The assets are divided into three groups:
- 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.