Absolute nullity of the fines for model 720 and other pending issues

The informative declaration of assets and rights abroad by tax residents in Spain, the famous model 720, which was approved by Law on October 29, 2012, was annulled in terms of its specific penalty regime and certain presumptions of non-equity gains. justified by the judgment of the Court of Justice of the European Union (CJEU) in a judgment of January 27, 2022, which resolved the appeal for non-compliance in case C-788/19 promoted by the European Commission against the Kingdom of Spain, with based on the violation of the community principle of freedom of movement of capital regulated in article 63 TFUE and article 40 of the EEA Agreement, which is also extensible to non-community countries.

Specifically, said CJEU ruling declared the Spanish regulations sanctioning model 720 contrary to EU law:

1. Because the situations of non-presentation (or extemporaneous presentation) of the 720 model are considered imprescriptible and, consequently, the tax treatment of foreign assets not declared as unjustified capital gains (which, in the case of individuals, were taxed on the general income tax base before sentence).
2. For penalizing 150% of the unjustified capital gains described in the previous point.
3. For establishing additional fixed sanctions (frequently called formal sanctions) for each data or set of data not declared or declared inaccurately or erroneously, as they are much higher than the sanctions for other breaches of domestic regulations.

Said sentence did not contain a temporary limitation of effects nor did it eliminate the obligation to present model 720, which is still in force, and established the order of costs to the Kingdom of Spain.

Spanish law was adapted to said CJEU ruling, by Law 5/2022, of March 9, which annulled the specific aggravated sanctions of model 720 and left them the same as in internal cases, banished the imprescriptibility in case of not having submitted the 720 model on time and annulled the penalty of 150% of unjustified capital gains, leaving said gains with the same treatment as those that can be produced within Spain.

The AEAT administrative sanctions for not declaring the 720 model on time or erroneously were brutal and disproportionate in terms of amount, many times much higher than the total amount of undeclared assets, even due to formal sanctions, just as when it was understood that there was a unjustified capital gain that was imprescriptible (evidence to the contrary of the prescription was not admitted, even when it came from a year already prescribed with prescription gained when model 720 came into force), since it was attributed to the personal income tax at the marginal rate of the general tax base of the last year not prescribed, and that quota had a penalty of 150%. All of this was rightly annulled by the aforementioned CJEU ruling.

The problem arises and was raised with the people to whom the AEAT had previously applied the regulations declared null by the CJEU ruling, there being a wide variety of cases and complex situations.

Well then, the people who had appealed against the sanctions and tax assessments that were affected by the CJEU ruling, both administratively (at first there was enormous resistance from the Administration to apply the aforementioned CJEU ruling) and judicial (which was admitted from the first moment), as it should be without a doubt in a Rule of Law, in general they have seen their rights recognized and the tax assessments that went against the CJEU judgment annulled, with special relevance the numerous very accurate judgments of our Chamber Third of the Supreme Court, which directly applied the judgment of the CJUE with all its effects against the excesses of the AEAT, among many others STS 906/2022, of July 4 (appeal no. 6410/2019), 925/2022, of July 6 (appeal no. 6202/2019) and 1114/2022, of September 1 (appeal no. 7172/2020), by which they declared the nullity of the contested sanctioning agreements issued in relation to the breach of the obligation to submit form 720.

The most serious and complex problem arises and was raised against the people who did not appeal or who, having appealed, had firm acts derived from actions of the AEAT of model 720, and to whom the effects of the CJEU judgment were applied..

Some of them initiated State patrimonial liability procedures, complex and lengthy procedures that are still ongoing.

Others initiated acts of full nullity of article 217 of the General Tax Law, by which the full nullity of acts dictated in tax matters may be declared, which have put an end to the administrative process or which have not been appealed in term, in the cases in which said acts harm the rights and freedoms subject to constitutional protection.

Well then, and this is the great novelty, after the unanimous and mandatory favorable opinion of the Council of State dated March 23, 2023, with a favorable report from the State Attorney before the AEAT and from the AEAT itself, which understands that the sanctions annulled by the CJEU ruling violated article 25.1 of the Spanish Constitution —“No one can be sentenced or sanctioned for actions or omissions that at the time of their occurrence do not constitute a crime, misdemeanor or administrative offense, according to current legislation at that time”—, the Spanish Administration is allowing taxpayers who request it to nullify sanction agreements in this way, which is good news.. For now, there is no record that the Spanish Administration does it ex officio, but that the taxpayer has to request it.

The most complex and onerous cases are the cases in which the taxpayer himself self-assessed or the tax administration applied an unjustified capital gain, considered imprescriptible to the last non-prescribed year and without admitting proof of the prescription, taxing the income tax margin, when Said situation came from a prescribed exercise, and that said provisions were rightly knocked down by the CJEU ruling. In such cases, having sufficient proof of the prescription in a prescribed year is essential to be able to defend non-taxation as an unjustified capital gain and request its return, although not by way of nullity in principle.. This criterion has been endorsed, among others, by Supreme Court ruling 531/2023, of April 26, 2023, Rec. N.º 4783/2021.

Likewise, the CJEU ruling has allowed that, even if the 720 model has not been submitted on time, with errors or formal defects, undeclared assets and rights abroad can be voluntarily regularized by taxpayers, which with the previous regulations was almost impossible to do so due to its very high cost, and that with the current regulations it is possible and advisable.

In all these cases, which are complex, it is advisable to have specialized and personalized professional advice and take into account all the background and nuances of each specific case, in order to choose the most appropriate and pragmatic path in each case to defend the rights of taxpayers. affected.

*Javier Estella Lana. Lawyer. Managing partner of Avantia Tax and Legal Advice. Leading estate planning firm and family business in Spain – Chambers 2008 to 2023. Co-director of the FIDE Planning Forum-FIDE academic advisor.