The European Commission initiates an infringement proceeding against Spain due to form 720

In November 2015, the European Commission opened an infringement proceeding (2014/433) against Spain through a letter of formal notice, followed by a reasoned opinion on February 15, 2017, due to the regulation of the penalty regime for the reporting of assets and rights held abroad (form 720). In the reasoned opinion, the Commission concluded that Spanish legislation infringes the free movement of persons and workers, the freedom of establishment, the freedom to provide services and the free movement of capital, as it establishes a discriminatory and disproportionate penalties for the failure to fulfil the information obligation. Among others, the Commission criticized that the fixed sanctions are higher than those derived from the general penalty regime under the General Taxation Law, or that tax must be paid on non-justified capital gains or undeclared income relating to assets or rights which the taxpayer can prove were acquired in statute-barred periods. The Commission also concluded that the sanction of 150% in those cases is disproportionate.

The Commission therefore invited Spain to adopt the necessary measures to correct this situation. As Spain has not complied with that request, the Commission has decided to refer Spain to the Court of Justice of the EU. In its press release, the Commission reiterates that the sanctions for incorrect or belated compliance with the obligation to file form 720 are disproportionate and discriminatory and may deter businesses and private individuals from investing or moving across borders in the Single Market, thereby entering into conflict with the fundamental freedoms of the EU.

These conclusions contradict those recently reached by the Central Economic-Administrative Tribunal in its decision of February 14, 2019. In that decision, the Tribunal justified the penalty regime of form 720 on the ground that it is a measure to combat tax fraud and to increase tax collection, concluding that the “establishment of this information obligation does not infringe the Community freedoms.”