Form 720 Spain, unlawful

Since it was first implemented in January 2013, Form 720 Spain has been surrounded by controversy due to its penalty system, through which the Treasury Department can decide to impose penalties as high as 150% of the undeclared amount. In this ‘Form 720 Spain, illegal’ post we will tell you about this form, why it can be considered illegal and the latest developments on this topic.

Although Form 720 Spain is highly questionable, it is actually fulfilling its purpose. As it happens, since it was created by the Minister of Finance, Cristóbal Montoro, we have discovered that Spaniards and foreigners residing in Spain have approximately 156 million euros in assets and rights abroad. As a result, the government’s fight against tax fraud is becoming more and more effective.

What is Form 720 Spain?

Form 720 Spain is the informative statement of assets and rights abroad.
Form 720 Spain must be used to report on:

Accounts in financial institutions abroad.

You must provide the following information:

• Name of the credit institution
• Identification of the accounts
• Opening or cancellation date
• Balances at 31 December and average balances of the last quarter

Securities, rights, insurances and income deposited, managed or obtained abroad.

In the case of securities and rights representing a holding in a company, you must provide the following information:

• Name of the credit institution and its registered address
• Balance at 31 December of each year regarding the securities and rights representing your holding in the capital or funds.
• Balance at 31 December of the securities representing the transfer to third parties of equity capital
• Balance at 31 December of the securities provided to the pertinent legal instrument.

Real estate assets or rights on real estate property situated abroad.

The statement will include:

• Identification of the property and type.
• Location (country, city/town, street, number).
• The date on which it was acquired.
• Purchase value.

Who should submit Form 720 Spain?

The following are obliged to submit Form 720 Spain:

• Individuals and legal entities (i.e. companies with residence in Spain).
• Permanent establishments in Spain belong to non-resident individuals or legal entities.
• Entities such as recumbent inheritances or common property regimes and other entities that do not have legal status but constitute an economic unit or separate estate that may be susceptible to taxation.

The cases in which Form 720 Spain must be submitted are:

• If you are a holder, co-holder, representative, authorised party or beneficiary of accounts in financial institutions abroad, with average balances exceeding 50,000 euros in the last quarter or at 31 December.
• If you are the holder or beneficial owner of securities, rights, insurances and income exceeding 50,000 euros.
• Lastly, the 50,000 euro limit is also for real estate properties.

What happens if you don’t meet the reporting obligation for Form 720 Spain?

The General Tax Law, in its Additional Provision 18, regulates the penalty regime affecting Form 720 Spain and establishes the following:

• This Law considers late submissions or submissions involving incomplete, inaccurate or false data to be a tax offence.
• Another case of tax offence involves submitting Form 720 Spain by any means other than by the electronic means for the cases in which these should be used.

All these offences are considered to be very serious and may entail the following penalties:

• If you fail to declare accounts abroad, the penalty will be 5,000 euros for each data or series of data, with a minimum of 10,000 euros.
• If you fail to declare securities, assets or titles, the penalty will be 5,000 euros for each data or series of data, with a minimum of 10,000 euros.
• In relation to declaring real estate, the penalty will be 5,000 euros for each data or series of data of a single property or right, with a minimum of 10,000 euros.

If you submit the form after the deadline without being requested to do so by the Treasury Department, they could fine you 100 euros for each data, with a minimum of 1,500 euros. If you submit the form after the deadline having being requested to do so by the Treasury Department, they could fine you 5,000 euros for each data, with a minimum of 10,000 euros.

Form 720 Spain, illegal: why?

As seen, this is an informative statement that can involve exceedingly high penalties. In this sense, the EC considers that the penalties arising from Form 720 Spain are excessive and they infringe several fundamental principles of the European Union, such as the free movement of persons and workers, freedom of establishment or the free movement of capital.

As a result, the European Commission has brought Spain before the EU High Court of Justice. While waiting for the European Court’s judgement, in recent months the Spanish courts have passed judgement on several issues. Of these judgements, we can highlight the following:

• Judgement of the High Court of Justice of Catalonia, of 20 May 2019. This judgement considers that there is insufficient reasoning for the penalties that the Tax Agency wants to impose, and decided to annul the penalty.
• Judgement of the High Court of Justice of Extremadura, of 11 July 2019. However, in this case, the penalty is considered to be proportionate.
• Judgement of the Central Administrative Economic Court (TEAC), of 14 February 2019. This judgement overturns a penalty that was imposed on a taxpayer due to late submission of Form 720 without having being required to do so by the Treasury Department.