Global tax alert: CJEU strikes down Spanish law on tax form 720

The Court of Justice of the European Union (CJEU) declared in its judgment in case C-788/19 of January 27, 2022 that the Spanish legislation on the tax form obliging Spanish tax residents to declare their foreign assets and rights (Form 720) is disproportionate and contrary to EU law.


Form 720 was introduced in 2012 to report foreign assets held by Spanish residents. The consequences for taxpayers who did not comply with this reporting obligation were as follows:

  • The value of undeclared assets and rights had to be assessed in the personal income tax declaration as “unjustified capital gains” without the possibility of invoking the statute of limitations;
  • A proportional penalty equal to 150% of the tax calculated on the sums corresponding to the value of these goods or rights;
  • Formal penalties in the amount of EUR 5,000 per data item or set of data not declared with a minimum penalty of EUR 10,000. In addition, late reporting results in a penalty of EUR 100 per data or set of data with a minimum penalty of EUR 1,500.

In 2017, the European Commission launched an infringement procedure, based on the fact that these consequences were disproportionate, which led to the case being taken to the CJEU.

In its judgment, the CJEU ruled that the consequences of failure to comply with the obligations of Form 720 could prevent Spanish taxpayers from investing abroad and, therefore, constitute a disproportionate restriction on the free movement of capital contrary to law. of the EU. In this regard, the CJEU states that such a restriction may be justified by public interest (i.e. to prevent tax evasion) but, in this case, it goes beyond what is necessary. In summary, the main deliberations of the Court are as follows:

  • Regarding the inapplicability of the limitation period, although the CJEU expressly ruled that the presumption of obtaining “unjustified capital gains” could be justified, the Court recalls that Spanish law is contrary to the fundamental requirement of legal certainty (it allows the tax administration to challenge a limitation period that has already expired vis-à-vis the taxpayer).
  • As regards the 150% penalty, the CJEU rejects it as excessive and of a highly punitive nature given that such a penalty together with unjustified capital gains and fixed fines may result in a total amount owed by the taxpayer greater than 100% of foreign assets or rights.
  • Finally, as regards the fixed penalties, the Court finds that they are disproportionate since these fixed fines are applied concurrently with the proportional fine of 150% and finds that their amount is disproportionate in relation to the amount of the fines which penalize the non-compliance with similar obligations in a purely internal context in Spain.

Key points to remember

This ruling does not eliminate the requirement to file Form 720. Although a case-by-case analysis would need to be made, affected taxpayers would be entitled to challenge unjustified income tax capital gains. of natural persons and the penalties imposed for failure to comply with the Form 720 obligations. In addition, the Spanish government is expected to modify the current legislation governing tax form 720 to comply with EU law.

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