Spain seems doomed to receive a new blow from community justice, this time on account of one of the peculiarities of its tax system. The problem lies in the 720 form that the Treasury forces all taxpayers to fill in with more than 50,000 euros in goods abroad, to which it applies fines of 150% of the value due to a mere delay in the declaration, without non-compliance prescribe. It also establishes a series of fixed pecuniary fines for each incorrect information. A “disproportionate” sanction for which the European Commission took the country before the Court of Justice of the EU (CJEU), which this Thursday has taken a crucial step prior to the ruling.
Specifically, the Luxembourg Court has accepted the presentation of the conclusions of the Advocate General Saugmandsgaard Øe, a kind of prosecutor whose assessment is not binding on the court but is usually followed in the bulk of the proceedings.
In his conclusions, the General Counsel takes a position on the side of Brussels and considers that the fines imposed by Spain are contrary to European law, being disproportionate. Of course, it greatly limits the impact of the statement against the claims of the European authority. Specifically, it argues that the Commission has not duly justified the Spanish irregularity regarding the fines of 150% or its imprescriptibility, especially in the case of information on accounts prior to 2016 (since when it is estimated that the Treasury may have accurate information on those goods thanks to information exchanges with other countries).
The criticism of the attorney general focuses especially on the fixed pecuniary fines linked to each incorrect or excluded data in the declaration of the 720 model. euros for each group of goods affected, or 5,000 euros for undeclared or incorrectly recorded data, with a minimum of 10,000 euros per group.
The origin of the model
It should be remembered that current legislation in Spain establishes that income abroad that is not declared, or which is reported after the deadline, will be treated as an unjustified capital gain and will receive a penalty of 150% of the value of the amount. Moreover, the norm operates even on periods already prescribed, which has aroused a huge legal controversy due to this kind of imprescriptibility.
The penalty system associated with model 720 was implemented in 2012, when Cristóbal Montoro was the Minister of Finance of the Government of Mariano Rajoy, and has not stopped causing legal problems for the Tax Agency.
Numerous Spanish judges have been knocking down a good part of the sanctioning resolutions decreed by the treasury while Brussels issued a very harsh report in 2017 in which it ordered Spain to modify the fine system within a period of two months
As it did not do so, the matter ended up leading the European Commission to denounce Spain to the CJEU for understanding that it had designed a system of “disproportionate and discriminatory” fines.
The Brussels complaint
The Commission’s complaint points out that the penalty system established by Spain on undeclared income abroad violates four community freedoms and limits the European economic area.
“The sanctions that consist of classifying the assets as capital gains, the non-application of the normal prescription rules and the fixed pecuniary fines, constitute a restriction to the fundamental freedoms of the TFEU. [Tratado de Funcionamiento de la UE] and EEA [Espacio Económico Europeo]”, Defends Brussels in the complaint.
This situation, adds Brussels, leads to the fact that the Spanish law “conflicts with the fundamental freedoms of the EU, such as the free movement” of people and workers, “the freedom of establishment, the free presentation of services and the free movement of capital ”.
The Commission has asked the community magistrates to condemn Spain for various specific aspects of the rule: treat as unjustified capital gains, without prescription, undeclared income or those that are reported late; the application of fixed pecuniary fines of 150% on the personal income tax resulting from the declaration; and the imposition of fixed penalties for each error or non-compliance in the completion of form 720.
The opinion of the EU General Counsel now brings European justice one step closer to ruling against the interests of the Treasury, by admitting the arguments of the European Commission, and ending this sanctioning model. At least in the case of fixed pecuniary fines for each erroneous or undeclared data in form 720. In any case, the rest of the package has been the subject of another series of appeals and consultations with the CJEU, which can make the community court be pronouncing on the different sections of the Spanish standard in different deliveries.
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