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Judgment of the Court of justice of the European Union Case C-788/19 Implications for the holding of assets abroad and their regularisation

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Regarding the ruling of the Court of Justice of the European Union (“CJEU”) on 27th January

The ruling of the Court of Justice of the European Union (“CJEU”) on 27th January has put an end to the disproportionate sanctioning regime introduced by Spain in relation to non-compliance or partial or extemporaneous compliance with the obligation to provide information on assets and rights located abroad by means of the 720 Form and the consideration of unjustified capital gains.

The main arguments that the CJEU makes in its ruling against the regulatory framework of the 720 Form:

A large part of the regulatory provisions introduced with the appearance of Model 720 imply a restriction on the freedom of capital movements because they dissuade investors resident in Spain from making investments abroad. 

The classification of assets held abroad that were not regularised at the time by means of the Special Tax Return as “unjustified capital gains” (which fiscally implies taxation in the general tax base - and therefore at the marginal income tax rate applicable to the taxpayer - instead of in the more lenient taxation applicable to the savings tax base) without considering a possible prescription of the Administration’s right to determine the debt arising from this income exposure, would go beyond what is necessary to achieve the objective of combating tax fraud and tax evasion, which is in direct conflict with the fundamental legal principle of legal certainty.

The penalty of 150% of the undeclared value for failure to comply with a merely informative obligation is a disproportionate impairment of the free movement of capital, to the extent that it may give rise to the incomprehensible paradox of the fact that the financial penalty exceeds the value of the undeclared assets and rights abroad.

The fixed-rate penalties associated with non-compliance or patrial or untimely compliance with the 720 Form (fines that can involve amounts 15, 50 or 66 times higher than those applicable to similar infringements in domestic operations), establish a disproportionate restriction on the free movement of capital.

Case C-788/19

Considering the aforementioned ruling C-788/19 of the High Court of Justice of the European Union, different ways are open for requesting compensation for penalties imposed for failing to comply or for complying imperfectly or untimely with the reporting obligation of the 720 Form to claim a refund of what has been paid. 

Furthermore, with regard to adjustments made to personal income tax or corporate income tax due to the emergence of income abroad on the basis of the pre-judgment regime, we consider that, following a rigorous analysis of the specific case, there are several alternatives for requesting a rectification of the tax treatment, in the event that the income may have been time-barred at the time it was regularised, or in those cases in which, after the taxpayer voluntarily regularised income not previously declared through the Special Tax Return, the specific obligation to report the assets abroad linked to this regularised income in Form 720 was subsequently not complied with.

Finally, it should be noted that the Spanish State is preparing urgent reforms of the regime questioned and condemned by the European Union with regard to assets and rights located abroad, proposing new, albeit lower penalties for total or partial non-compliance with the obligation to declare them, which means that it will be necessary to study each specific case and analyse the optimal solutions that would allow the situation of possible assets and rights located abroad that have not yet been declared to be voluntarily regularised. 

You can download the full PDF file here.

For more information you may contact with:

Andersen Tax Department

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