The Spanish tax authorities amend Form 720 following the CJEU judgment. What changes are included?

Form 720 of the Spanish Tax Agency (AEAT) is an information return on assets and rights located abroad. Following a recent judgment of the Court of Justice of the European Union (CJEU), which held that certain obligations it imposed on taxpayers were contrary to law and, at the same time, required the established penalties to be reduced, the Spanish tax authorities have been forced to amend Form 720 to bring it into line with EU legislation

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It is important to bear these amendments in mind because the filing period for the return on assets held abroad for the year 2021 ends on March 31.

The CJEU’s reasoning

The main problem was that the CJEU considered the penalties for taxpayers who failed to report such assets correctly or on time to be disproportionate, since they amounted to a disproportionate restriction on the free movement of capital, contrary to EU law.

To speed up the process, the government has used the passage of the Bill amending Law 27/2014, of November 27, on Corporate Income Tax (IS), and the consolidated text (texto refundido) of the Law on Non-Resident Income Tax (IRNR) to introduce amendments in the Senate and have the new Form 720 ready before March 31.

WHAT CHANGES ARE INCLUDED?

Presumption of income obtained under Corporate Income Tax

In addition to a justification in the preamble to the law, paragraph 6 of Article 121 of Law 27/2014 on Corporate Income Tax is deleted, thereby eliminating the non-application of the statute of limitations where legal entities fail to file Form 720.

A new paragraph three is added to Article One, worded as follows:

Paragraph 6 of Article 121 is deleted, and current paragraph 7 is renumbered as paragraph 6, which is worded as follows:

“6. The value of the assets referred to in paragraph 1, insofar as it has been included in the tax base, shall be valid for all tax purposes.”

The Tax Agency changes the penalty regime

More important, however, is the repeal of the penalty regime, specifically the first and second additional provisions of Law 7/2012. The repeal will enter into force upon publication of the law in the Official State Gazette (BOE).

The sole repealing provision is amended and now reads as follows:

“Sole repealing provision. Repeal of legislation.
1. Any provisions of equal or lower rank that conflict with the provisions of this law are hereby repealed, in particular Article 15.j) of Law 27/2014, of November 27, on Corporate Income Tax.
2. The first and second additional provisions of Law 7/2012, of October 29, amending tax and budgetary legislation and adapting financial legislation to intensify actions to prevent and combat fraud, are hereby expressly repealed.”

Reporting obligation regarding assets and rights located abroad

Lastly, the eighteenth additional provision of the General Tax Law (LGT) is amended, eliminating the specific penalty regime for failure to comply with the reporting obligation regarding assets and rights located abroad.

In addition, a final provision is added, worded as follows:

“Final provision XX. Amendment of Law 58/2003, of December 17, the General Tax Law.
The eighteenth additional provision of Law 58/2003, of December 17, the General Tax Law, is amended and now reads as follows:
Eighteenth additional provision. Reporting obligation regarding assets and rights located abroad.
Taxpayers (obligados tributarios) shall provide the tax authorities, in accordance with Articles 29 and 93 of this Law and under the terms established by regulation, with the following information:
a) Information on accounts located abroad, opened with entities engaged in banking or credit business, of which they are holders or beneficiaries, or in which they appear as authorized persons or otherwise hold the power of disposal.
b) Information on any securities, assets, instruments, or rights representing the share capital, equity, or net worth of any type of entity, or the transfer of own capital to third parties, of which they are holders and which are deposited or located abroad, as well as on life or disability insurance policies of which they are policyholders and on life or temporary annuities of which they are beneficiaries as a result of the delivery of capital in cash, movable property, or real estate, contracted with entities established abroad.
c) Information on real estate and rights over real estate owned by them and located abroad.
d) Information on virtual currencies located abroad of which they are holders, or in respect of which they are beneficiaries or authorized persons or otherwise hold the power of disposal, held in custody by persons or entities that provide services to safeguard private cryptographic keys on behalf of third parties and to hold, store, and transfer virtual currencies.
The obligations set out in the preceding paragraphs shall extend to persons who are considered beneficial owners under Article 4.2 of Law 10/2010, of April 28, on the prevention of money laundering and terrorist financing.”

Unjustified capital gains under Personal Income Tax (IRPF)

As regards unjustified capital gains under IRPF, paragraph 2 is deleted, thereby eliminating the non-application of the statute of limitations where an individual fails to file Form 720. Article 39 of Law 35/2006 on Personal Income Tax is amended and now reads as follows:

“Assets or rights whose holding, declaration, or acquisition does not correspond to the income or wealth declared by the taxpayer, as well as the inclusion of non-existent debts in any return for this tax or for Wealth Tax (IP), or their recording in official books or registers, shall be considered unjustified capital gains.
Unjustified capital gains shall be included in the general taxable base of the tax period in which they are discovered, unless the taxpayer provides sufficient proof that he or she has held the corresponding assets or rights since a date prior to the limitation period.”