Form 720 Spain eBook: Information return.
Information return on assets and
rights held abroad.

1. Introduction

On October 29th, 2012, Law 7/2012 was approved to modify tax and budgetary regulations and to adapt the financial regulations to reinforce prevention of and the fight against fraud (BOE of October 30th), regulated by number 17 of Article 1, the introduction of the Eighteenth Additional Provision, of the General Tax Law, relative to Form 720.

This new obligation was developed in Articles 42 bls, 42 ter and 54 bls of the General Regulation on the actions and procedures for tax management and inspection.

Form 720 is an information return for overseas assets and rights and since its approval, it has generated doubts and much criticism due to the disproportionate penalty scheme that is provided by law for cases of non-compliance.

The obligation to declare assets and rights abroad was established for the first time in 2012 and the deadline for submission of the information return corresponding to said year was due on April 30, 2013.

What it consists of, what types of assets and rights have to be declared, who is obliged to pay, what penalties are established in the case of non-compliance and what are the most frequent doubts of those obliged to submit the form. There is no doubt that in this case, more than in any other, it is important to consult a good tax advisor.

ETL ILIA’s tax advisers are specialists in the study and submission of Form 720. Since the beginning, we have been involved with the advice, preparation and submission of one of the most controversial forms of the Spanish Tax Agency.

Form 720 is, without a doubt, one of the most complex forms of all those required by the Public Tax Administration; not so much because of the way it’s filled in, which is not particularly complicated, but because of its significance.

Failure to submit this form, its incorrect completion, or even its submission after the deadline (before March 31st), currently imposes disproportionate consequences and penalties. So much so that Form 720 itself is being appealed before the European justice system, which will probably rule against the Spanish State. We will soon see exactly in what terms.

If you have any questions about whether you or your company should submit Form 720, as well as if you have questions about information returns from previous years or forms not submitted and this eBook does not dispel your doubts, get in touch with us and we will be happy to listen to, advise and help you.

ETL ILIA is a tax, accounting, labour and legal consultancy in Barcelona. Specialised in Incorporation of Companies, Accounting Automation and Form 720.

 

2. Definition of Form 720

Through Form 720, three different information obligations are fulfilled:

• Information on accounts in financial entities that are located abroad.
• Information on securities, rights, insurance and income deposited, managed or obtained abroad.
• Information on real estate and rights to real estate located abroad.

Therefore, it is a purely informative statement and for each group of obligations there are a series of exemptions, as we will see in the following sections.

3. Who is required to submit Form 720?

Based on Article 2 of Order HAP / 72/2013 which approves Form 720, the following criteria is required to submit said form:

• Natural and legal persons residing in Spanish territory
• Permanent establishments or non-resident legal persons in Spain
• Entities regulated in Article 35.4 of the General Tax Act (inheritance in abeyance or community estates).

Said persons, establishments or entities must submit Form 720 if any of the following cases apply:

1. When, in their capacity as owner, representative, authoriser, beneficiary, person or entity with powers of disposal or as beneficial owner, they have the obligation to report the accounts in financial entities located abroad by application of the regulations in force.
2. When they are holders or beneficial owners, (provided they are located abroad) of securities or rights resubmitting participation in any type of legal entity, securities resubmitting the transfer to third parties of own capital or securities contributed for its management or administration to any legal instrument, including trusts and trusts or assets that, however lacking in legal personality, can act in economic traffic.
3. When they are owners or real holders of shares and participations in the capital stock or patrimonial fund of collective investment institutions located abroad.
4. When they are policyholders as of December 31st of each year of life or disability insurance, when the insurer is located abroad or when they are beneficiaries as of December 31st of each year, of temporary or lifetime income as a result of the delivery of a capital in money, of rights of economic content or of movable or immovable property, to entities located abroad.
5. When they are the owners or are considered the beneficial owner with respect to real estate and rights over real estate located abroad.

4. What is declared in Form 720 and how to complete it

a. Assets and rights to declare in Form 720

Based on what is mentioned in the previous section, in Form 720 the assets and rights detailed below are declared.

