Modelo 720: EU declares disclosure of foreign assets in Spain illegal

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modelo 720

MADRID – Ignoring the Modelo 720 tax form, feared by foreigners in Spain, will bring draconian sanctions. The European Court of Justice now admits this, along with another central aspect of the regulation.

The Spanish Government introduced Modelo 720 in 2012. From then on foreign residents in Spain were required to declare the assets they own in a country other than Spain to the Spanish tax authorities. The longer the tax form was in force, the more severe penalties were found in the case of errors. As a result, Modelo 720 was increasingly feared.

On Thursday (January 27), the European Court of Justice ruled that Modelo 720 is not compatible with EU law on important points. Tax advisers are delighted in the Spanish media: “Today it has become clear that not everything is legal in the fight against tax fraud. You cannot simply impose such brutal sanctions.”

Read also: Spanish tax authorities crush citizens with ‘inquisitorial behaviour’

The verdict does not declare the entire Modelo 720 illegal, but it does declare the disproportionate fines for non-compliance. In addition, the legislation does not provide for a limitation period for the tax liability. In doing so, Spain is violating the principle of the free movement of capital.

“So far Spain has been able to demand the disclosure of assets created 50 years ago. This is clearly against the law,” says a tax adviser consulted by MallorcaZeitung.de. The future limitation period is expected to be four years. Just like in similar cases.

cogesa expats

These are the consequences of the verdict

The obligation to disclose foreign assets remains in force until further notice. This is reported by the Tax and Customs Administration European Accounting. “The tax authorities cannot apply the penalties provided for in the law. Sanctions already imposed must be lifted. No tax can be levied on assets that can be shown to have been acquired by prescription.”

Fines cancelled or reclaimable

In practice, the ruling means that the obligation to provide information continues to exist, only without ruthless sanctions and consequences of non-compliance. Those who have received a fine by the IRS based on the Model 720 now have a basis to recover the money – even what they paid more than four years ago.

Disproportionate fines for errors in Modelo 720

The verdict also refers to the extremely hefty fines imposed on people who knowingly or unknowingly withheld information about foreign assets and now declares the fines illegal.

In some cases, the penalties exceeded or approached the value of the assets. The MZ mentions the example of a Belgian woman who lives in Spain and had an inheritance of almost €800,000 in Belgium. The woman got a fine of €710,000 for not filling in the Modelo 720.

More than 50,000 euros

Each year March 31 is the deadline to submit the Modelo 720. It is valid for taxpayers in Spain if their assets in accounts, real estate, or securities exceed € 50,000. This is based per group and not on the total amount.

This means, if you have €46,000 in accounts in the Netherlands and own shares worth €42.000, you are not obliged to fill in Modelo 720. If, on the other hand, you only have one account, but it contains €51,000, you must file a declaration with the tax authorities

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