The CJEU considers that some fines confer an extremely repressive character due to their high level. That institution could also annul Model 721, which requires citizens to declare cryptocurrency holdings that they have abroad.
The Court of Justice of the European Union (CJEU) recently annulled Form 720, which forced citizens to report their assets abroad. That regulation also threatened those who did not do so with the application of excessive penalties.
The magistrates of Luxembourg consider the Spanish model failed to comply with the obligations concerning the principle of free movement of capital. It has a sanctioning regime against investors that has proven too repressive.
The ruling by the CJEU describes the obligation to submit Form 720 and the penalties derived from non-compliance with it. The document states they represent a difference in treatment between residents in Spain, depending on the location of the assets.
The ordinance explains that Spaniards must declare real estate, bank accounts, securities, assets, stocks, and rights representing their capital stock abroad through Form 720. They must do the same with other funds or assets and life and disability insurance outside Spain.
They argue that they fight against tax fraud, tax evasion, and money laundering, among other financial crimes.
The Highest Court stated that Form 720 might not be justifiable to achieve those objectives. Despite mechanisms for exchanging information or assistance between European countries, the holding of assets abroad is notably lower than within their country.
The Non-Compliance Penalties Are Extremely Repressive
The CJEU noted that Spain failed to comply with the free movement of capital by sanctioning 150% of the tax calculated on assets abroad. That applied to those who had not declared their holdings or had done so outside the established period.
The Court highlighted that the imposition of this fine is due to the non-compliance with the declaration. They said it only applies to taxpayers who have not complied with the obligation to report their holdings.
The high amount of the fine that Spaniards must pay gives it an extremely repressive character. Besides, its accumulation with the planned fixed-amount fines can lead the total amount owed by the taxpayer to exceed 100 %.
The entity also criticized the fixed amount fines, saying that Spain intends to penalize with sums ranging from 5,000 EUR to 10,000 EUR. Those who have provided omitted, incomplete, inaccurate or false data to the Tax Administration of that country have to pay those amounts.
In addition, they must pay 100 EUR for each data that they have declared outside the period. If they have done so through another means not prescribed by the tax authority, they must pay a minimum of 1,500 EUR.
The CJEU stated that those fines are not proportional to the sanctions for non-compliance with similar obligations within Spain. Therefore, those fixed financial penalties establish an excessive restriction on the free movement of capital.
The CJEU Annuls Forms 720 and 721
The ruling against Model 720 introduced in 2022 by former Minister Cristóbal Montoro was already underway. There had been statements against the document since 2017. Besides, a magistrate of the Court said the sanctions were contrary to Union Law in 2021.
Anticipating that move by the CJEU, the Spanish government brought forward Form 721, together with the Ministry of Finance. It is entirely identical, even regarding sanctions, but with the difference that citizens now must declare cryptocurrency holdings, which qualify as assets.
Two weeks ago, the Spanish government had planned to begin forcing investors to declare their cryptocurrency holdings. They specified that they had to do so through the new model if they were higher than 50,000 EUR.
Curiously, tax economist José Antonio Bravo, who knew the move of the Spanish State, asked to resort to 721 immediately. Due to the details of the sentence, they could also annul Form 721. The CJEU urges Spain to present a model framed in the principles and rights of the Union.
By Alexander Salazar