Accounts overseas

Taxpayers must declare any accounts located abroad that have been opened in entities dedicated to banking or credit traffic of which they are owners or beneficiaries, or in which they appear as authorised or in some other way they hold power of disposition.

The information to be provided to the tax administration is as follows:

• Company name or full name of the bank or credit entity and its address.
• Complete identification of the accounts.
• The date of opening or cancellation or, where appropriate, the dates of granting or revocation of the authorisation.
• The account balances as of December 31st and the average balance for the last quarter of the year. These two pieces of information must be provided by the holders, representatives, authorisers or beneficiaries of those who have powers of disposal over the accounts or are beneficial owners.

The information obligation described above regarding the accounts will not be applicable in the following cases:

• When the Autonomous Communities, autonomous bodies of the State and public law entities, managing entities and common services of Social Security and other entities provided for in section 9.1 of the Company Tax Law are the holders.
• When legal persons and other entities resident in Spanish territory are holders, as well as permanent establishments in Spain of non-residents, registered in their accounts individually, and identified by their number, credit institution and branch in which they appear open and country or territory in which they are located.
• When the owners are natural persons, legal entities and other entities resident in Spanish territory, opened in establishments abroad of credit entities domiciled in Spain, which must be the object of information return by said entities in accordance with the provisions of Article 37 of these Regulations, provided that they have been declared in accordance with the regulations of the country where the account is located.
• When the balances as of December 31st do not jointly exceed €50,000, and the same circumstance occurs in relation to the average balances. If this value is exceeded, all accounts must be reported.

The filing of the return in subsequent years will only be mandatory when any of the joint balances had experienced an increase of more than €20,000, with respect to those that determined the submission of the last return.

Securities, rights, insurance and income

This section of the information return refers to the following elements:

Values

• Values ​​or rights resubmitting participation in any type of legal entity..
• Representative values ​​of the transfer to third parties of own capital.
• Securities contributed for its management or administration to any legal instrument, including trusts or assets that, despite lacking legal personality, can have a commercial purpose.

The information to be provided is as follows:

• Company name or full name of the legal entity, of the third-party assignee or identification of the instrument or legal relationship, as appropriate, as well as your address.
• Balance as of December 31st of each year:
  • The values ​​and rights resubmitting the participation in the capital or in their own funds of legal entities. The information will include the number and class of shares and participations held, as well as their value.
  • The representative values ​​of the transfer to third parties of own capital. The information will include the number and class of securities held, as well as their value.
  • The values ​​contributed to the corresponding legal instrument. The information will include the number and class of securities contributed, as well as their value.

Any owner or beneficial owner of the values ​​and rights of the last three previous sections will also be obliged to submit Form 720 if they have lost such condition on December 31st of the corresponding year.

Shares and participations

Shares and participations in the capital stock or patrimonial fund of collective investment institutions located abroad of which the taxpayers are holders or with respect to which they are considered the beneficial owner.

The information will include:

• Company name or full name of the collective investment institution.
• Address of the institution.
• Number and class of shares and participations, the department to which they belong, and net asset value as of December 31st.

The obligation to declare extends to any taxpayer who had been the owner or beneficial owner of the shares and participations who had lost that condition on December 31st of the corresponding year.

Insurance and income

• Life or disability insurance of those who have been policyholders as of December 31st, in the event that the insurance company finds them abroad. The redemption value must be indicated on that date.
• Temporary or life annuities of which they are beneficiaries as of December 31st as a result of the delivery of a capital in money, of rights of economic content or of movable or immovable property, to entities located abroad, indicating their value of capitalisation as of that date.

In these cases, the following information must be provided:

• Company name or full name of the insurance company.
• Address of the insurance company.

The necessary information regarding titles, assets, securities or rights will not apply in the following cases:

• When the taxpayer is an Autonomous Community, an autonomous body of the State and an entity governed by public law, managing entity and common services of Social Security or other entities provided for in section 9.1 of the Corporation Tax Law.
• When the taxpayer is a legal person or entity resident in a Spanish territory or when they are a permanent establishment in Spain or non-residents, who have individually recorded values, rights, insurance and income in their accounts.
• In the event that the values, the net asset value, the redemption value and the capitalisation value together do not exceed the amount of €50,000.

