What does the European Union think about Form 720?

Form 720’s issues have been raised to (and by) the European Union and no Spanish organism has responded, which keeps many taxpayers’ situation on hold and clearly attempts against their legal security.  

As we indicated in a previous post, the European Union has pronounced on several occasions on the Form 720, as a result of the requests from Spanish taxpayers and by its own. 

The European Commission has referred in several resolutions to the high sanctions, and also indicates limitation of rights of the EU citizens. It also has been argued the lack of legal certainty generated for the taxpayer by the inclusion of the amounts regularized in the last year among those not prescribed, as this empowers the Administration with an unlimited period for its regularization.   

The European Commission itself initiated a procedure against Spain, in which it was revised whether 720 regulation were against some of the EU rights and concluding that the penalties of Form 720 are absolutely disproportionate and clearly violate the fundamental rights, focusing on three aspects: 

• the sanctions of Form 720 compared to other similar statements. 
• the consideration of the value of the unreported assets as a capital gain for Income tax purposes, without the possibility of claiming prescription in the Personal Tax. 

• the additional penalty of 150% on the Personal income tax. 

In October 2019, the European Commission filed an appeal against Spain for non-compliance with the EU, which was published in December 2019. The Commission questioned again, the three controversial aspects of Form 720 and the limitation of rights, which is therefore understood to be violated.  

The final Resolution is expected during 2021.  But, it is has been anticipated that although, Penalty Regime around Form 720 may be adequate for the prevention and fight against tax avoidance and fraud, the sanctions that consist on the qualification of assets as capital gains, the non-application of the normal prescription rules and the high fixed penalties, constitute a restriction to the fundamental rights and are disproportionate.  

Finally, add to all the above that the European Commission has brought to the European Court the null sensitivity of Spain with the victims of its regulations contrary to European law.  The Commission understands that Spain does not assume responsibility for compensation when its legislation is questioned as inappropriate by the European justice. Depending on the resolutions, taxpayers who have been involved in issues related to form 720, may be able to claim in the future for the corresponding compensations.