ITS STILL HERE BUT WHAT´S CHANGED……

We are fast approaching the 2022 deadline to file the Modelo 720.

Here we are in March 2022, nine years on from when the Spanish authorities launched their new “anti-fraud” plan to prevent tax evasion. We were initially advised it was aimed at Spanish nationals trying to hide their assets overseas, but quickly realised that most people affected were the International community with assets back home……

This law was introduced back in 2013, at the time the authorities didn’t really highlight this requirement very well and most of the country were not aware it had been passed. Fast forward to 2022 and I am still meeting people on a regular basis who have never heard of it.

So here it is, a brief outline of the Modelo 720 and what you need to do.

WHO HAS TO REPORT?
Any person, permanent establishment or company who is tax resident in Spain and is the owner, titleholder, representative, authorised person, beneficiary, or has disposal powers of assets located outside of Spain worth more than €50 000 (see assets below), must report the value of these assets.

WHEN DO YOU REPORT?
Between 1 January and 31 March of each tax year.

WHICH ASSETS MUST BE REPORTED?
There are three main asset classes that need to be reported if the total value of each class is over the €50 000 limit:

Bank/Building Society accounts located outside of Spain – It is important to note that if you hold several bank accounts and the TOTAL amount held exceeds the €50 000 limit, then ALL the accounts need to be reported, even those with a nil balance.

Investments / Life or disability insurance policies – If you are the owner or policyholder of an investment or insurance policy then these will need to be declared if they exceed €50 000. Again, there is a requirement if you have multiple investments or policies, that if the total value exceeds the limit then they will all need reporting. Interestingly if you are holding what we describe as Spanish compliant Life Insurance Bonds, then the onus of reporting on the Modelo falls to the institution themselves.

Property – Owners or part owners of an overseas property where the value exceeds the limit must report these properties.

NOTE – You need to report the Modelo 720 again if any of your asset classes have increased by over €20.000 since they were last reported

WHAT IF YOU DON’T REPORT IN TIME / CORRECTLY / OR AT ALL?
This is where things have changed in 2022. Previously The Spanish Tax Authority had implemented a series of heavy penalties for those who do not comply with the regulation.

These penalties can be imposed for late filing, incomplete/inaccurate filing and even for presenting the information to them in a way not deemed acceptable. Pre 2022 these fines could equate to 150% of the asset value. In a recent European court ruling these fines were deemed excessive and have been ruled out by the authorities. It is important to note though that the courts did agree a need for the Modelo 720 itself.

Whilst the excessive fines have been struck out please don’t think that there are no repercussions for not filing. The Spanish authorities will release a new penalty / fine structure that will be more acceptable to the European courts.

For further information you can visit the Agencia Tributaria website here Modelo 720 to see the latest information, in Spanish.

If you need any guidance or have any queries regarding your Modelo 720 please let me know.

Is this the end of ridiculously huge fines for the Modelo 720?

Although the ECJ has not stated that the Modelo 720 (the declaration by Spanish tax residents of assets outside Spain) is illegal, the European Court of Justice agrees with the European Commission that Spain has failed in its obligations under the free movement of capital because Spain has been charging disproportionate fines for non or late disclosure. The ECJ notes that Spain does not treat the disclosure of Spanish assets in the same way.

Spain has seemed to ignore pressure before on this subject but the ECJ has stated that, if Spain does not address this issue, Spain will face large fines. Perhaps this time Spain will act.

The Modelo 720 – Does this affect me?

In 2013, the Spanish government launched an “anti-fraud” plan to prevent tax evasion. It appears that this was originally aimed at Spanish nationals who were “hiding” their money outside Spain, but it soon became applicable to non-Spanish nationals living in Spain.

The Modelo 720 has to be completed by 31st March of each year and is based on assets held as at 31st December of the previous year. In general, you will be deemed tax resident if you are in living in Spain for more than 183 days of a calendar year (which is the same period as the tax year).

Que vous viviez en Espagne depuis de nombreuses années ou que vous soyez un nouvel arrivant, vous êtes soumis à certaines déclarations obligatoires et devriez donc être concernés par une ou plusieurs échéances listées ci-dessous.