In this case, as in the previous one, the filing of the return in successive years will only be mandatory when the combined value for all the aforementioned values ​​has increased by more than €20,000 compared to the last return.

Real Estate

Form 720 must provide information on immovable property and rights to immovable property (beneficial interest or bare property, for example) located abroad, or owned by a person or entity.

The obligation to submit occurs when the combined value of that group of goods is greater than €50,000. For the valuation of real estate, the real value of the property at the time of its acquisition will be taken into account.

b. How to fill out Form 720

The submission of Form 720 must be done electronically and can be done either through an electronic identification certificate, electronic DNI, or through Cl@ve PIN.

For the submission of Form 720, there are three options:

• Personal submission with electronic certificate.
• Submission by a social collaborator.
• Submission by a proxy.

Before making the electronic submission, it is possible to obtain a draft of the information return, which consists of a PDF file containing a simulation of the result of the information return.

The draft can be obtained in two ways:

• By means of electronic certificate you can fill out the form.
• If you do not have an electronic certificate on the Spanish Tax Agency page, there is the option to get the draft without.

To access Form 720, enter the Spanish Tax Agency’s electronic headquarters website www.agenciatributaria.gob.es and access:

• All procedures
• Taxes and rates
• Informative statements
• Form 720 (Submission of assets and rights located abroad)
• Procedures
• Submission 2015 and subsequent years

When you open the form, there is a section at the top with the declarant’s information and a summary of the information return. Mandatory fields are marked with a red asterisk. Mandatory information includes: the NIF, surname and first name or company name, of the relevant person and their telephone number.

The summary of the information return will be entered automatically when filling in the fields of the form.

The second part of the form corresponds to the detail record, where the information related to the assets and rights that I am going to report will be included. To include each record, click on the “+” sign that appears on the screen.

As for the common mandatory information for goods and rights, they are as follows:

• Declarant’s status key.
• Type of asset or rights key.
• Subkey of assets or rights.
• Country code.
• Postal Code.
• Origin of assets.
• Percentage of participation.

Depending on each type of asset or right, there are a series of mandatory fields marked with a red asterisk.

At the bottom of the screen, we will see various options that allow us to validate the information return or obtain the draft. The validation of the information return allows us to check any errors that may exist.

If the declaration is correct, we can sign and send it. In order to do this, we must access the initial screen with the declarant’s information and click on the option to sign and send.

c. Deadline for submission

The informative submission on assets and rights located abroad will be submitted between January 1st and March 31st of the year to which Form 720 refers. For example, the information return relating to 2016 must be submitted between January 1st and March 31st, 2017.

5. The disproportionate sanctions for failure to submit Form 720 and the European Union investigation

a. Infringements and sanctions

One of the most controversial aspects of Form 720 is the high penalties that can be imposed for the following reasons:

• Not submitting the information return
• Submitting the information return after the deadline
• Submitting an incomplete, inaccurate or false information return
• Submitting the information return by means other than electronic, computerised or telematic. In those cases where there is an obligation to do so by such means.

The infringements detailed above are considered to be very serious and will be sanctioned as follows:

• The penalty for not submitting the information return or for doing so with errors or omissions is €5,000 per piece of incorrect information or data, with a minimum of €10,000 for each group of assets.
• The penalty for submitting the information return after the deadline is €100 for each piece of information with a minimum of €1,500 for each group.

In addition to the above sanctions, the Treasury may consider that the assets abroad are unjustified capital gains and charge you the Personal Income Tax (IRPF) or Corporation Tax (IS) a fee of up to 52% more than its value, plus an additional penalty of 150% on the said fee.

The declaration of assets and rights abroad aims to eliminate large fraudsters. But with the strict application of the regulations, also affects small savers and many foreigners who reside in Spain who may be unaware of this obligation that has been imposed on them.

b. Infractions and penalty scheme

The penalty regime provided for in the regulations and analysed in the previous section can be summarised in the following scheme:

c. Examples of non-compliance

Below, we detail some examples of non-compliance to show the high penalties that the Tax Administration can impose based on the provisions of the applicable regulations.

