The EU Advocate General believes that the fixed penalties for not declaring assets abroad are “disproportionate”

The EU Advocate General believes that the fixed penalties for not declaring assets abroad are “disproportionate”

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The EU Advocate General believes that the fixed penalties for not declaring assets abroad are “disproportionate”

Tax Agency Office.Pablo Monge

New blow for the tax declaration of assets abroad, although of lesser scope than expected. The attorney general of the European Union, Henrik Saugmandsgaard Øe, considers that the fixed fines imposed by the Tax Agency on taxpayers who do not submit or do so incompletely the declaration of assets and rights abroad (model 720) are contrary to right. The EU General Counsel believes that the Spanish regulations that require the presentation of this tax information constitute a restriction on capital movements, since it may discourage tax residents in Spain from investing in other states, or prevent or limit their possibilities of do it”. And although he admits that there could be reasons that justify this tax obligation, such as the fight against fraud and capital evasion, he qualifies the fixed penalties as “disproportionate”.

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The Court of Justice of the EU has published this Wednesday the conclusions of the general counsel on the model 720. A decision that the law firms had been waiting for a long time and that has not satisfied neither them nor the Treasury. Because the European lawyer leaves many questions unclear. What he does is admit and make clear that he understands the appeal presented by the European Commission against the Spanish rule that obliges taxpayers to inform the Treasury about their assets (current accounts, insurance, shares, real estate …) exterior valued at more than 50,000 euros. But he says he does not find sufficient reasons to annul the sanctions regime and end the imprescriptibility as demanded by Brussels.

The declaration of assets abroad was controversial from the beginning and the subject of much criticism. It was implemented by the former Finance Minister, Cristóbal Montoro, under the PP government in 2012. It was the complement of the tax amnesty in a kind of carrot and stick game. While in 2012 the door was opened to fraudsters who would regularize the money they had taken abroad without declaring almost free, on the other hand it was warned that as of 2013 they would have to confess all the assets they had abroad under penalties of fines that could amount to 150% of the undeclared fee, fixed penalties of 10,000 euros for each omitted data (these are those that the lawyer believes to be disproportionate) and, in addition, undeclared assets would be considered as unjustified capital gains (with regardless of the date of acquisition) so they would have to pay at the marginal rate of income.

The case of the Granada taxi driver

The most paradigmatic case of the sanctions system of this tax declaration, which is only informative, was that of a taxi driver from Granada. That in 2014 he declared a current account he had in Switzerland for the amount of 340,000 euros after the deadline. This citizen had emigrated to Switzerland in the 1960s and had saved money, according to his lawyers. The Tax Agency strictly applied the 720 model regulations and demanded 188,000 euros of personal income tax, for undeclared income. In addition, he applied the fine of 150% and claimed another 254,000 euros. That is, in the end he asked for a total of 442,000 euros. The lawyers of this taxpayer went to trial and succeeded in having the Central Economic Administrative Court (TEAC) annul the 150% penalty on the personal income tax quota for the declaration of assets abroad that the Treasury imposed on a taxpayer.

This tax declaration has also served to compile a juicy tax information. Since its entry into force, Spanish and foreign resident taxpayers with assets abroad of more than 50,000 euros have declared assets and rights amounting to more than 141,000 million euros. From all this information it can be deduced that Switzerland is the country where Spaniards have the most money in checking accounts; France where they have more houses and real estate; Luxembourg, where they claim to have more insurance and collective investment companies, investment funds and Sicavs.

From the outset, several law firms and tax attorneys such as Alejandro del Campo, from the DMS Consulting firm, or Esaú Alarcón, from Gibernau Asesores, sued against the sanctions regime of this tax obligation, which were only informative, because they considered them disproportionate. The European Commission also criticized this tax model. In 2017, the Community Executive published a reasoned opinion against model 720 because it considered that it affected the free movement of people and capital and considered both its sanctioning regime and its imprescriptibility to be disproportionate. The Commission appealed the Spanish rule to the CJEU and now the lawyer is presenting his conclusions that will serve as the basis for the deliberations of the European judges.

The appeal of the European Commission: fixed sanctions, imprescriptibility and a fine of 150%

The Commission alleged, firstly, that it constitutes a disproportionate restriction that not filing or filing form 720 extemporaneously leads to the assets that are the object of the model being classified as unjustified capital gains that do not prescribe. But the Advocate General points out that the Commission has, to a large extent, not provided the Court with the information necessary for it to verify the existence of the alleged breach. On the one hand, it considers that the rule of the “imprescriptibility effect” may be adequate to guarantee the achievement of the objective it pursues. And although it indicates that the rule is not necessary when the tax administration can have access to all the data through the automatic exchange of information with other countries, it recognizes that the Commission has not provided data that allows it to conclude that the Spanish treasury can access all the data and find evidence that it is an irrefutable presumption of tax fraud. That is why it only considers null the consideration as unjustified earnings for bank accounts opened as of 2016, when it considers that the Treasury had already collected financial information from other countries.

Regarding the disproportionality of the sanction, the lawyer considers that the Commission has not provided proof that the 150% fine is imposed automatically and not adjustable for non-compliance with the obligations related to form 720. In return, Saugmandsgaard Øe considers that the application of the fine “is disproportionate in the event of non-compliance with the obligation to provide information regarding new bank accounts.” It also considers the fixed fines of 10,000 euros to be disproportionate for each piece of information omitted in the declaration of assets abroad. Saugmandsgaard Øe observes that “these fixed fines are 15, 50 and 66 times higher than those applied in internal situations. Even if the margin of appreciation available to the Member States is taken into account to establish the appropriate penalties, these fines are so high that they appear disproportionate, without it being necessary here to distinguish between the different categories of goods ”.

For this reason, Saugmandsgaard Øe proposes that the CJEU declare that Spain does not comply with the rules on free movement of capital “to the extent that, in the event of non-compliance or extemporaneous compliance with the obligation to provide information on new bank accounts (only as of 2016 , when it considers that it already has information from other countries), the Tax Administration can regularize the corresponding tax debt, regardless of the date of acquisition of the assets in question, and impose a proportional fine of 150% if this is breached same obligation ”. The conclusions of the lawyer are not binding, but they tend to mark the position of the Luxembourg Court in most cases.