31 March is the deadline for submitting Form 720, the informative declaration of foreign assets. The entry into force of this special fiscal requirement was accompanied by a great deal of controversy over its potential incompatibility with several key EU principles.
Our lecturer Carmen Jover, who is an economist and tax adviser, has explained to us what information needs to be submitted to the tax office and the potential penalties arising from the failure to do so. The explanation is available in a video published on the economics and finance blog Patrimonia.
The video text
31 March is the deadline for submitting Form 720, the declaration of foreign assets.
The information that must be provided is divided into three independent blocks: information about bank accounts, information about real-estate property, and information about assets such as securities, shares, funds, insurance, etc. The form must be submitted if any of these blocks exceeds €50,000, and once the form has been submitted it only needs to be re-submitted if any of the assets in question have been cancelled or if their value has increased by €20,000 or more. The declaration requirement entered into force in 2013, corresponding to information for the 2012 financial year.
However, the most concerning aspect of this declaration is its penalty system, which includes three different types of sanction:
If the tax office discovers undeclared foreign assets, it shall consider them to constitute undeclared income and therefore subject to the oldest of the non-expired tax periods, with the earliest applicable period being 2012, as this was the year the requirement entered into force. Expiry, or the statute of limitations, cannot be claimed. However, this requirement directly threatens the basic principle of legal certainty. In other words, if the tax office discovers a non-declared asset related to an income obtained in an expired period, e.g. the year 2000, and said expiry remained in effect at the moment the new requirement entered into force, would I then lose the right to claim said expiry after it had been legitimately obtained and recognized? The answer is yes.
And the direct penalty is 150%, which runs contrary to every rule of proportionality and may even be considered confiscatory. So, for example, if the tax office discovers that I have an undeclared bank account containing one million euros, then - provided I am a natural person - they will apply the general rate of personal income tax. So I will have to pay tax at the corresponding rate, let’s say 50%, i.e. €500,000, and also the penalty of 150%, i.e. €750,000. That’s more than the entire original undeclared amount!
The penalty for inaccuracy or failure to submit a declaration is €5,000 per error, with a minimum of €10,000. This is clearly excessive.
Several days ago the EU’s Court of Justice declared that it intended to analyse the legality of the first two penalties. Meanwhile, the rule and its sanctions remain in force and fully applicable.