Legal Information

The Court Of Justice Of The European Union Declares Spain's Tax Form 720 Illegal

After 10 years of battle, and in line with the criteria defended by the European Commission in its complaint against Spain, the European justice has finally declared that the informative obligation to declare goods and rights located abroad, form 720, is contrary to EU law.

The CJEU, in a historic ruling dated January 27, 2022, in case C-788/19, has determined that Spain has failed to comply with its obligations under the principle of free movement of capitals for the following reasons:

1. When determining that the non-compliance or imperfect or extemporaneous fulfilment of the obligation that entails the taxation of undeclared income without the possibility, in practice, of relying on the prescription.

2. When sanctioning non-compliance or imperfect or extemporaneous compliance with the informative obligation of 720 with a fine of 150% of the tax calculated on the value of the assets, which can be accumulated with fixed-amount fines.

3. Finally, by sanctioning non-compliance or imperfect or extemporaneous compliance with the obligation of 720 with fines that are not in any proportion to the sanctions provided for in a purely national context, and whose total amount is not limited.

The Court determines that, although the legislation may be justified, to guarantee the effectiveness of fiscal controls and to fight against tax fraud and evasion, the option chosen by the Spanish legislator goes beyond what is necessary. It also declares that the mere fact that a resident has assets or rights abroad cannot support a general presumption of tax fraud or evasion.

Finally, it affirms that, although the invocation of a statute of limitations regarding the acquisition of goods and rights does not serve to refute a presumption of fraud, it is not admissible that the Administration cannot question prescriptions already consummated, and that it can act without temporary limitation, because this violates the principle of legal certainty.

After knowing the ruling of the European justice, the Spanish Minister of Finance has advanced that the government will shortly modify the "form 720" normative to adapt it to the pronouncement of the CJEU and has recalled that it is still in force.

The ruling opens the door to a wave of claims to demand the return of all the sanctions filed and opens the possibility of proposing patrimonial responsibility to the state.

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