There may be relief ahead from the threat of Modelo 720 sanctions for taxpayers in Spain. On 15 February, the European Commission gave the Spanish government a two-month ultimatum to make Modelo 720 penalties fairer. While accepting that Spain has the right to require taxpayers to declare overseas assets, the Commission disagrees with the severity of punishments for late or inaccurate submissions. The requirement to submit the Modelo 720 form, however, is not under challenge.

Sanctions under Modelo 720 law include, among others, a minimum €10,000 charge on incorrect declarations and an additional 150% penalty on unpaid capital gains. As penalties are disproportionate to those imposed for other defaults (such as late submission of Spanish income and wealth tax returns), the Commission claims it is discriminatory and conflicts with EU freedoms.

What happens in two months’ time?

If there is no satisfactory response from the Spanish Hacienda within the deadline, the Commission will bring the case to the Court of Justice of the European Union.

While sources from the Spanish government claim they are willing to defend Modelo 720, they have hinted they may potentially soften some sanctions, such as capping the fine for errors in completing the form. They also suggested a possible reduction in penalties for failing to declare assets based in EU countries or in states that have signed automatic exchange of information agreements with Spain.

What does this mean for Spanish taxpayers?

While we need to wait and see how the case unfolds, nothing has changed - nor likely to change - in terms of the obligations to declare correctly and on time. That means Spanish residents with overseas assets totalling over €50,000 still need to submit Modelo 720 or face existing penalties.

If this affects you, make sure you are ready to meet the upcoming 31 March deadline for your 2016 declarations. If you have previously submitted Modelo 720, you only need to declare assets if they have grown by more than €20,000 or you have sold or closed them. If in any doubt, seek guidance to ensure you meet your obligations.

This is also a good opportunity to assess whether you are holding your assets in the most tax-efficient vehicles for Spain. Take personalised, professional advice from an adviser with cross-border experience to get the best results.

Summarised tax information is based upon our understanding of current laws and practices which may change.  Individuals should seek personalised advice.

Simon King, Partner, Blevins Franks

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