The Court of Justice of the EU has published a judgment, on January 27, 2022, by which it declares contrary to Union Law the Spanish tax regulations that oblige tax residents in Spain to declare their assets or rights located abroad, in “Modelo 720”.

Ruling by the Court of Justice of the European Union

The Spanish Minister of Finance and Public Function, María Jesús Montero, during the presentation of the collection data for 2021, explained that “Modelo 720” had been the subject of analysis by the European Union court for a long time and that the sentence fundamentally considers two aspects: that (1) a statute of limitations is not established and that (2) the percentage of the fines may be considered abusive.

According to Spanish regulations, residents in Spain who do not declare or declare imperfectly or declare out of time, the goods and rights they have abroad are exposed to the regularization of the tax owed for the amounts corresponding to the value of said goods or rights, the imposition of a proportional fine up to 150% of the value of the assets, even when these have been acquired during a prescribed period, as well as, specific fixed amount fines.

The judicial resolution states that: “The obligation to file the “Modelo 720”, which was launched by the former Minister of Finance Cristóbal Montoro, and the sanctions derived from non-compliance or imperfect or untimely compliance with said obligation, which have no equivalent regarding assets or rights located in Spain, establish a difference in treatment between residents in Spain based on the location of their assets. This obligation may dissuade residents of that Member State from investing in other Member States, prevent them from doing so or limit their ability to do so, and therefore constitutes a restriction on the free movement of capital”.

Fines before and after the sentence

The Court of Justice points out in this regard that Spanish law sanctions non-compliance of mere informative obligations by imposing very high fixed-amount fines, since they are applied to each piece of data or set of data; they are accompanied, depending on the case, by a minimum amount of 1,500 or 10,000 euros and their total amount is not limited.

However, although the sentence annuls the sanctioning regime and the non-status-of-limitation of “Modelo 720”, it does not imply the repeal of the obligation to file “Modelo 720”, whose term for the 2021 financial year expires on March 31, 2022.

María Jesús Montero claims that she will correct the two elements subject to revision of the “Modelo 720” with the “greatest speed”: “We are going to reformulate quickly, once we carefully read the small print, those aspects that have to be corrected”.

The minister explained that, although during the last three years no one had been sanctioned, pending this resolution, it is her intention to modify the two aspects before the March 31 deadline, and insisted on the obligation to file the 720 on time, this year.

Summary

As we have been saying at US Tax Consultants in recent years, residents in Spain, regardless of their nationality, must file “Modelo 720”, which is an informative return, which does not involve paying taxes, of all the assets they have abroad and as of next year will have to include cryptocurrencies. In addition one must be sure that all income generated by these assets has been declared in personal income tax return (IRPF) of the last four years. This means that in some cases where taxes have not been paid on those returns, it will be necessary to present complementary declarations, to regularize the tax situation.

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