The assets are divided into three groups:
- Property
- Cash, deposits, ISAs
- Financial assets (bonds, investments, pensions, insurances)
The main issue of contention with this reporting requirement is the draconian fines that are currently being imposed.
Should the Spanish Tax authorities discover that you have assets with a cumulative value over €50,000 in any of the above groups and deem that you have wilfully not disclosed this information, the penalties are imposed, in some cases the fines issued are as high as 150% of the value of the undeclared assets. Also with regards to the Modelo 720 there is no statute of limitations on how many years they can go back.
Complaints about the unfairness of the fines were forwarded to the EU, who decided to look into this issue. As a result of this review on 15 February 2017, the European Commission gave the Spanish government a two-month ultimatum to make Modelo 720 penalties fairer.
The Spanish tax authority, known as the Hacienda, failed to meet the deadline set by the European Commission, the Commission vowed to take the case to the European Court of Justice.
The latest update (10 July 2017) is that, at present, the 1,500 euros penalty for non-declaration still remains but the Spanish Tax Authorities will no longer impose the penalty of 150% of the value of the undeclared assets, if there is voluntary (even if late) declaration of the Modelo 720.
Whilst this still doesn’t resolve the whole issue of unjust and unfair fines it does mean they are at least starting to make the voluntary reporting of assets easier.
The Spanish government insists that it will go all the way to defending the model 720 sanctions regime and that it is prepared to defend its arguments before the Court of Justice of the European Union. The Hacienda believes that thanks to this measure it has obtained a database that will help it combat tax fraud, especially with regards to wealthy taxpayers with more facilities to avoid tax.
They have however hinted that they may potentially soften some sanctions, such as capping the fine for errors in completing the form. They also suggested a possible reduction in penalties for failing to declare assets based in EU countries or in states that have signed automatic exchange of information agreements with Spain.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
The structure of your wealth and your tax affairs should always depend on the particular laws and regulations of where you reside in the world as well as the nature of your long-term goals. The expat financial services market has evolved in order to help cater to these considerations and in some cases this includes helping ensure clients meet the demands of wealth tax.
When I first meet a client it takes time for us to get to know each other, and every single person is different with different needs. However, at the root of those needs is usually the desire to find out how best to keep all those hard earned savings, investments and pensions as tax efficient as possible.