Spanish tax residents: Form 720 is contrary to EU law

National legislation requiring Spanish tax residents to declare their overseas assets or rights (Form 720) is contrary to EU law (Court of Justice of the European Union 27 January 2022). The restrictions on the free movement of capital imposed by that legislation are disproportionate.

3 Keys about Spanish Form 720

• In the first place, the Court considers that Spain has failed to fulfil its obligations under the free movement of capital by providing that the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets and rights located abroad entails the taxation of undeclared income corresponding to the value of those assets as ‘unjustified capital gains’, with no possibility, in practice, of benefiting from limitation.

2) In the second place, the Court considers that Spain also failed to fulfil its obligations under the free movement of capital by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to a proportional fine of 150% of the tax calculated on amounts corresponding to the value of those assets or those rights held overseas.

That fine may be applied concurrently with the flat-rate fines which apply to each missing, incomplete, incorrect or false data item or set of data which should appear on ‘Form 720’.

3) In the third place, the Court finds that the Spanish legislature also failed to fulfil its obligations under the free movement of capital by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to flat-rate fines the amount of which is disproportionate to the penalties imposed in respect of similar infringements in a purely national context and the total amount of which is not capped.

The Court notes in that regard that Spanish law penalises failure to comply with mere obligations to declare or purely formal obligations by the imposition of very high flat-rate

fines, since they apply to each data item or set of data concerned together with, as appropriate, a minimum amount of EUR 1 500 or EUR 10 000 and the total amount is not capped.

The Court also takes account of the fact that those flat-rate fines are applied concurrently with the proportional fine of 150% and notes that their amount is disproportionate to the amount of the fines which penalise failure to comply with similar obligations in a purely domestic context in Spain. Consequently, those flat-rate fines introduce a disproportionate restriction on the free movement of capital.