The Andalusian pensioner with €340,000 in Switzerland

In June 2015, an Andalusian pensioner submitted Form 720 after the deadline, corresponding to the fiscal year 2012. He declared that he had €340,000 in Switzerland and the Treasury demanded €440,000 from him. This was despite the fact that the pensioner had proved that he had that money there for many years and that it was prescribed when the regulations on the declaration of assets and rights abroad came into force in 2012.

The regulation was applied to the pensioner and all their money was cited as unjustified capital gain, for which he has applied a 150% penalty on the personal income tax. Finally, the Treasury confirmed the inspection report and demanded €169,300 of personal income tax, 19,060 of interest and 253,950 of a 150% penalty. The liquidation was appealed before the Central Economic-Administrative Court.

Someone with €250,000 in bank accounts in the United Kingdom

A person residing in Spain voluntarily submitted Form 720 in 2013, within the deadline stating that he had €250,000 in accounts in the United Kingdom, indicating that the accounts were opened in 2010.

The Treasury carried out an inspection and considered that this person should have reported their accounts in the United Kingdom with the 2012 Form 720 and not with the 2013 Form 720. Therefore, they applied the following sanctions: from the 5 accounts, there are 5 pieces of data per account, so in total 25 pieces of information and a fine of €125,000 (€5,000 for each piece of information) is imposed.

d. The claim before the European Union

In February 2013, the Mallorcan law firm DMS Consulting reported to the European Commission about the Spanish regulations that obliged the declaration of assets and rights abroad. They wanted to make clear that the sanctions in place are disproportionately regulated regarding obliged information.

This complaint was followed by many others, but that did not prevent the Treasury from starting and developing its inspection activity, as we have seen in the examples in the previous section.

In November 2015, the European Commission began an infringement procedure against Spain as a result of the complaint filed by DMS Consulting. In said complaint, it was argued that the obligation to declare is very broad and implies a penalty regime so harsh that it entails a restriction on the free movement of people and capital, as regulated in Articles 21 and 63 of the Treaty on the Functioning of the European Union.

The European Commission will potentially issue a Reasoned Opinion questioning Form 720 for implying a violation of European Union Law, in what we refer to as the free movement of capital, people and workers.

e. The importance of consulting with your personal tax advisor

As a consequence of all the above, in the event that you need to submit Form 720, you must consult with a personal tax expert so that they can carry out a detailed study of your tax situation. They can also guide you regarding the best way to declare statements.

6. Submitting information returns of previous years: advantages and disadvantages

As we have commented previously, there are many people residing in Spain with assets, securities and rights abroad who did not submit the Form 720 in 2012 nor those from later years. In many cases this has been due to ignorance to the obligation. Technicians from the Ministry of Finance estimate that in 2012 only 4.9% of those obliged to do so actually submitted the return.

Those obliged to declare that they are in this situation and are unsure how to go about it, we advise you to seek the help of their personal tax expert to guide them on how to submit the information return correctly since there are many advantages and disadvantages.

The advantage is that you will be up to date with your tax obligations and the disadvantage is that, as said before, tough penalties can be imposed. The penalty for not submitting the return or doing so with errors or omissions is €5,000 per piece of data or group of data. The penalty for submitting it after the deadline is €100 euros per piece of data, with a minimum of €10,000 and €1,500, respectively.

In addition, several further questions arise:

• Infringements are not subject to any statute of limitations
• The exchange of tax information between countries is constantly improving
• The Treasury may consider assets abroad as unjustified capital gain and charge for personal income tax (IRPF) or for the IS, a higher fee in addition to the 150% penalty on the fee.

As a consequence of the above, it is advised that if you did not submit the return corresponding to previous years, you collect all the information and go to your personal tax expert as soon as possible. Although the deadline to submit 2016 Form 720 ends on March 31st, 2017, it is best to give your advisor time to direct you in the best way going forward.

