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Saturday, May 25, 2024

The end of the 720 model and its pernicious penalty regime

By José Antonio Justicia, Tax partner at Grant Thornton Spain

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On 27 January 2022, the Court of Justice of the European Union (CJEU) pronounced the “death sentence” of the 720 tax return.

With the publication of the judgment in case C-788/19, the fight initiated by some taxpayers, through their advisors back in 2013, against the reporting obligation to declare assets and rights located abroad, declaring it contrary to EU Law, comes to an end.

In its published judgment, the CJEU declares that in relation to the 720 legislation:

Spain has failed to fulfil its obligations under the principle of free movement of capital by providing that failure to comply with, or imperfect or late compliance with, the obligation to report assets and rights located abroad results in the taxation of undeclared income corresponding to the value of those assets as “unjustified capital gains”, without the possibility, in practice, of relying on the statute of limitations.

Spain has also failed to comply with its obligations under the free movement of capital by penalising non-compliance or imperfect or late compliance with the reporting obligation with a proportional fine of 150% of the tax calculated on the amounts corresponding to the value of the assets or rights held abroad. This penalty may be cumulated with fixed-amount fines applied to each omitted, incomplete, inaccurate or false data or set of data to be included in the “Form 720”. The obligation to file ‘Form 720’ and the penalties arising from non-compliance or imperfect or late compliance with that obligation, which have no equivalent in respect of assets or rights located in Spain, establish a difference in treatment between residents of Spain depending on the place where their assets are located.

The Spanish legislature has also failed to fulfil its obligations under the free movement of capital by penalising non-compliance or imperfect or late compliance with the obligation to provide information on assets and rights situated abroad with fixed fines, the amount of which is out of all proportion to the penalties laid down for similar infringements in a purely domestic context and the total amount of which is not limited.

A whole period of claims against the Spanish Administration is now open, with a request for the refund of amounts paid, where appropriate, both for unjustified capital gains and for penalties, proportional 150% or fixed, deriving from any proceedings that have become final. In addition, the possibility of claiming via the State’s financial liability for those penalties that have become final may also be considered.

The ruling puts an end to Form 720 and its serious consequences in the event of non-filing or incomplete filing, so that, in pure logic, the form for the year 2021, whose deadline for filing began on 1 January 2022 and ended on 31 March 2022, will no longer have to be filed.

In any case, we will have to wait for the reaction of the Tax Administration and the Government.

About Grant Thornton Spain

We are the Spanish firm of Grant Thornton International, one of the leading professional service organisations worldwide with 58,000 people in over 140 countries. In Spain, Grant Thornton has over 900 highly experienced, multidisciplinary professionals with a sound business vision who provide services to over 3,500 clients from the following 12 office locations: Madrid, Barcelona, Bilbao, Castellón, Las Palmas, Málaga, Murcia, Pamplona, Valencia, Vigo and Zaragoza.

About José Antonio Justicia

José Antonio Justicia, a Law graduate from Universitat de Barcelona, is an experienced Tax partner at Grant Thornton barcelona office, with a demonstrated history of working in several industries. Skilled in Tax Law, Tax Planning, International Tax and Real Estate.

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