The European Court of Justice declares model 720 null and void

The famous 720 form in which information was given about assets and rights located abroad has been overturned by the Court of Justice of the European Union by declaring it illegal due to its excessive and discriminatory sanctions.

What does the 720 Model consist of?

The model was established in 2013 by the Spanish Treasury in order to prevent and fight against tax evasion and fraud. To do this, those people who had more than €50,000 abroad had to inform the State through this criticised model that had to include:

  • Report on accounts in financial institutions located abroad.
  • Report on real estate and rights to real estate located abroad.
  • Report on securities, rights, insurance and income deposited, managed or obtained abroad.

By way of clarification, the recurring information was foreign bank accounts, assets, securities, real estate, bonds, loans and/or insurance.

Why does the CJEU knockdown model 720?

On the morning of January 27, the CJEU has severely criticised the Spanish treasury for the fact of imposing fines that can reach 150% . This is for declaring after the established deadline or in an incomplete and inaccurate manner and maintains that it violates the free movement of capital and freedom of establishment.

How does Spain justify this model?

Spain is justified by the need to guarantee the effectiveness of tax controls and by the objective of fighting tax fraud and evasion, however, the Commission maintains that said regulations go beyond achieving these objectives.

On the freedoms in question

The argument of the Mallorcan lawyer Alejandro del Campo, who put Form 720 against the ropes before the court in Brussels, points out that Spain imposes excessive sanctions on citizens who fail to comply with this obligation or make mistakes in their declarations, violating the principle of freedom movement of capital and creating discriminatory treatment, by drawing a difference in treatment between residents in Spain based on the location of their assets.

In addition, it should be noted that the Tax Administration can proceed without time limitation to regularise the tax owed for the amounts corresponding to the value of the assets or rights located abroad and not declared, or declared imperfectly or untimely, through the “model 720”. Therefore, the Court of Justice points out that the regulations adopted by the Spanish legislator, in addition to producing an effect of imprescriptibility, also allow the Tax Administration to question a prescription already consummated in favour of the taxpayer, which violates the fundamental requirement of security legal.

TJUE

The impossibility of benefiting from the prescription

The most striking aspect of this model is the non-existence of prescription, without the citizen being able to rely on the prescription rules or avoid taxation by claiming that in the past he paid the tax owed for said assets or rights.

The Spanish Tax Agency with the hand of this model had the power to proceed without temporary limitation to the regularisation of the tax, they declared this a totally disproportionate measure.

The exorbitant fines of 150% and their fixed amount

This restriction has been declared totally inappropriate with respect to the free movement of capital, all taxpayers who could not prove that their assets or rights abroad were acquired through declared and taxed income would automatically be imposed the high 150% fine. At the same time, you must add the fixed amount fine determined by the tax administration depending on whether they provide incomplete, inaccurate or false data, or also if they do not provide the required information or do not do so within the established deadlines or forms.

These actions will be classified as “tax infringement” and will entail the imposition of a fixed monetary fine of 5,000 euros for each omitted, incomplete, inaccurate or false data or set of data.  Also combined with a minimum of 10,000 euros, and 100 euros for each data or set of data declared after the deadline or not declared by electronic, computerised or telematic means when there was an obligation to do so, with a minimum of 1,500 euros. The CJEU has noted that it is a disproportionate restriction on the free movement of capital.

Next steps

Spanish legislation must now hurry to reform the points of the model and be able to ask the CJEU for its legality from now on. The CJEU has not declared the entire model illegal, but only some details, mainly the limitation period and the amount of the penalties, are the two main points to be corrected. In addition, it has been noted that it is an informative statement, so the model is still valid.

Article was written by Joan Ubric and Antoni Queralt.

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