7. Frequently Asked Questions about Form 720

The most frequent questions that are raised in relation to Form 720 can be grouped based on various topics:

A single form for three different reporting obligations

If you have accounts abroad, securities, rights and real estate, can they be declared on the same form?

Yes, since they are three different information obligations, they can be articulated through the same information form.

Taxpayers obliged to declare

If a natural person moved abroad during 2016 and must file personal income tax return for that financial year, do they have the obligation to submit Form 720?

Yes, as long as it is obliged to report according to the applicable regulations.

Basque Country and Navarra

Are people domiciled in the Basque Country and Navarra obliged to submit Form 720?

Yes, and they must do so in accordance with the regulations that apply to them, whether state or regional.

Recumbent inheritances

Are they obliged to declare lying inheritances? And the heirs?

The lying inheritances must declare since they are entities of Article 35.4 of the General Tax Law.

For their part, the heirs or legatees must inform as soon as there is express or tacit acceptance of the inheritance.

No obligation to report if you never had the obligation

If you have never had an obligation to submit Form 720, is there an obligation to declare the property or rights located abroad?

For example, if a bank account opened abroad that is identified and registered in the accounting of an entity is cancelled during the fiscal year, should an informative return be submitted?

The answer is no, as long as you never had the obligation to submit the informative return.

Shared ownership

An account owned by several people has a balance greater than €50 as of December 31st . Is there an obligation to submit Form 720?

Yes, the obligation to declare exists. So long as ownership is joint and the limit of €50,000 is not exceeded, no exception is applicable. The same happens with real estate.

Computation of balances

If a person is the owner of an account abroad with a balance of €40,000 as of December 31st and €30,000 authorised in another account, do they have an obligation to declare?

Yes, unless there is some cause for exemption.

Limits to declare

There is no obligation to declare the property already sold, but the Investment Fund must be declared because it has a net asset value from December 31st of more than €50,000. The current account must be declared as well since it has an average balance in the last quarter of more than €50,000.

Life insurance contracted with a foreign entity in Spain

If a taxpayer is a policyholder of the life insurance contract with a foreign insurance company operating in Spain under the free provision of services regime, is there an obligation to submit the informative statement?

There is no obligation to declare by virtue of the provisions of Article 42 ter of the General Regulations approved by Royal Decree 1065/2007. Provided that the representative of said insurance entity gives the tax administration the information provided for in Article 39.3a of the aforementioned Regulation.

Is there an obligation to report…?

Pension plans contracted abroad

There is no obligation to inform about pension plans unless you suddenly have to collect temporary or life income. It must also be reported in case of the rescue of the pension plan.

Amounts delivered on behalf of a property

If we have given money on account of the acquisition of a property, should it be reported?
No, it should only be reported when ownership or beneficial ownership of a property is held.

Valuation of values, rights, insurance and income of Article 42 ter

In the event that there is an obligation to provide information on securities, rights, insurance and income deposited, managed or obtained abroad, how are they valued?

The balance must be reported as of December 31st of each year and will be valued in accordance with the rules of Law 19/1991 of June 6th, on Wealth Tax.

Valuation of properties acquired by inheritance or donation

If a person acquires a property as a result of a donation or inheritance, what is the acquisition value that should be considered to determine if you have an obligation to declare?

In both cases, the acquisition value or real value of the asset at the time of acquisition will be stated.

Exchange rate applicable to the valuation of accounts

If a person is a holder of an account abroad whose balance is in a currency other than the euro, what exchange rate should be applied?

You must apply the exchange rate in effect on December 31st; the same rule will apply in the case of properties purchased in foreign currency.

Consideration on the value of the real estate

In the acquisition value of a property, should taxes and ancillary expenses be included in the purchase?

Yes, the acquisition value will include expenses and taxes.

Account holder and authoriser
Valuation of properties acquired by inheritance or donation

If a person is a holder and at the same time authoriser of an account abroad, should both conditions be declared?

Ownership of the account implies authorisation of it and in this case, since the condition of the owner and the authorised person falls on the same person, only the owner should be reported.

