The Court of Justice of the European Union dismisses the penalties derived from Form 720

On 27 January 2022, the Court of Justice of the European Union (CJEU) ruled against the regime established by the Spanish legislator derived from the obligation to declare certain assets and rights located abroad through Form 720.


Law 7/2012 introduced the obligation for Spanish residents to inform the tax authorities on certain assets and rights located abroad by filing an annual information return (Form 720).

Failure to file said return on time or late filing or with false and inaccurate data may lead to the following consequences:

  • the classification of the aforementioned assets and rights as unjustified capital gains and their inclusion in the general tax base for personal income tax purposes, regardless of the acquisition date.
  • a penalty of 150% of the value of the undeclared goods or assets; and,
  • fixed amount penalties depending on the number of data (or set of data) omitted or incorrectly declared or late declaration of Form 720.

Judgement of the CJEU

The CJEU affirms that Spain has failed to fulfil its obligations under the principle of free movement of capital and annuls its consequences (unjustified capital gains and penalties) linked to the obligation to declare assets or rights abroad, for the following reasons:

  1. The failure to comply or the imperfect or untimely compliance with the declaration form 720 entails the taxation of undeclared income without the possibility of the taxpayer to be protected under the statute of limitations.
  2. Such behaviour is penalised with a fine of 150% of the tax calculated on the amounts corresponding to the value of the undeclared goods or rights, which may be cumulated with fixed amount fines.
  3. It penalises these breaches with fixed, unrestricted fines which are not proportionate with the sanctions provided for in a purely national context.
  4. Spanish legislation cannot allow the tax authorities to regularise income corresponding to the value of undeclared assets without any time limit, i.e., for an indefinite period of time.
  5. The failure to file form 720 cannot result in the inclusion of an unjustified gain even if the assets or rights entered the taxpayer’s estate in a prescribed year.

Thus, the CJEU has considered that Spain has failed to comply with the obligations set under article 63 of the Functioning Treaty of the European Union and article 40 of the EEA Agreement by sanctioning the non-compliance or imperfect or extemporaneous compliance of the obligation to provide information on assets or rights abroad with fixed fines, the amount of which bears no relation to similar infringements.

Finally, it should be noted that the aforementioned judgement does not imply that Spanish residents are not obliged to file form 720 for the fiscal year 2021 with a deadline until 31 March, since form 720 is still in force unless the legislator decides to introduce amendments to this informative return. The Spanish government has already expressed its intention to reform the regulations governing this obligation.

The ruling affects the penalty regime that has been annuled, so that until a specific penalty regime is established, the Tax Administration will only be able to apply the general penalties for failure to file information returns, which are considerably lower and almost anecdotal in comparison with the penalties that have been annuled by the CJEU.

In view of this judgement, taxpayers who have been penalised for not having declared their assets abroad or having declared them incorrectly or out of time could be able to claim from the tax authorities the penalties paid and now declared contrary to European law. Without prejudice to this, it will be necessary to analyse on a case-by-case basis the possibilities and modalities of recovering these amounts.

The information contained in this note should not in itself be considered as specific advice on the matter under discussion, but only as a first approach to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their specific case before taking specific measures or actions.

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