Tax Form 720: the end of the disproportionate penalty of 150%


12 Feb 2019

Since 2012, Spanish tax residents must report to the tax authorities on assets held abroad exceeding 50.000 euros, using tax form 720.

Inaccurate, false or out-of-time filling will lead automatically to the assumption of the assets declared to be unjustified capital gains unless the taxpayer can prove ownership prior to becoming tax resident, or taxes paid on taxable income used to acquire those assets. Consequences are the same as if the tax authorities would have discovered unreported assets: the deemed capital gain is taxed at the top marginal rate (45% minimum), a penalty of 5.000 euros per data is imposed plus a penalty of 150% on the capital gain tax liability.

The European Commission opened an infringement procedure which ended with a motivated report stating that the regulation infringes the free movement of people and capital and it is discriminatory and disproportionate.

Last November 28, the Supreme Court of Justice of “Castilla y Leon” annulled the disproportionate penalties imposed to a taxpayer and sentenced the tax authorities on costs.

General Director of the Tax Agency, Jesus Gascon, announced last 23 January that taxpayers filling the tax form 720 out of time voluntarily will not have penalty consequences unless it derives from an investigation carried out by the tax authorities.

Mr Gascon also announced that the tax authorities will send an alert message to taxpayers who have unreported accounts abroad in order to voluntarily regularize the situation prior to be requested to do so. This being the result of massive information exchanged by governments further to Common Reporting Standard introduced since 2016. A similar alert will be sent to those renting their properties to tourists through platforms due to the information gather from providers like AirBnB, OwnersDirect and similar.

Now, more than ever, it is the time for voluntary disclosure regularizing unreported assets.

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