Form 720, valuation of shares and investments

If so, and if you meet certain requirements, you will have to file Form 720 Spain or the Declaration on goods and rights located abroad, otherwise, you could face a large penalty. In this post, we tell you how shares and investments are valued for the purposes of Form 720 Spain and what happens if you do not submit the Form.

Form 720 Spain and declaration of shares and investments abroad

Form 720 Spain is an informative declaration that is presented to inform the Treasury of goods or rights that are located or managed abroad. The declaration must be submitted by individuals or entities residing in Spanish territory, including the provincial territories of the Basque Country and Navarra.

Among the assets that must be declared are shares and investments in capital stock or equity funds of investment institutions located abroad.

The informative declaration must include the following information in the case of shares and investments:

Business name or denomination of the legal entity or the third party assignee or identification of the instrument or legal relationship.

Address of the company or entity.

Balance at December 31 of each year of the securities and rights representative of the investment in capital or in equity funds of legal entities. The information must include the number and class of shares and investments that are owned and their value.

Balance at December 31 of representative values ​​of the transfer to third parties of owned capital. The information will include the number and class of securities and their value.

Balance at December 31 of the amounts contributed to the corresponding legal instrument.

The information must include the number and class of securities contributed and their value.

How are shares and investments valued?

As we have seen, to complete Form 720 Spain a valuation of the shares and investments owned must be included. For this assessment, question number 41 of the frequently asked questions published by the Tax Agency on Form 720 Spain states that in the case of shares negotiated in a foreign organised market with characteristics similar to those of Spain, the valuation must be carried out in accordance with the provisions of Articles 15 or 16 of the Wealth Tax Law or for its listed value as of December 31.

Articles 15 and 16 of the Wealth Tax Law establish the following:

Article 15 Representative values ​​of investment in funds of any type of entity, traded in organised markets.

One. Shares and investments in capital stock or equity of any legal entities traded in organised markets, except those corresponding to Collective Investment Institutions, will be calculated according to their average trading value for the fourth quarter of each year.

For these purposes, the Ministry of the Economy and Finance will publish a list of the securities traded in organised markets annually, with their average price corresponding to the fourth quarter of the year.

Two. In the case of investment in new shares not yet admitted to the official listing, issued by legal entities listed on organised markets, the value of these shares will be taken as the value of the last negotiation of the old securities within the investment period.

Three. In the event of capital increases pending disbursement, the shares will be valued in accordance with the previous regulations, as if they were fully disbursed, including the part pending disbursement as taxpayer debt.

Article 16 Other representative values ​​of investments in funds of any type of entity

One. In the case of shares and investments other than those referred to in the previous article, their valuation will be made at the theoretical value resulting from the last approved balance, provided that it, either on a mandatory or voluntary basis, has been subjected to review and verification and the audit report will be favourable.

In the event that the balance has not been audited or the audit report is not favourable, the valuation will be made for the highest value of the following three: the nominal value, the theoretical value resulting from the last approved balance or the one resulting from capitalisation at the rate of 20% the average of the benefits of the three fiscal years closed before the date of accrual of the Tax.

To this last effect, dividends distributed and allocations to reserves will be calculated as benefits, excluding those of regularisation or balance sheet updating.

Two. Shares and investments in capital stock or in the equity fund of the Institutions of Collective Investment will be calculated by the net asset value on the date of accrual of the tax, valuing the assets included in the balance sheet in accordance with the regulations set forth in specific legislation and obligations with third parties will be deductible.

Three. The valuation of shares belonging to members or associates in the capital stock of cooperatives will be determined based on the total amount of disbursed, obligatory or voluntary social contributions, resulting from the last approved balance, with deduction, where appropriate, of non-reimbursed social losses.

Four. For the purposes provided in this article, entities must supply certified partners, associates or participants with the corresponding valuations.

Therefore, we see two cases:

The representative values ​​of investment in equity funds or entities traded in organised markets must be valued according to the average trading value of the fourth quarter of each year.

Other values ​​representative of investment in equity funds will be valued according to the theoretical value resulting from the last approved balance.

For the first case, listings which are published every year are used, but these refer to securities listed in Spain. As a consequence of this, the General Directorate of Taxes understood a long time ago that securities quoted abroad must be declared as not quoted.

However, as we have seen, the answer to question 41 of the frequently asked questions about the Tax Agency’s Form 720 Spain maintains that securities quoted abroad can be declared, as the taxpayer chooses, as listed securities (according to average quotation value of the last quarter or by the quotation value at the end of the year) or as unquoted securities.

Now, the criterion of the General Directorate of Taxes has changed, based on resolution V3511-2019 of December 20, since it states that shares in a company listed abroad in markets with characteristics similar to the Spanish market must be valued as listed securities. In these cases, the declarant can choose between the average trading value of the fourth quarter of each year and the listing value as of December 31.

What happens if you do not report shares or investments that you hold abroad?

It may happen that you have shares and/or investments abroad and have not informed the Spanish Tax Agency of this through Form 720 Spain, due to ignorance of the obligation. In these cases, they may impose a fine of 5,000 euros for each piece or set of data, with a minimum of 10,000 euros.

If you submit Form 720 Spain after the deadline, without there having been a prior request from the Tax Agency, the penalty will be 100 euros for each piece of data, with a minimum of 1,500 euros.