THE DOM3 ASSOCIATION

WELCOMES THE EUROPEAN RULING THAT DECLARES THE DECLARATION OF ASSETS ABROAD ILLEGAL

The high-end housing business community has been claiming that the 720 model has discouraged foreign investment in Spain.

This excess of ‘tax zeal’ has harmed investment by causing comparative disadvantages with other countries in the region that are much more fiscally favourable.

After 10 years of battle, and in line with the criterion defended by the European Commission in its complaint against Spain, the European Court of Justice has finally declared that the obligation to declare assets and rights located abroad, model 720, is contrary to EU law.

For DOM3 lawyer José Luis Rodríguez, partner of the law firm Ros Legal Abogados, this model has been considered by foreign citizens who intended to settle in Spain, and buy their second high-end home in which to reside, ‘very aggressive’ since, on the one hand, it requires an exaggerated breakdown of the assets and rights located abroad, It requires an exaggerated breakdown in comparison with the tax regulations of other countries and, furthermore, in the case of incomplete compliance or non-compliance, the associated penalties are too exaggerated, amounting to 150% of what has not been declared and considering it, directly, as an unjustified capital gain.

Faced with such excessive fiscal zeal on the part of the Spanish Tax Agency, “many of our clients who buy high-end villas and who are large owners of a multitude of assets, securities, etc. in other countries, have directly abandoned their interest in investing in Spain, opting for neighbouring countries with much less fiscal control, as, for example, has been the case in recent years in Portugal”, explains Rodríguez, of Ros Legal Abogados.

Specifically, the Court of Justice of the European Union, in a landmark ruling dated 27 January 2022, in case C-788/19, has determined that Spain has failed to comply with its obligations under the principle of free movement of capital because it did not comply properly or on time with the declaration of Model 720 is not covered by the statute of limitations, because of excessive fines and for exceeding its powers in the fight against tax fraud.

In addition, it has also been held that the penalties for non-compliance or imperfect or untimely compliance with the 720 obligation with fines are disproportionate to the penalties provided for in a purely national context, and their total amount is not capped.

The Court finds that, although the legislation may be justified, in order to ensure the effectiveness of tax controls and to combat tax fraud and evasion, the choice made by the Spanish legislature goes beyond what is necessary. It also states that the mere fact that a resident has assets or rights abroad cannot be the basis for a general presumption of tax evasion or avoidance. Finally, it states that, although the invocation of a statute of limitations as regards the acquisition of assets and rights does not serve to rebut a presumption of fraud, it is not admissible for the administration to be able to question statutes of limitations that have already expired, and to act without time limitation, because that would infringe the principle of legal certainty.