Form 720: Shares listed abroad are reported at market value

The legislation on the information return on assets and rights abroad states that assets must be valued under wealth tax rules.

In the case of investments in entities, the wealth tax law makes a distinction between (i) securities representing investments in equity, traded on organized markets (article 15), and (ii) other securities representing investments in the equity of entities (article 16). The first type must be reported at their average trading values for the fourth quarter of each year, and for these purposes a list of the securities traded on organized markets with their average market prices for the last quarter of the year is published annually. Only shares listed in Spain appear on the lists approved every year.

For this reason, the Directorate General for Taxes (DGT) interpreted years ago (and this is also mentioned every year in the instruction manual for preparing the wealth tax return) that shares listed abroad had to be reported as unlisted shares.

With regard to Form 720, AEAT, in its reply to request number 41 on its list of FAQs in relation to this form, concluded that taxpayers are allowed to choose to report shares listed abroad as listed or unlisted shares; and in the first case, either at their average market value for the last quarter of the year (which is the wealth tax rule) or at their market value at the end of the fiscal year.

The DGT has now concluded, however, in resolution V3511-19 issued on December 20, only in relation to Form 720, as follows:

1. The term “organized markets” has a broader meaning than official secondary market or regulated market. That first term must be construed under the Spanish securities market law, although the applicable legislation in the foreign country where the reported shares are located also has to be taken into account.
2. Therefore, shares in a company listed abroad (in the case submitted for resolution, in the U.S.) must be reported as listed shares where the regulated market has similar characteristics to the Spanish market, although the maker of the return may choose either their average trading value for the fourth quarter of each year or their market value as of December 31.

In view of the reasoning it uses, this resolution by the DGT may be expected to have implications in relation to wealth tax itself.