ETL ILIA solves doubts about Form 721 or declaration of cryptocurrencies abroad

Our director of the Tax Department, Xavier Vilalta, has resolved some doubts about Form 721 or the declaration of cryptocurrencies abroad for Krolus TV (a YouTube channel specialising in economic news with almost 90,000 followers -as of January 2022-).

Form 721 or declaration of cryptocurrencies abroad

Interview Highlights

Form 721 was born due to the approval last July of the new Law on anti-fraud measures, which modifies the Spanish Tax Law in which it is said that cryptocurrencies deposited abroad will have to be declared. This generated rumours about what the next steps would be.

The current Form 720, as it is written, does not contemplate how to declare cryptocurrencies abroad, and this forces us to wait for what the Ministry of Finance is going to do. In this sense, it seems that it will distance itself from this model by creating three new forms.

• Form 721: it would refer to natural persons.
• Form 172 and Form 173: it would affect companies that have cryptocurrencies.

Although, as of January 18, 2022, there is no public information on these new forms, on December 21, the draft of the Order that was going to approve the 2021 Income and Wealth form was published. The 2021 Wealth Tax incorporates a section in which it will be necessary to inform about the balance in virtual currencies, its denomination, number of units and value in euros on December 31.

Xavier recommends that we have all the information regarding the cryptocurrency movements that we have made and our position as of December 31, 2021.

Form 720 and Hacienda

About Form 720, the sanctions are still in force and, in some cases, are being applied. When it is a regularisation by the Tax Agency, the minimum penalty is €5,000 per undeclared data or set of data without prior declaration.

Yes, an open procedure with the Luxembourg Court could modify or mitigate some of the parameters. Form 720 is very controversial because it does not prescribe at the tax level (it does not comply with the four-year rule), has penalties that can reach 150% of the undeclared amounts, and has a regime that can be very detrimental to the taxpayer.

We hope that the following ruling will be at the beginning of this year, 2022, and will mitigate this sanctioning regime.

Xavier Vilalta: “I believe that Form 720 will remain in force because it provides a lot of information to the Tax Agency.”

Most tax-friendly countries in which to invest in cryptocurrencies

The typical query that comes to our advice is about the best countries to dedicate yourself professionally to investment in cryptocurrencies. Currently, we could say that Andorra and Portugal may seem attractive in terms of taxation on cryptocurrencies. In this sense, there are countries within the European Union where tax is worse than Spain.

MiCA (markets in crypto-assets), a project of the European Union

In principle, the trend is for taxation to be equalised throughout Europe. The European Commission is developing the MiCA project with the aim of harmonising the taxation of cryptocurrencies throughout Europe.

Change of tax residence

It is no use playing the make-believe game at the paperwork level; a change of tax residence must be real and demonstrable.