Declaration Of Overseas Assets In Spain Unlawful According To The EU

The European Court of Justice ruled that the demand for the declaration of overseas assets in Spain is illegal, and that the harsh penalties imposed by Spanish law could stifle the free movement of goods across the EU.

According to the European Court of Justice, Spain violated EU regulations when it imposed harsh penalties on residents who failed to properly submit their declaration of overseas assets in Spain or who omitted information about property and bank accounts held abroad.

The European Court of Justice agreed with the European Commission that the penalties for failing to properly disclose foreign assets on the so-called Form 720 (the declaration of overseas assets in Spain required to calculate taxes) were excessive and could stymie EU citizens’ right to freely move assets across borders.

In 2012, Spain implemented a new tax regulation. The government of then-Prime Minister Mariano Rajoy took a carrot-and-stick approach to catching tax evaders who hid their assets abroad: first, the government instituted an amnesty period during which residents could declare their holdings without penalty, and then the government imposed harsh penalties on anyone who did not. According to the regulations, the prescribed fines were severe: they could have exceeded the value of the property itself, sometimes by up to 150 percent.

Following a number of high-profile cases in which retirees were fined hundreds of thousands of euros for failing to properly fill out the declaration of overseas assets in Spain, Brussels stepped in. In 2015, the commission, the EU’s executive branch, initiated infringement proceedings against Spain. After failed talks with Spain to change the law, it eventually referred the case to the Court of Justice.

The three-judge panel ruled that Spain violated the EU’s free movement of goods, a fundamental concept of the 27-member political and economic union, by classifying assets held abroad as “unjustified capital gains” and taxing them accordingly if taxpayers filed incorrectly or late. “That obligation is likely to deter, prevent, or limit the opportunities for residents of that Member State to invest in other Member States,” the court wrote in a statement announcing the decision on Thursday.

The harsh penalties were also deemed “highly punitive” and “disproportionate” by the court. In one well-known case, a taxi driver who had spent most of his life in Switzerland but retired to the southern Spanish city of Granada was fined 442,000 euros ($495,000) for failing to submit documentation on his 340,000 euros ($380,000) in retirement savings on time.

Madrid argued that harsh penalties were required to deter tax evasion, and that fines were imposed on a case-by-case basis rather than automatically. The court was unmoved, concluding that the fines’ “extremely repressive nature” would likely deter Spanish taxpayers from investing abroad.

It is unclear how this ruling will affect the Spanish tax authorities, who are notorious for being harsh and unforgiving, and whether anything will change in the future regarding how the declaration of overseas assets in Spain is treated and fined.

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