At the beginning of the year 2022, the Court of Justice of the European Union (CJEU) ruled and issued a judgment regulating the administrative sanctions imposed by the Spanish Public Administration related to the incorrect declaration of the well-known and controversial Form 720 (Declaration of assets and rights located abroad).
Previously, the European Commission prepared and issued an opinion declaring incompatible with EU law certain aspects related to the obligation of tax residents in Spain to declare their assets or rights located abroad through Form 720. It made special emphasis on the fact that the administrative sanctions imposed by the Spanish Public Administration were disproportionate to the spirit and objective of this informative declaration.
The Spanish Public Administration justified the existence of this informative declaration (Form 720) by virtue of the need to obtain relevant information from its tax residents on the assets and rights they own outside Spanish territory, the information provided by the public bodies of the countries of origin not being sufficient. The CJEU decided that this coercive measure contravenes the limits in relation to the objectives sought to be achieved by the measure itself, and on the basis of three main aspects:
- The violation of the free movement of capital made it impossible for the taxpayer to rely on possible statutes of limitation. The CJEU shows that the regulation produces a non-applicability of the statute of limitations and, in addition, allows the taxpayer to challenge a consummated statute of limitations, which entails a violation of the fundamental requirement of legal certainty.
- Imposition of disproportionate penalties that are not consistent with the purpose sought to be achieved by the public administration. Penalties of 150% of the tax calculated on the amounts attributable to the value of the assets or rights owned abroad and not declared or declared erroneously were applied. These penalties implied a disproportionate impairment of the free movement of capital.
- The penalties imposed for those taxpayers who do not declare, or erroneously declare, the possession of assets or rights in national territory. In these cases, the penalty amounts to €5,000.
The main consequences of the CJEU’s judgment?
The aforementioned ruling implies the prohibition of the application of the aforementioned penalty regime (fines of 150%), although Spanish residents with assets or rights abroad will continue to be obliged to file Form 720.
At the same time, it prohibits the application of the non-applicability of the statute of limitations on the income of Article 39.2 of the Personal Income Tax Law, i.e., unjustified capital gains that should be included in the general taxable income of the oldest tax period among the non-prescribed periods susceptible of regularization.
From now on, if I do not file Form 720, can I be penalized?
The aforementioned European ruling implies the annulment of the specific penalty system that imposed coercive fines of 150% of the value of the property or right that had not been declared. Currently, if you do not file the form, you will be subject to the penalties provided for in the general penalty regime.
Is it possible to reclaim the amount paid for penalties previously imposed?
Is it possible to reclaim the amount paid for penalties previously imposed? The CJEU opens the possibility to declare null and void all open challenges on these penalties, and also to initiate new proceedings to request the refund of undue income in order to return the penalties paid by those taxpayers who were penalized for the non-filing or incorrect filing of Form 720.
