Draconian fines for failure to declare foreign assets in Spain null and void

by Lorraine Williamson
foreign assets

MADRID – The Supreme Court in Spain has recognised the retroactive effect of the nullity of the sanctions imposed by the tax authorities on individuals who have not declared their foreign assets via model 720 or have incorrectly declared them. 

On Wednesday, the Supreme Court laid down the jurisprudential doctrine on the tax sanctions imposed by the tax authorities. Moreover, the Supreme Court declared null and void in two judgments of 4 and 6 July. This concerns the fine sanctions that the tax authorities have imposed on private individuals for failing to comply with the notification obligation on model 720. These relate to titles, foreign assets, securities, rights, insurance and income that have been deposited, managed or obtained abroad. Furthermore, the cases prosecuted concerned assets and rights located in Switzerland. 

Also read: The Spanish tax authorities also crush citizens 

In these judgments, the Supreme Court declares, in accordance with the judgment of the European Court of Justice on 27 January 2022, that the sanctions regime laid down in Spanish law is contrary to the obligations incumbent on the Kingdom of Spain and damages the freedom of movement of capital. Therefore, such sanctions, according to the Supreme Court, are “disproportionate” to those envisaged in a purely national context. 

Spanish judges and courts are not allowed to apply sanctions 

The judgments explain that the binding nature of European Union law obliges Spanish judges and courts not to apply these sanctioning national regulations. 

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In addition, the retroactive effect of the nullity of the sanctions is recognised. 

Incidentally, after the ruling of the European Court of Justice, the Ministry of Finance has changed model 720 for the declaration of foreign assets. Furthermore, it has considered reducing the high sanctions. 

Modelo 720 was launched in 2012. Foreign residents in Spain were required to declare the assets they own in a country other than Spain to the Spanish tax authorities. Ignoring or incorrectly filling out the dreaded ‘Modelo 720’ by foreigners in Spain resulted in draconian sanctions. Often they even approached the value of the assets they had failed to declare. 

The European verdict does not declare the entire Modelo 720 illegal. However, it does declare the disproportionately high fines for non-compliance. In addition, Spanish tax law did not provide for a limitation period for the tax liability. Spain is thereby violating the principle of the free movement of capital. Now the limitation period has been set at 4 years, just like in comparable cases. 

Basis to recover paid fines 

In practice, the ruling means that the information obligation remains, only without ruthless sanctions and consequences of non-compliance. Therefore, those who have been fined based on the Model 720 now have a basis to recover the money. This includes what they paid more than four years ago. 

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