Form 720 Spain and tax residence

Tax residence is a fundamental factor in knowing whether or not you need to submit Form 720 Spain. In this article, we tell you when your tax residence is considered to be in Spain and the latest news about Form 720 Spain.

Who must submit Form 720 Spain?

Those required to submit Form 720 Spain are the following:

• Individuals who are residents in Spanish territory.
• Legal persons that have their residence in Spanish territory.
• Permanent establishments of non-resident persons or entities (for example, a subsidiary of a foreign company) in Spanish territory.
• The entities mentioned in article 35.4 of the General Tax Law: unsettled estates, communities of assets and entities that do not have legal personality but which constitute a separate economic unit or group of assets that are subject to taxation.

Therefore, the fundamental criterion to determine whether or not to file Form 720 in Spain is habitual residence. Habitual residence can be defined as the place where the taxpayer is registered for tax purposes.

In addition to the above, the persons obliged to present Form 720 Spain must have more than 50,000 euros in assets abroad for the obligation to inform the Treasury to arise through the aforementioned form.

When is it considered that a natural or legal person has their tax residence in Spain?

In the case of natural persons, it is considered that they have their residence in Spanish territory when:

• They stay more than 183 days a year in Spanish territory. If the natural person is sporadically absent from Spain, this is not counted when counting the 183 days.
• They have their main base of activities or economic interests in Spain, either directly or indirectly.
• Their spouse, not legally separated, and any minor children who depend on them have their habitual residence in Spain.

If the conditions that we have seen are not met, it is considered that the natural person does not have their habitual residence in Spain.

On the other hand, a legal person is considered to be resident in Spanish territory when it has its registered office in Spain, provided that its administrative management is centralised at that address. If the residence cannot be determined based on this criterion, the company will be deemed to have its tax domicile in the place where the highest fixed value is located.

What happens if you are obliged to file Form 720 Spain and you don’t?

It may happen that you reside in Spain and have assets abroad for an amount of more than 50,000 euros, but due to ignorance you have not submitted Form 720 Spain, or you submit it after the deadline or with an error. You should know that the penalties in this situation are quite high:

• 100 euros for undeclared data with a minimum of 1,500 euros for declaring after the deadline.
• 5,000 euros per data with a minimum of 10,000 euros for not declaring or declaring incorrectly.

In addition to the above, we cannot forget the surcharge that can be imposed on personal income tax for an undeclared capital gain, which will be 20%.

The sanctions system has meant that a multitude of claims is filed by taxpayers to avoid them and that the Superior Court of Justice of the European Union studies the issue because it considers that the regulations violate community principles such as the free movement of people and capital.

The controversy unleashed by Form 720 Spain has meant that several Spanish courts have resolved issues related to the sanctions imposed for the non-submission or late submission of the declaration. Here are some examples:

• The judgement of the Superior Court of Justice of Extremadura of February 27, 2020. In this case, a taxpayer who had five accounts in the United Kingdom did not submit the form in 2012 and a penalty of 125,000 euros was imposed. Four of the accounts, together, did not exceed 50,000 euros, but one of the accounts did since it had 88,000 euros. In this case, the court annulled the sanction because it considered it disproportionate.
• The judgement of the Superior Court of Justice of Catalonia of May 20, 2019. In this case, the sanction was also annulled because it was considered disproportionate.
• Resolution of February 14, 2019, of the Central Economic-Administrative Court. The Court annulled a 150% sanction that was imposed on a person for filing Form 720 Spain after the deadline in 2012 because it determined that the Treasury did not sufficiently demonstrate the taxpayer’s guilt.
• Sentence of the Superior Court of Justice of Valladolid (STSJ nº 020801073). In this case, the court considered that there was a lack of justification for the sanction.
• Admission for processing of three appeals in the Supreme Court. In July, the Supreme Court admitted three appeals against Form 720 Spain for processing. The argument of the Supreme Court is similar to the view held by the European Union since it is considered that sanctions can lead to absurd and unjust results and that the sanctions system does not respect the principles of legal certainty and proportionality.
• Order on the preliminary ruling of the Superior Court of Justice of Catalonia. At the end of June, the Superior Court of Justice of Catalonia issued an order by which it submits a preliminary question to the Supreme Court of the EU to ask if the regulations related to Form 720 Spain infringe the principles of free movement, equal treatment and non-discrimination.