The CJEU annuls the penalties of the 720 tax form

The Court of Justice of the European Union (CJEU) has ruled on Thursday that Model 720, which obliges individuals to declare assets and rights located abroad, and the system of penalties derived from it, are contrary to EU law.

Conten Table

annulment of the model 720 penalties
Annulment of the penalties of Form 720. In the judgment of the 27th of January 2022 C-788-19, the Court of Justice of the European Union (CJEU) states that the penalties provided for in the event of failure to comply with the obligation to declare are disproportionate and that it is not permissible for the rule to create a situation of imprescriptibility in relation to assets and rights abroad simply because of a failure to comply with a formal obligation.

The Court of Justice of the European Union (CJEU) ruled on Thursday that Model 720, which obliges individuals to declare assets and rights located abroad, and the system of penalties derived from it, are contrary to EU law.

Excessive penalties for the 720 tax form

According to the European Court of Justice, Spain imposes excessive penalties on citizens who fail to comply with this obligation or who make errors in their declarations, thus violating the principle of freedom of movement of capital. According to the ruling, the anti-fraud measures are disproportionate to the aim pursued and create excessive harm to citizens.

Three points of interest on the annulment of the penalties of the 720 tax form

  • The Court points out that the legislation, in addition to having the effect of being imprescriptible, also allows the tax authorities to call into question a limitation period which has already expired in favour of the taxpayer, in breach of the fundamental requirement of legal certainty.
  • As for the proportional fine of 150% of the tax calculated on the amounts, cumulative with other fixed fines applied to each omitted, incomplete, inaccurate or false piece of information or set of information, the Court considers that this penalty is excessive and extremely repressive in nature and therefore constitutes a disproportionate impairment of the free movement of capital.
  • The judgment criticises the system of fixed-amount fines under Spanish tax law. According to the court, this system imposes very high penalties for breaches of mere declaratory obligations.

Validity of Model 720

For practical purposes, the ruling does not annul the obligation to file the Model 720 return, but rather declares the formal penalties and their consequences, which are the unjustified gains of assets abroad, to be illegal. As a result of this ruling by the European Court, taxpayers will be able to claim a refund of the penalties.

The government has committed to modify and adapt the Model 720 before the end of the 2021 filing deadline in March of this year.

Impact of the ruling on cryptocurrency declaration

Most cryptocurrencies are located in exchanges outside Spain and were reflected in the 720 tax form. This is why the CJEU ruling has a huge impact on these transactions and puts more pressure on the AEAT to start regulating cryptocurrencies specifically.

If you have received a 720 penalty and want to know how to claim it, contact us.

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