European Court of Justice against the tax form 720

The 720 tax form has been a nightmare for tax residents in Spain, typically for those foreigners living in Spain holding assets and rights abroad. Despite such tax form was only informative and no payment was due, the effects on the Personal Income Tax, the Wealth Tax and the sanctions applicable for non-submission of incorrect submission were excessive.

In this sense, in addition to the sanctions non-submission or incorrect submission, if some assets and rights were not declared abroad and the Administration detected the non-declaration of them or the late default, they could result in the taxpayer being considered to obtain a profit in the last of the non-prescribed years. In consequence, an income obtained in 2010 could be taxed in tax year 2021 and this was a way to declare the non-prescription of the tax, which was always an excessive consequence that was increased with a sanction that could reach 150% of the undeclared profit.

Fortunately, the European court rules that:

1 - Sanctions are disproportionate.

2 - Any income that can be supported to have been obtained in tax exercises out of the statute of limitation (i.e., four years in Spain) cannot be taxed and no sanction may be imposed.

Notwithstanding the above, until a legal amendment is approved with regards to this tax form, it must continue to be prepared and duly submitted. Deadline March 31 each year.

In the meantime, it is time to take some decisions with regards to:

- 720 tax forms not submitted or submitted but without some assets and rights.
- Personal Income Tax and Wealth Tax to be in line with 720 tax forms.
- Claims for sanctions imposed.

Alejandro Puyo
Area Tax