Ces dates sont inchangées depuis plusieurs années et devraient le rester.

Afin de vous aider à mieux comprendre la fiscalité en Espagne, Spectrum a créé le “Guide des impôts en Espagne 2021” (document en anglais).

Ce guide vous aidera à comprendre les règles de résidence fiscale locale et les impôts sur le revenu, les successions, les investissements, la propriété et les retraites.

Vous pouvez librement télécharger ce document sur notre site et dans le même temps, si vous le désirez, vous abonner à ma newsletter “actualités financières et fiscales en Espagne”.

spectrum-ifa.com/cedric-privat/spanish-tax-guide-cedric-privat

Je reste à votre disposition pour vous apporter des informations complémentaires.

Time is running out for submitting your Modelo 720 declaration for 2019, the “Overseas Assets Declaration”.

The deadline this year is the 31st March and is fast approaching.

All those tax resident in Spain – those living in Spain for more than 183 days a year or where Spain is the main residence base – should be aware that as a result of legislation passed on 29th October 2012, residents in Spain who have any assets outside of Spain with a value of €50 000 (or alternative currency equivalent) or more, are required to submit this declaration form to the Spanish authorities.

This declaration can be made online, through the Tax Office`s web page www.agenciatributaria.es where the Modelo 720 form can be located (type in Modelo 720 into the search block on the top right-hand side of the page). It must be filed between January 1st and March 31st of the first year of residence, although I would strongly advocate speaking with your tax professional, accountant or Gestoria to avoid mistakes.

What to Declare?
There are three main groups of assets that must be declared if the total joint value of the group exceeds €50 000: Property – Bank accounts – Investments

To warrant a declaration the total value of assets should exceed the currency equivalent of €50 000 in each or any one of the categories. For example, if you have three bank accounts totalling more than €50 000 you are subject to making the Modelo 720 Overseas Assets Declaration.

It is worth noting that once the limit of €50 000 is surpassed for a group then all assets in all groups need to be declared, regardless whether each asset does not surpass the limit. Additionally, the obligation to report exists where the specific assets are over €50 000 regardless of how many owners hold particular assets. Each owner should declare the total balance or value, and not the prorata value, indicating the percentage owned.

A declaration must be submitted individually, regardless of the percentage of ownership, i.e. joint accounts. For example, if you have a joint bank account with a value exceeding €50 000, although your particular share is below the threshold, say, €25 000, each owner would still be required to submit an individual declaration based on the total value of the account.

Although this declaration of assets is solely informative and no tax is charged, failure to file, late filing or false information could result in fines.

For this reason, we recommend that everybody arranges to declare their assets, to avoid the imposition of such fines. Once you have made your first declaration it is not necessary to present any further declarations in subsequent years, unless any of your assets in any category increases by more than €20 000 above the initial value declared.

Within the framework of the “anti-fraud” plan launched in 2013, the Spanish government imposed the obligation for Spanish tax residents to declare all their foreign assets through the form Modelo 720. This reporting obligation was mainly directed at discovering assets of Spanish citizens with irregular assets located offshore. However, it also directly affects the members of the international community living in Spain that have assets abroad.

The duty to inform through the Modelo 720 is linked to tax residence, that is, if the person is considered a tax resident in Spain, you are subject to this obligation of reporting foreign assets.

Who is Subject to Model 720?
Any person, corporation or permanent establishment who qualifies as a tax resident in Spain and is the owner, titleholder, representative, authorised person, beneficiary, or has disposal powers of assets located outside of Spain worth more than €50,000 (see assets below), must report the value of these assets.

When is a Person a Spanish Tax Resident?
A person will become as a Spanish tax resident if any of the two following circumstances are met:

(i) The person is physically present in Spain for more than 183 days in a specific calendar year. Sporadic absences are considered as days spent in Spain for computing this period, unless tax residence in another country for more than 183 days can be proved. This proof must be in the form of a certificate from the other country’s tax authorities confirming such tax residence.
(ii) The person has his/her centre of vital interests or economic interests in Spain, either directly or indirectly. There is a presumption that a person has his/her centre of vital interests if his/her legal spouse or minor dependent children are tax residents in Spain.

