Regarding the Form 720 and the CJEU Judgment declares its sanctioning regime contrary to EU law. The Court of Justice of the European Union (CJEU), in its judgment in case C-788/19 of 27 January 2022, declares that Spain has failed to comply with its obligations under the principle of free movement of capital. Indeed, the obligation to file Form 720 and the penalties resulting from non-compliance or imperfect or extemporaneous compliance with that obligation, establish a difference in treatment between residents in Spain depending on the place of location of their assets. This obligation may dissuade residents of that Member State from investing in other Member States. It prevents them from doing so or limits their possibilities of doing so, and thus constitutes a restriction on the free movement of capital.
The Court points out that this legislation goes beyond what is necessary to achieve the objectives pursued by Form 720. That is, to ensure the effectiveness of tax controls and to combat tax fraud and tax evasion. In conclusion, the consequences of non-compliance with the rule are “disproportionate” in relation to the objective pursued. As already indicated by the European Commission in its report in 2017.
The Form 720 and the CJEU Judgment.
Let us recall that Form 720 had two types of penalties associated with it in the event of non-compliance or late compliance.
Firstly, a penalty of €100 per piece of information, with a minimum of €1,500, when the return is filed without prior request. And a penalty of €5,000 per item of information, with a minimum of €10,000, when the return is filed following a request from the Administration.
But, additionally, the taxpayer’s Personal Income Tax (in the last non-prescribed fiscal year) was charged with an increase in unjustified wealth, for the amount of the undeclared assets. And, this entailed a penalty of 150% of the amount resulting from such imputation.
The CJEU has expressly ruled that the presumption of obtaining “unjustified capital gains” could be justified. However, the options chosen regarding the statute of limitations are disproportionate since they allow the tax authorities to proceed with the adjustment without any time limitation.
In addition, the CJEU also rejects the imposition of the 150% tax penalty on the tax liability resulting from the imputation of the unjustified increase in assets. It points out that “the very high rate of this fine confers on it an extremely repressive character and that its accumulation with the additionally provided fixed fines can lead, in many cases, to the total amount of the amounts owed by the taxpayer exceeding 100% of the value of his assets or rights abroad”.
The CJEU also rejects the penalties of €100 per item of information (with a minimum of €1,500), and of €5,000 per item of information (with a minimum of €10,000) associated with the failure to file the tax return. It points out that “these fixed pecuniary fines establish a disproportionate restriction on the free movement of capital.”
Consequences.
It should be clarified that, in principle, this judgment would not eliminate the obligation to file Form 720. That in the case of the fiscal year 2021, it should be filed before March 31, 2022. In this sense, the Minister of Finance, Mrs. María Jesús Montero, in view of this sentence, has expressly pronounced herself.
The Government will thus approve a modification of the regulation before the end of the filing deadline for this fiscal year. Next March 31, 2022.
This ruling should mean the estimation of all ongoing appeals against Form 720 penalties. Or against liquidations in Personal Income Tax for imputation of unjustified increase of wealth.
In case of sanctions and liquidations of Personal Income Tax already final and, therefore, already paid, it would be appropriate to appeal the sanctions. Through any of the special procedures provided for in the General Tax Law.
In order to avoid the exhaustion of the deadlines in some cases, we recommend that you contact our Tax Department. In order to begin the analysis of your particular case and assess the best way to cancel or recover the penalty paid.