Temporary scope of tax residence

What is the temporal scope of residence for the purpose of the obligation to submit the informative statement?

Tax residence refers to the year for which the information return is submitted.

Valuation date of the goods

When must the values ​​of assets located abroad be computed to apply the limit of €50,000?

Accounts. Account balances as of December 31st and average balance for the last quarter.

Values. Balance of the securities as of December 31st. Shares and participations in Collective Investment Institutions. Settlement values ​​as of December 31st.

Insurance Redemption values ​​as of December 31st.

Rents Capitalisation values ​​as of December 31st.

Frequency of submitting the information return

If the statement corresponding to an exercise is submitted, does it have to be submitted again every year?

The statement must only be submitted again when in relation to one or more of the obligations. There is an increase in the joint limit established for each block of information greater than €20,000 with respect to the one that determined the submission of the last return.

8. Examples of Form 720

The data relating to each asset will be filled in on this screen. Here are some examples:

Example 1

Real estate of which I have 100% ownership, located in Germany acquired for €60,000.

The declarant status code will be ‘Holder’. Regarding the asset or right that I am going to report, I must include that it is real estate. Or I identify the country (Germany) and then fill in the rest of the mandatory fields indicated with a red asterisk:

• Place where the property is located
• Postal Code
• Country Code
• Date of incorporation or date of acquisition
• Origin of the asset or right
• Acquisition value
• Key to the type of property
• Percentage of participation (100% in this case)

Once all the fields have been filled in, I will be able to check if the data is correct by clicking on the button “Validate information return”.

Example 2

Account in a Swiss bank of which I am the holder with a balance of €60,000 as of December 31st

Data provided:

• Claimant’s condition code
• Key type of asset or right
• Subkey of asset or right
• Country code
• Postal Code
• Origin of the asset or right
• Company name or full name of the bank and address
• Complete identification of accounts
• Date of opening or cancellation, date of granting or revocation of authorisation
• Account increases as of December 31st and average balance for the last quarter

9. Brief glossary of terms

Next, we detail the meaning of the most used terms in relation to Form 720:

Tax liable

Based on Article 35 of the General Tax Law, natural or legal persons and entities that the tax regulations impose compliance with tax obligations, are liable to tax. Tax obligations can also be of a formal nature.

Formal tax obligation

Without having a pecuniary nature, these are imposed by tax or customs legislation on those liable to pay tax, whether or not they are liable for the tax, and whose compliance is related to the carrying out of tax or customs actions or procedures.

Informative statement

Declaration that is not of a pecuniary nature and fulfils the function of informing the Tax Administration of certain information that may be crossed with those supplied by other people or entities.

Exemptions

A privilege in accordance with the provisions of the Government or the Law, which excludes the payment of tax or the performance of a formal obligation to the taxpayer.

Submission period

Period during which the legally established tax obligation must be fulfilled.

Resident in Spain

Based on Article 9 of the Personal Income Tax Law, it is understood that the taxpayer has their habitual residence in Spanish territory when any of the following circumstances occur:

• They stay more than 183 days, during the calendar year, in Spanish territory.
• The main nucleus or base of their activities or economic interests resides in Spain, directly or indirectly.
• Foreign nationals who have their habitual residence in Spain will not be considered reciprocal taxpayers when this circumstance is a consequence of any of the assumptions established in section 1 of Article 10 of the Personal Income Tax Law (diplomatic personnel) and the application of specific rules derived from international treaties to which Spain is a party is not applicable.

10. Sources

State Tax Administration Agency

Law 58/2003, of December 17, General Tax

Order HAP / 72/2013, of January 30, approving Form 720, information return on assets and rights located abroad

Royal Decree 1065/2007, of July 27, , which approves the General Regulation of the actions and procedures of tax management and inspection and of development of the common rules of the tax application procedures

Law 19/1991, of June 6, on Wealth Tax

Law 35/2006, of November 28, on Personal Income Tax and partial modification of the laws on Corporation Tax, on Non-Resident Income and on Patrimony

11. ETL ILIA

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