New setback for the controversial 720 model: the Ministry of Finance recognizes the “absolute nullity” of the sanctions that it entails and opens the door to a wave of returns. This is only the last of the setbacks that the Justice has dealt to the regulations that require the declaration of assets abroad in recent times. In January 2022, the Court of Justice of the European Union (CJEU) declared its penalty regime “contrary to the law” for being disproportionate; A few months later, the Supreme Court established the annulment, with retroactive effect, of the fixed fines imposed by the Tax Agency for reporting goods and assets abroad after the deadline. Now, the department directed by María Jesús Montero accepts the absolute nullity of the formal sanctions provided by this regulation, as they go against both community law and the Spanish Constitution.
This criterion is assumed by the Legal Service of the Tax Agency in a report from last December, in which it recommends that the sanctions be declared null and void, for assuming “a violation of art. 25 of the Spanish Constitution”. This establishes that “no one can be convicted or penalized for actions or omissions that at the time they occur do not constitute a crime, misdemeanor or administrative offense, according to the legislation in force at that time.”
More recently, the Council of State reached the same conclusion in an opinion dated March 23, 2023. The document states that “it violates the obligations incumbent on the Kingdom of Spain, by virtue of articles 63 TFEU and 40 of the Agreement on the European Economic Area, on the free movement of capital, given that such sanctions are disproportionate with respect to the sanctions provided for in a purely national context”.
Lastly, an agreement for the execution of the Tax Agency to a sentence of the Superior Court of Justice of Catalonia affirms that “the request for annulment of a final act issued in accordance with a regulation contrary to EU law must be considered”. In other words: the fines that were imposed are void because the legislation that provided for them contravenes European law.
“In relation to these procedures, we have to confirm that the Ministry of Finance has ended up accepting that the absolute nullity of said formal sanctions proceeds, as they go against not only the law of the European Union, but also the Spanish Constitution itself,” he stresses. Esaú Alarcón, a lawyer at the Gibernau law firm and who has corroborated the change in position of the tax authorities after having initiated several full-fledged annulment procedures to allow his clients to recover the amounts paid.
“In relation to these procedures, we have to confirm that the Ministry of Finance has ended up accepting that the absolute nullity of said formal sanctions is appropriate, as they go against not only the law of the European Union, but also the Spanish Constitution itself,” he adds. .
Fine of 150% of the quota
The 720 model was introduced by the Government of Mariano Rajoy (PP) in 2013, in the midst of a recession due to the debt crisis. The legislation required taxpayers with assets and rights abroad to declare them in Spain if their value exceeded 50,000 euros. But what seemed to be a mere obligation of an informative nature was associated with a harsh system of sanctions that raised blisters from the beginning and crystallized into strong litigation in the courts.
The rule provided for a formal sanction for each piece of information not declared by the taxpayer —current accounts, securities, rights, insurance and income, real estate and other real rights, considered as unjustified capital gains—, whether the declaration was made after the deadline as in the presence of a prior requirement of the Treasury. In addition, it provided for a fine of 150% of the IRPF fee that was to be paid and did not contemplate prescription. A familiar face that was sanctioned by the 729 model was the Pujol family.
Last year, the Treasury adapted the sanctions and the limitation periods to the General Tax Law, after the setback of the European Justice – then, the treasury estimated the maximum impact of the ruling at 230 million euros. He lowered the amount of the fines —according to the regulations, they cannot exceed 50% of the personal income tax quota to be paid— and set the limitation period at four years, the usual for tax matters.
According to Alarcón, the Tax Agency should establish a system “so that everyone can swiftly recover the sanctions that were imposed for the 720 model, as happened in its day with the health cent.” Meanwhile, his office has created a web page so that those affected can more easily request a refund from the Treasury. And he adds: “The penalties imposed should be automatically revoked and refunded automatically, without the need for the recovery procedure to be activated by the taxpayer.”
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