02 February 2022 CJEU rules that Spain’s penalty regime for failure to report overseas assets and rights to tax authorities is contrary to EU law On 27 January 2022, the Court of Justice of the European Union (CJEU) published a resolution (the Resolution) concerning the regulation of the obligation for Spanish tax residents to provide information with respect to overseas assets and rights (i.e., Form 720) and its penalty regime. The Resolution does not declare the obligation to provide information concerning assets and rights located abroad as contrary to European Union (EU) Law. However, the CJEU has ruled that the consequences established in the Spanish legislation for the failure to comply or the partial or late compliance with such obligation are disproportionate and limit the free movement of capital. With the aim to fight against tax evasion, a new obligation was introduced in October 2012 requiring Spanish tax resident individuals, entities and permanent establishments to provide information concerning overseas assets and rights (i.e., Form 720). Broadly, the assets to be declared are accounts held in foreign institutions, certain securities and rights, life or disability insurance, life annuities and overseas real estate properties or rights on such properties. The regime also incorporated a system of offenses and penalties in the event of failure to fulfil the obligation or for the late submission of the abovementioned Form 720. The consequences for those offenses were substantially more severe than those imposed for similar infringements. The possession, declaration or acquisition of overseas assets and rights which were not duly declared in such informative tax return (i.e., Form 720) qualified as "unjustified capital gains," which were attributed to the oldest tax year which had not yet become statute barred, therefore resulting in practice in an infinite statute of limitations period. Finally, the assessment by the tax authorities of an "unjustified capital gain" was qualified as a serious tax offense, which was subject to a penalty of 150% of the amount of the resulting tax due. The Resolution does not declare the obligation to provide information concerning assets and rights located abroad to be contrary to the EU Law. Following the request of the European Commission, the CJEU addressed the consequences of the failure to comply, totally or partially, with such obligation, specifically: (i) the practical impossibility of acquisitions performed beyond the statute of limitations to become statute barred; (ii) the proportionality of the 150% penalties over the tax due on these "unjustified capital gains"; and (iii) the amount of the flat-rate fines. The CJEU's ruling that the penalty regime is contrary to the free movement of capital was reasoned as follows:
Since the Resolution does not declare the obligation to file Form 720 to be contrary to EU Law, the obligation to report the relevant assets and rights within the set deadlines remains. However, the following consequences of the failure or partial failure to comply with the obligation of information will not be enforceable, as they have been declared contrary to the free movement of capital:
The Resolution does not limit its reach to assets and rights located in EU Member States, so in the context of the free movement of capital it should also be applicable to those located in third countries. Taxpayers that have filed a voluntary regularization within the last four years (i.e., in those cases where such filing is not statute-barred) may evaluate the option to contest the self-assessment and claim a refund for undue taxes if they can prove that the relevant assets and rights were acquired in statute-barred periods. Also, taxpayers that have been subject to a re-assessment by the Spanish tax authorities and/or have been subject to penalties may consider reviewing current claim opportunities.
Document ID: 2022-0188 |
