Form 720 Declarations, Action by Hacienda

It would seem that at last HAcienda are on the 'warpath' for those who thought they could get away without making a 720 declaration.

A couple of months ago it was reported that a Spanish national who had failed to declare 350,000€ in Swizterland had been fined 460,000€.

Now this from Business Over Tapas (29.10.15) Lenox Napier and Andrew Brociner

"Hacienda has found another 7,300 million euros of Spanish money stashed in various Fiscal Paradises, says El País, to be added to the 126,500 million already admitted to by Spaniards and foreign residents using the Modelo 720 tax declaration for foreign assets. 

Those who owe over a million euros in taxes – and Hacienda says there are better than 5,000 of these sinners – can expect to see their names (or company names) in lights from December when Hacienda publishes their identities in full together with the fines and amounts owing, says El Mundo."

The European Commission is already looking at the legality of the Modelo 720 foreign asset declaration.  It has said the sanctions are disproportionate.

They're going to be looking at the severity of the fines and the lack of any statute of limitations (Hacienda would have an unlimited time frame in which to investigate any case).

It's also possible that the Modelo 720 declaration goes against the EU's free movement of people and capital principles.  And I'd imagine there is a data protection angle as well that they'll be looking at.

So hopefully Modelo 720 will be scrapped

And I doubt that guy will have to pay anything like a 460,000€ fine.

Sanchez1, I think you're right. The case in question will potter through the courts for years and Europe will eventually step in to get the claim thrown out, or massively reduced.

Will be interesting to see how it plays out though with the naming and shaming. They already do something similar in the UK, but I'm not sure how effective it really is.

Not sure the declaration will be binned.  After all, the French and Italians have been doing it for years with the French making you declare items of value like cars, jewellery,  art works etc. The scale of the fines and the timescale will probably be toned down, though. 

Interestingly the original complaint included violation of the freedom of movement, contravention of data protection, discriminatory as the law is only written in Spanish and the fact it can only be completed online. These points have been rejected but the severity of the fines and the limited time to appeal are still being investigated.

With the amount of cross border cooperation between land registries, tax offices and so on (23 of the EU countries now share information) I can't really see the point of completing this form. Even Switzerland now shares banking information.

With the amount of cross border cooperation between land registries, tax offices and so on (23 of the EU countries now share information) I can't really see the point of completing this form. Even Switzerland now shares banking information.

The reason the Spanish government want people to complete the Modelo 720 is that they haven't a clue what assets Spanish residents have abroad.  They should in theory know what assets people have via the various tax sharing agreements, but I don't think this information sharing is as joined up as people think...

Theoretically in a lot of cases they could match stuff up based on ID card/Passport/NIE numbers automatically. e.g. all EU bank accounts are (or should be) associated with at least one of these numbers. I believe its the same for properties purchased by private individuals. Technology-wise, its definitely feasible, however getting it all to work in real life would take a lot of coordination and effort.

I hear "only 5% of overseas assets have been declared" banded about quite a bit. I suspect Hacienda knows about a lot more undeclared overseas assets than it lets on, and I suspect that the severity of the modelo 720 penalties actually have the opposite of their intended effect.

Imagine you were a tax inspector and you found out someone had an undeclared property abroad worth £250,000. This person has lived in Spain for a couple of years, and doesn't have much in the way of other assets. According to Modelo 720, if the tax inspector follows the law (which theoretically they have to if they decide to claim), they would effectively have to pay more than £375,000 in fines, effectively bankrupting the person and taking everything they have. Most tax inspectors with any concience at all will therefore not follow up on this and stop the investigation at this point. If the tax inspectors were allowed more descretion, they could claim back things such as imputed income from the property and/or real income, and also impose a smaller fine. Handing out much smaller fines to the 95% of people who haven't met their legal obligations is much better than trying to take everything from a handful of people, who will eventually find their penalties hugely reduced in court anyway.

It is estimated that only 5% of those who should have made the declaration did. 

Whilst those who do not have serious large assets undeclared, and maybe legally obtained and previous declared for income tax, have potential problems, it is those who have seriously large assets, which they ‘cannot explain’ who have the biggest potential problems.  

Form 720 was introduced about the same time as the Cyprus banking crisis when large amounts of savings were seized from private bank accounts which is probably why only 5% completed the declaration as there was a a fear Spain might take the same course of action 

Scuba         Form 720 was introduced about the same time as the Cyprus banking crisis when large amounts of savings were seized from private bank accounts which is probably why only 5% completed the declaration as there was a a fear Spain might take the same course of action 

But wasn’t that a charge on assets held within  Cyprus ?  The 720 only related to those held outside Spain.

The 720 does not in itself mean any further taxes, it is just declaring what assets are held.  However, it does mean that if the source of those funds was not previously declared as (possibly) income, and/or any income derived from those assets was not declared, then the holder has questions to answer.   Of course for those with large sums may have also failed to pay patrimonio tax due.

In my case, the only effect I foresee by making the 720 declaration is that when I die my worldwide assets will be known to Hacienda, and thus my inheritors may have more tax to pay.                                               

PS   I was talking to a friend this morning who put in his Declaration (720) a few days late, 2^nd April 2015.  He did not get any fine for late submission. However, it was an update on the previous year, so Hacienda could see he was not and had not, been hiding anything