ‘ a minimum of 1 500 euros.

Unfulfilled obligations

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

“This obligation may prevent residents of that Member State from investing in other Member States, prevent them from doing so or restrict their ability to do so, and thus constitute a restriction on the free movement of capital,” the judges maintained. recognizes that, although the controversial legislation may be justified in guaranteeing the effectiveness of fiscal controls and in combating fraud and tax evasion, they conclude that it is “more than necessary” to achieve these objectives.

“disproportionate” options

The European judges are of the opinion, in the first place, that the options chosen in terms of prescription are disproportionate because they allow the tax administration to proceed “without time limit & rdquor; to the regulation of the applicable tax for the corresponding amounts with the value of the goods or rights located abroad and not declared. This, they say, produces “an effect of unpredictability & rdquor; enabling the Treasury to “question a provision already in favor of the taxpayer that violates the fundamental requirement of legal certainty & rdquor; and” go beyond what is necessary “to ensure fiscal controls.

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Secondly, the Court of Justice criticizes the 150% fine of the tax, calculated on the amounts corresponding to the expected value of the goods or rights abroad, as it may “accumulate with fixed-amount fines applied to each data or set omitted, incomplete, inaccurate or false data & The imposition of this sanction applies to those who have not complied with the information obligation and is sufficient to prevent the existence of a violation “very serious & rdquor; sanctioned with the above 150% fine, something “extremely oppressive & rdquor; which in many cases can lead 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 fines imposed are “very high” because non-compliance with mere declaratory or purely formal obligations is sanctioned and the total amount thereof 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 is disproportionate to that of the fines that sanction non-compliance with similar obligations in a purely internal context in Spain not.

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