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Does Modelo 720 Infringe EU Law?
Tuesday, 08 December 2015

In 2012 the Spanish government announced that everyone resident in Spain will need to start declaring all their overseas assets worth over €50,000.  Modelo 720 (Form 720) was created for this purpose, and this obligation is separate from, and extra to, the annual income tax and wealth tax returns.  The penalties for failing to report assets are very high.

Earlier this year the European Commission (EC) reviewed the legality of Modelo 720 after several complaints submitted by different parties, including law firms and tax adviser associations in Spain.


 

 

The Commission launched an investigation into the fines and penalties imposed for the non-submission or incorrect submission of information on Modelo 720 as they seem to be disproportionate. The EC also investigated the fact that the obligations imposed are not subject to any statute of limitations, meaning that Spanish tax authorities have an unlimited time period to investigate the case, which could also infringe EU law.

 

Following its investigations, in November the EC opened an infringement procedure against Spain for Modelo 720.  The Spanish government now has a two month period to make its corresponding claims and arguments.

 

If the Commission does not find the response adequate, it will open a motivated procedure against Spain for infringement of EU law which could be referred to the European Court of Justice of the EU.  This previously happened with the succession and gift tax rules some years ago for discriminating against non-residents in Spain.

 

The Ministry of Revenue has confirmed that they will study the letter from Brussels in detail, and will consider the matter in greater depth.

 

The Modelo 720 is one of the most ambitious measures approved by the Spanish government to fight against tax evasion.  Since the first reports were submitted in 2013, taxpayers in Spain have already declared, for the first time, foreign assets of more than €126 billion (figure as at August 2015).  €90.9bn was declared in the first year, 2013, then €20.8bn the following year and €14.7bn in 2015.

 

Earlier this year, the tax authorities charged a Spanish resident the maximum penalty that can be imposed under the legislation.  The total came to €439,266, even though the assets in question were worth €340,000.  

 

The taxpayer, a retired Spanish national, had held assets held in Switzerland (shares and holdings in two unit trusts) for 20 years.  He never declared them on the corresponding Spanish income tax returns.  He declared these assets voluntarily on the Modelo 720, but submitted it 15 months late.  His tax advisers have recently confirmed that they will appeal the imposed penalty.

 

2016 declaration

 

The next submission deadline for Modelo 720 is 31st March 2016, related to assets held during fiscal year 2015.  We recommend that everyone continue to file their forms as required by law for the time being, in spite of this infringement procedure.  We need to wait and see how Spain responds and how it does change the reporting requirements in the end – this may take a long time, perhaps several years.

 

In most cases, the values you report are those as at 31st December 2015.  For bank accounts you also need to declare the average balance over the last three months of the year. 

 

In summary, if the value of your assets in a particular category amounts to over €50,000, you need to report all of them.   The categories are:

  1.  Accounts with financial institutions (cash/deposit accounts)
  2. Shares, life assurance policies, annuity income, income generated from loans etc.
  3. Immovable property

 

You are obliged to report assets if you are the owner, beneficiary, authorised signatory, or have the authority to dispose of the asset. This includes those held by trusts, companies or fiduciaries.

 

If you submitted Modelo 720 in previous years, you only need to report again if the value of an asset grew by more than €20,000 (you need to take exchange rate movements into account if you have assets in Sterling or other foreign currency), or if you sold an asset or closed an account, or if you obtained a new asset exceeding the amount previously indicated.

 

With specialist advice you can structure your financial affairs so that, legitimately, you pay the least amount of tax possible, and also so you need not be too concerned about Modelo 720.

 

Tax rates, scope and reliefs may change.  Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change.  Tax information has been summarised; an individual is advised to seek personalised advice.

 

David Bowern, Partner, Blevins Franks
Email:
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Tel: 952 809 212

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