Form 720 has been controversial from the moment it was approved since, although it is an informative declaration, very high penalties are established for non-compliance with legal obligations. The latest resolution of the Court of Justice of the European Union established that Form 720 (declaration of goods and rights located abroad) and the system of sanctions that derives from the said form, go against the law of the European Union. As a consequence of the foregoing, the Tax Agency has made a series of modifications to said form. In this article, we talk about what those modifications are and how they are applied.

What does the decision of the Court of Justice of the European Union say?

The TSJEU considers that the regulation of Form 720 establishes obligations that violate the principle of freedom of movement of capital in the European Union.

The TSJEU understands that the sanctions for non-compliance with the obligation to report on goods and rights abroad imposed by Form 720 are excessive since they can lead to their amount exceeding 100% of the value of the goods and rights located abroad.

In addition, the fixed amount fines for failure to comply with the obligation to submit Form 720 are not in any proportion to the penalties for similar violations in other types of national taxes.

As a consequence of all of the above, the ruling of the TSJEU obliges Spain and the Tax Agency to modify the regulations and the sanctioning regime of Form 720.

Modifications introduced by the Treasury in Form 720

The Treasury has made a series of modifications to Form 720 with the idea that they can come into force before March 31, 2022, which is the date on which the deadline to present the aforementioned model expires in relation to the year 2021.

The modifications made by the Treasury are the following:

  • Corporate tax. In Corporate Tax, section 6 of article 121 of the corporate tax law is deleted. Therefore, the lack of prescription due to non-filing of Form 720 by legal entities is eliminated and the presumption that the illegal origin of undeclared goods is eliminated.
  • Elimination of the penalty system of Form 720. As we said before, one of the most controversial aspects of Form 720 is its penalty system. The modification of the Treasury has consisted of eliminating the specific sanctioning regime of Form 720. In this way, those persons who violate the obligation to present Form 720 will be subject to the general sanctioning regime provided for in the General Tax Law. As a consequence of the foregoing, the penalties for non-compliance with the obligations derived from Form 720 may not exceed 50% of the fee defrauded. Before the modification, the penalties were very high and could reach up to 150% of the undeclared quota and were added to fixed-amount penalties for each omitted, incomplete, inaccurate or false data or set of data.
  • Personal Income Tax Law. In the personal income tax law, article 39 is modified and section 2 is eliminated so that the lack of prescription due to the non-presentation of Form 720 by a natural person is eliminated. IRPF taxpayers will be able to demonstrate that the undeclared assets were totally legal and that they were the owners of said assets and rights from a date prior to the limitation period.

Can you appeal if you were fined for not submitting Form 720?

One of the doubts that arise about the modifications made in Form 720 is that it occurs in cases in which Form 720 has not been submitted on time or has been submitted with an error and a fine has been imposed on the taxpayer. In these cases, a claim could be filed before the courts of justice to avoid the sanction.

On the other hand, in the case of sanctions that are already signatures, the possibility of claiming through the patrimonial responsibility of the State could be studied.

When must Form 720 be filed, and who must file it in 2022?

Form 720 must be filed between January 1 and March 31 following the fiscal year being declared. Therefore, Form 720 for the 2021 fiscal year must be filed between January 1 and March 31, 2022.

As for the persons obliged to file Form 720 in 2022, they are natural and legal persons resident in Spanish territory, permanent establishments in the Spanish region of non-resident persons or entities and the entities established in article 35.4 of the General Tax Law if they have accounts in financial entities that are abroad, securities, rights, insurance and income deposited, managed or obtained abroad and real estate and rights over such real estate located abroad.

The obligation to file Form 720 arises when the value of assets and rights located abroad is greater than 50,000 euros. Therefore, if the assets integrated into each of the groups do not exceed that limit, Form 720 should not be presented.

As a consequence of all of the above, if you have assets and rights abroad and think you might be obliged to file Form 720. It is essential that a tax advisor studies your case and analyse the obligation to file the declaration (information of goods and rights abroad), carry out all the procedures for the presentation, avoid penalties and surcharges, or appeal the fines and surcharges already imposed if you presented the declaration after the deadline, omitting some information or with errors.

If you need the help of an expert tax advisor, do not hesitate to contact our team.