SPAIN’S Hacienda has announced plans to modify Modelo 720 rules for declaring foreign assets before the March 31 presentation deadline this year.

Spain’s minister of the treasury (Hacienda) Maria Jesus Montero told reporters of the rapid about-turn within 24 hours of a crushing sentence from the EU’s Court of Justice.

The changes announced would affect Spanish tax residents in two major ways: significantly reducing fines related to late or erroneous Modelo 720 declarations; and opening the door to reclaim fines already paid.

It follows yesterday’s verdict on the case of the EU Commission vs Spain that the Modelo 720 was ‘contrary to EU law’.

The sentence labelled fines for late or erroneous declarations as both ‘highly punitive’ and ‘disproportionate’.

Though the full effect of the new laws might not be seen until 2023, there is important news for the 60,000 Spanish tax residents declaring their foreign assets each year via the Modelo 720.

Spanish headlines are already ringing with the opportunity to win back cash already paid in fines – for example, former Catalan president Jordi Pujol’s family will mount a case to get back nearly €2 million paid to Hacienda over Andorra-based assets following declaration errors.

However, only certain cases will be eligible to claim their slice of the €230 million collected in Hacienda fines since the declaration was introduced in 2012.

Below is the current top legal advice on how Spain’s Modelo 720 is likely to change in 2022.

First Prime Minister's Question Time Session Since The State Of Alarm Was Declared
Spain’s minister for the treasury Maria Jesus Montero announced changes to the Modelo 720 will become law by the end of March 2022. Image: Cordon Press.

What is the Modelo 720?

The Modelo 720 requires fiscal residents in Spain to declare overseas assets.

The form does not directly lead to tax obligations, though the forms are used to compare against tax returns and ensure that foreign income is reported – for example, rental income.

Clamping down on tax evasion and fraud through overseas assets was the entire reason Mariano Rajoy’s conservative government introduced the declaration form in 2012.

Rules stipulate that returns must be submitted by March 31 each year.

Assets are divided into three groups: accounts, investments and property.

Any assets that alone or together exceed €50,000 in any one of the above groups must be declared on Spain’s Modelo 720.

Even if an asset is jointly owned, if the total value is above €50,000 both owners must declare the asset and their share.

Property values are based on the purchase price – not current value – though an increase in value of €20,000 in any asset must be declared in any group.

You can find links to the Modelo 720 form alongside instructional videos on the Citizen’s Advice Bureau Spain website.

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The EU Commission took Spain to the EU courts of justice after initially criticising the Modelo 720 as far back as February 2017 without success. Image: WikiMedia Commons

How is Spain’s Hacienda planning to modify the Modelo 720 in 2022?

Ministra de Hacienda Maria Jesus Montero told reporters on Thursday January 28 that the Modelo 720 is still ‘in effect’ and will continue to be so.

Any modifications to the declaration form and rules on sanctions will be added to laws already under parliamentary debate.

“We believe this is most appropriate method, rather passing a new decree,” the socialist Montero said of the modifications to the Modelo 720 introduced by her conservative forebear Cristobal Montoro.

(In Spain, the Modelo 720 is also known as the ‘Ley Montoro’. Not to be confused with current minister Montero.)

Montero confirmed the changes would be made ‘rapidly’ as soon as the EU’s small print was fully understood.

However she reminded reporters that the EU’s sentence did not declare the entire Modelo 720 ‘illegal’.

The sentence’s most serious indictments only challenged two major aspects of the Modelo 720: the time frame for presentation (currently January 1 to March 31); and the disproportionate quantity of fines.

This means that the 60,000 Spanish tax residents declaring any foreign assets, properties and investments will still have to fill out their forms covering 2021 before March 31 2022.

But they can do so with confidence that delays or errors will not lead to crushing fines.

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The Court of Justice of the European Union ruled Spain’s Modelo 720 was ‘contrary to EU law’ in this week’s sentence. Image: Source.

How much does Spain’s Hacienda fine delays and errors on the Modelo 720?

The EU’s ruling was based on the principle that Hacienda’s ‘disproportionate’ fines placed restrictions on the ‘free movement of capital’ within the union.

Though Spain’s conservative Popular Party introduced the form to deter tax evasion and fraud, the Court of Justice found it went too far.

The EU Commission initially warned Spain in February 2017 that the Modelo 720 was ‘incompatible with EU law’.

However, it took until 2022 to bring Spain to court and demand immediate modifications.

The sentence this week made clear the declarations established a ‘difference in treatment’ among Spanish residents according to the location of their assets.

“As that obligation is likely to deter, prevent or restrict the opportunities for residents of that Member State to invest in other Member States, it constitutes a restriction on the free movement of capital,” the sentence read.

The EU Commission based this decision on three respects:

  • the Modelo 720 ‘went beyond’ requirements to stop tax evasion
  • ‘punitive’ proportional fines for ignored, late or partially-completed forms restricted movement of capital in the union
  • ‘disproportionate’ flat-rate fines for erroneous data items restricted movement of capital in the union

The court noted that failure to declare foreign assets – or partial or late compliance – led to a proportional fine of 150% of the tax calculated on amounts corresponding to the value of foreign assets or rights.

Flat-rate fines of €5,000 were also imposed on each missing, incomplete, incorrect or false data item with a minimum fine of €10,000.

Hacienda also fined €100 per data item declared late or not declared, with a minimum fine of €1,500.

The court recognised that both proportional and flat-rate fines lead in cases to sanctions over 100% of the taxpayer’s overseas assets or rights.

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Spain’s Modelo 720 has led to some notorious cases, such as a taxi driver who retired to Granada after working in Switzerland and was fined €442,000 for declaring late his €340,000 retirement savings pot. Image: Moncloa.

Who can claim back fines paid to Hacienda over Modelo 720 declarations?

Montero told reporters that Spain’s treasury would look at ‘who is most affected’ by the sentence and calculate how much of Hacienda’s €230 million will need to be repaid.

But according to legal experts at The Objective, the EU courts’ ruling will not be retroactive for everyone.

Anyone who has already paid a fine to Hacienda and never made a legal challenge will be unlikely to reclaim any money.

But if you have an unpaid Hacienda fine, have a current legal claim or have made a legal claim in the past, you stand a good chance of regaining or keeping your cash.

“The EU’s ruling will have an immediate effect on any ongoing cases, and at this time there are thousands of open claims,” said Almudena Medina, director of taxes at the Ceca Magan legal outfit.

She added that Hacienda will most likely be losing out on pending fines, rather than shelling out ‘millions’ to people unlawfully fined.

“Anyone with an open claim will win their case pretty much automatically,” said Enrique Benavente, director at Garrido Abogados.

“But anyone who paid without making a claim on fines under €5,000 for making an error on the Modelo 720 will find it difficult to get any money back.”

According to social media comments on Citizen’s Advice Bureau Spain, many British expats were fined €1,500, €1,600, €2,500 and €3,000 due to late submissions of the Modelo 720.

According to current legal advice, these will not be able to receive their money back.

One commentator however said they paid €10,000 in 2014 due to complications surrounding a foreign house sale.

According to Medina, this fine could be reclaimed following the EU ruling.

“Anyone who paid a fine to Hacienda after having a foreign asset declared an unjustified capital gain [ganancia patrimonial no justificada] could a make a successful claim,” she said.

“In these cases the person could request a return of improper income [ingresos indebidos] as they paid up following a rule now declared void by the EU courts of justice.”

Enrique Benavente also said these types of claims ‘could be won’ in a legal case against Hacienda.

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