EU lawyer slams Spain’s huge fines for not filing foreign asset declaration properly

EU lawyer slams Spain's huge fines for not filing foreign asset declaration properly
A picture of the sign and logo of the Court of Justice of the European Union in Luxembourg. Photo: JOHN THYS / AFP
A top EU lawyer has criticised Spain's controversial fines for taxpayers who incorrectly fill out model 720 or hand the form in late, calling them “disproportionate” and contrary to EU freedoms.

If you live in Spain and own assets abroad, you’re no doubt familiar with Modelo 720 and the risks you face for not declaring your assets overseas.

If you have bank accounts, assets/private pensions or a property abroad which are worth more than €50,000, you have to declare all this to the Spanish taxman.

READ MORE: Do I really need to declare foreign assets to the Spanish taxman?

Under current legislation, Spain establishes that income abroad that is not declared, or which is reported after the March 31st deadline, will be treated as an unjustified capital gain and will receive a penalty of 150 percent of the value of the amount.

These fines can exceed the real value of the assets declared after the deadline, since they are set at an amount of €1,500 for each group of goods affected, or €5,000 for undeclared or incorrectly recorded data, with a minimum of €10,000 per group.

On Thursday July 15th 2021, the Court of Justice of the European Union (CJEU), which interprets EU law to make sure it is applied in the same way in all EU countries, listened to a report in which these fines were dubbed as “disproportionate” and contrary to what’s accepted within in the EU framework.

The matter was presented by Advocate-General at the Court of Justice of the European Union Saugmandsgaard Øe, a prosecutor whose assessment is not binding for the Luxembourg-based court but is usually followed closely in the bulk of proceedings.

Øe’s criticism focuses especially on the fixed fines linked to each incorrect or excluded piece of data in the asset declaration of Spain’s model 720. 

Spain’s asset declaration penalty system was first implemented in 2012 by then Finance Minister Cristóbal Montoro under the right-wing PP government of former Prime Minister Mariano Rajoy, and the legislation has been causing legal problems for Spain’s Tax Agency ever since.

In February 2017, the European Commission issued a complaint against Spain arguing that the fines are in conflict with EU rules and breached four community freedoms of the European Economic Area: free movement of people and workers, freedom of establishment, free presentation of services and the free movement of capital.

Despite the EC’s damning report, in which it called for the “discriminatory” system to be overhauled within two months, nothing changed and Brussels ended up taking the matter to the Court of Justice of the European Union.

However, Spain’s Hacienda tax agency has continued to penalise taxpayers who don’t get their asset declaration 100 percent right, as the European Commission wasn’t able to show enough evidence of irregularities in Spain’s tax system.

A number of Spanish judges have lifted fines for these taxpayers but ongoing sanctions mean the matter is again set to be debated in the EU’s Court of Justice following Saugmandsgaard Øe’s report and the EC’s latest official complaint.

Will EU magistrates be able to convince CJEU judges this time that Spain is treating non-declared assets abroad as unjustified capital gains, and that penalties for getting the tax form wrong are far too harsh?

In the words of the EU’s Advocate General, “Spanish regulations effectively constitute a restriction on capital movements, since they may dissuade tax residents in Spain from investing in other Member States, or prevent or limit their ability to do so.

“However, this restriction may be justified by the objectives pursued in the fight against tax fraud and evasion.”


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