The anthropologist Caleb Everett stated that numbers ‘made us who we are’ and they remind us and we associate them with different moments. Surely, and this being a totally subjective reflection, the number 720 does not evoke anything in our minds, and as a historical fact, in 720 A.D. the Umayyads conquered the heroic Gaul.
Curiosities aside, those readers ‘resident in Spain who have assets, bank accounts and shares abroad’ will be familiar with the Tax Agency’s Model 720.
This declaration is formally known as ‘Declaración Informativa sobre Bienes y Derechos situados en el extranjero’ and is compulsory for tax residents in Spain, but not for those who have availed themselves of the ‘Beckam Law’ impatriate regime (which we discussed in this article), who are not obliged to file this form.
The Court of Justice of the European Union (CJEU) qualified the sanctioning regime of Model 720 as contrary to EU law, in particular, to the free movement of capital and freedom of establishment, and no one should be surprised when we remember that the fines could reach 150% of the value of the tax not declared. Indeed, this is what you are all thinking, these fixed fines exceeded the value of all undeclared assets, and to make matters worse, this circumstance occurred in an informative model.
In this regard, the CJEU declared that the penalties provided for by the Spanish legislator were disproportionate and could even dissuade taxpayers from complying with the obligation to declare.
The judgment further concluded that it should be the Tax Administration that should have the burden of proof to demonstrate fraudulent or negligent conduct, and not the taxpayer.
However, dear readers, it is important to note that the CJEU ruling has not abolished the obligation to file Form 720 for the 2023 tax year, but rather its penalty regime.
Obliged to report and file Form 720
Individuals resident in Spanish territory are obliged to file the informative Form 720, understood as taxpayers of Personal Income Tax (IRPF).
On the other hand, legal entities and other entities resident in Spanish territory that do not have recorded in their accounts the assets and rights abroad of which they are holders in accordance with the provisions of the General Regulations approved by Royal Decree 1065/2007, will be obliged to file Form 720.
It will be expressly obligatory to file Form 720 when the assets and rights to be declared exceed, in one of the blocks, the total amount of 50,000 euros as at 31 December of the previous year. It should be clarified that information return 720 is a model for three different reporting obligations, which classifies them in three independent blocks:
- Accounts in financial institutions located abroad.
- Securities, rights, insurance and income deposited, managed or obtained abroad.
- Real estate and rights to real estate located abroad.
The three reporting obligations would be fulfilled by filing Form 720, reporting all assets and rights in respect of which there is an obligation to report.
It should be noted that there is an obligation to report on the bank account, property, securities, etc., when the amount exceeds 50,000 euros, regardless of the number of account holders. The total amount shall be reported without prorating, indicating the percentage shareholding.
Penalty regime for Form 720
The legal regime of infringements and penalties for the information return (Form 720) has been modified to adapt to the CJEU ruling and currently, the penalty regime applicable to the information return (Form 720) is that established in articles 198 and 199 of Law 58/2003, of 17 December, General Taxation,so that the fines for late filing of Form 720 will involve a financial penalty of between 150 and 250 euros, far from those that in the past were 150% of the amount not declared.
It should be borne in mind that this system of infringements and penalties is established separately for each of the three aforementioned reporting obligations.
In this regard, it is worth remembering that for the filing of Form 720 for the 2023 financial year, we have a voluntary deadline to file the return until 31 March 2024 and, if applicable, to be able to regularise.
And if we regularise?
The STJUE ‘encouraged the elimination’ of the non-applicability of the statute of limitations to income for failure to file Form 720 and currently, the statute of limitations is subject to the general regime of infringements and penalties provided for in the LGT, which is 4 years.
It is important to remember that if we report assets and rights abroad in the 720 forms that have generated income in previous years, but have not been reported in the taxpayer’s Personal Income Tax (IRPF) self-assessments, this income must be included in the corresponding IRPF returns. If the tax return is filed after the established deadline but voluntarily, a surcharge must be paid for the amount not paid plus the corresponding interest for late payment.
In addition, the Wealth Tax returns for the years for which there is an obligation to file must also be filed, and the surcharge and late payment interest indicated in the previous point must be paid.
Do I have to report my cryptocurrencies? NEW 2024
The answer is yes, but not in Form 720, but through Form 721, relating to the information return on virtual currencies located abroad.
From this year, individuals and legal entities resident in Spanish territory, permanent establishments in Spain of non-resident persons or entities that are holders of virtual currencies abroad, or in respect of which they are beneficiaries, authorised or otherwise have power of disposal, or of which they are the actual holders, held by persons or entities that provide services to safeguard private cryptographic keys on behalf of third parties, to maintain, store and transfer virtual currencies, are obliged to file Form 721 on 31 December of each year.
In any case, please note that this reporting obligation does not apply:
- To holders legal entities and other entities resident in Spanish territory, as well as permanent establishments in Spain of non-residents, whose virtual currencies were individually recorded in their accounts and identified by their denomination, value and custodian entity and the country or territory in which they are located.
- Those held by individuals resident in Spanish territory who carry out an economic activity and keep their accounts in accordance with the provisions of the Commercial Code;
- On the other hand, the obligation to report on form 721 is extended to holders, authorised or beneficiaries of virtual currencies, or who have had the power of disposal over them, or who have been real holders at any time during the year to which the return refers and who have lost that status by 31 December of that year. In these cases, the information to be provided will be that corresponding to the date on which said extinction took place.
In this regard, Form 721 must be filed by those taxpayers who, on 31 December of the previous year, were holders, authorised or beneficiaries of cryptocurrencies abroad for a total amount of 50,000 euros.
It is important to clarify that in order for there to be an obligation to declare virtual currencies located abroad by filing form 721, two requirements must be met:
- That these virtual currencies are held by persons or entities that provide services to safeguard private cryptographic keys on behalf of third parties, to maintain, store and transfer virtual currencies.
- That the persons or entities referred to in the previous paragraph are not resident in Spain or permanent establishments in Spanish territory of persons or entities resident abroad.
We hope this article is of interest to you. Remember that at Metricson we can help you to prepare the Form 720, as well as to clear up any doubts that may arise in relation to it.
Also, don’t forget that Form 721 is already in force for the 2023 tax year, to be filed between 1 January and 31 March 2024.
Article by:
Senior tax manager
jose.perezfuster@metricson.com
About Metricson
Metricson is a pioneering law firm providing legal services to innovative and technology companies. Since its inception in 2009, it has advised more than 1,400 companies from 14 different countries, including startups, investors, large corporations, universities, institutions and governments.
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