What to Declare?
There are three main groups of assets that must be declared if the total joint value of the group exceeds €50,000:

• Funds in accounts in financial institutions abroad, e.g. banks: such funds can be held through the figure of the owner, co-owner, representative, authorised person or beneficiary. The valuation of the funds should be the highest of (i) the balance at December 31 or (ii) the average balance at the closing of each quarter
• Securities, rights, insurance and income deposited, managed or earned abroad. Life insurance policies and temporary or lifetime income generated from lending money, rights or other assets to foreign entities are included, whilst pension plans and stock options are excluded
• Real estate and rights over real estate located abroad

It is worth noting that once the limit of €50,000 is surpassed for a group; all assets in all groups need to be declared, regardless if each asset does not pass the limit. Additionally, the obligation to report exists where the specific asset(s) are over €50,000 regardless of how many holders/owners hold a particular asset(s). Each holder/owner should declare the total balance/value (not the pro –rata value), indicating the percentage held/owned.

When to Declare?
The reporting period is between January 1 and March 31 of each calendar year, with respect to assets held as at 31 December of the previous year. For example, the reporting period for assets held as at December, 2018 is until March 31, 2019.

Frequency to Report?
Form 720 only has to be filed once if the person meets the conditions described in question 2 above. The person will only be obliged to file Model 720 again when, in relation to any of the three groups of assets, there is an increase of €20,000 compared with what was declared in the last Modelo 720 filed.

How to Report?
The form is to be completed on-line. The form is not a standard format and requires navigation through various options and drop down menus. Assistance from an experienced adviser is recommended.

Penalties
The consequences for failing to file Modelo 720 in time, or not filing it at all, are very severe. The specific penalties are as follows:

(i) Penalties for late reporting: The penalty for voluntary late submission is 100 euros per item declared and a minimum fine of €1,500 for each group of assets.

(ii) Penalties for failure to report: The penalty for failing to file Modelo 720 is €5,000 per infraction with a minimum fine of €10,000 for each group of assets.

Additionally, the undeclared assets will be treated as unrealised capital gains and will be consequently included in the general base of the income tax return (Impuesto de la Renta de Persona Físicas) for the earliest year of such tax not prescribed. Finally, interests and an additional penalty of 150% paid income will also be levied.

The regulation establishes that if declaring late, the formal penalty is much lower (€100 per data, with a minimum of €1,500 per group of goods) than by not declaring or declaring incorrectly (€5,000 per data, with a minimum of €10,000), but the other two possible sanctions or consequences are the same, both for not declaring and for declaring late: the Administration can attribute as unjustified patrimonial gain the value of the goods abroad in the IRPF of the last year not prescribed (2012), and additionally apply a sanction of 150% on the resulting IRPF quota, unless it can be clearly demonstrated that the goods abroad correspond to income declared or obtained when one was not resident in Spain.

It is worth noting that the penalties will apply even if the statute of limitations for other tax filings and obligations relating to those assets (and incomes) has expired, as the statute of limitations does not apply to Modelo 720.

However, if the tax payer can prove that the funds came from income earned whilst he/she was not a Spanish tax resident, or that the funds came from taxed income, the income tax and income tax penalties will not be levied. In case of a tax inspection, it is thus extremely important to present a detailed and backed-up response and justification to prove the assets were obtained before becoming a Spanish tax resident, or that they have been subject to taxation by a foreign tax authority.

The European Commission’s response to Model 720
In November 2015, the European Commission (EC) started an infringement procedure against Spain confirming that there are two aspects of the Modelo 720 that may violate EU legislation: (i) the disproportionate sanction regime, and (ii) the imputation as unjustified capital gains of assets not declared on time without the possibility of claiming the expiration of the statute of limitations. The EU Commission requested Spain to amend such regimes. However, up to this date, the Spanish tax authorities have not modified any aspect of Modelo 720 as per the EC’s recommendations and have continued to strictly apply Modelo 720 and its penalties.

Given the obligations under Modelo 720, its severe penalties and the increasing automatic exchange of information treaties between states, we strongly recommend that clients seek advice to analyse whether they are subject to Modelo 720 and if so, to make the appropriate filings.