Spain: Law requiring Spanish tax residents to report overseas assets or rights is contrary to EU law (CJEU judgment)

A judgment holding that a Spanish law requiring Spanish tax residents to declare and report their overseas assets or rights is contrary to EU law

Concerning Spanish tax residents declaring and reporting their overseas assets

The Court of Justice of the European Union (CJEU) today issued a judgment holding that a Spanish law requiring Spanish tax residents to declare and report their overseas assets or rights is contrary to EU law. The CJEU found that the restrictions on the free movement of capital imposed by that Spanish legislation are disproportionate.

The case is: Commission v. Spain, C-788/19 (27 January 2022). 

Summary

As explained in a CJEU release [PDF 247 KB], Spanish law provides that Spanish residents who fail to declare or who make a partial or late declaration of assets and rights that are held abroad are liable for additional assessment of the tax due on the amounts corresponding to the value of those assets or of those rights, including when the assets or rights have been acquired during a period that is already time-barred. The measures also provide for penalty assessments.

The European Commission in 2017 issued a “reasoned opinion” concluding that certain aspects of the requirement for Spanish tax residents to declare their overseas assets or rights and to file Form 720 to report these assets or rights were incompatible with EU law. According to the EC, the consequences of a failure to comply with that reporting obligation were disproportionate in the light of the objectives pursued by the Spanish legislation—namely to guarantee the effectiveness of fiscal supervision and to prevent tax evasion and avoidance.

In today’s judgment, the CJEU found that Spain failed to fulfil its obligations under the principle of free movement of capital. The requirement to file a Form 720 and the penalties for failing to comply with or for partial or late compliance with that reporting obligation (which do not have an equivalent in respect of assets or rights if located in Spain) establish different treatment between Spanish residents based on the location of their assets. The court concluded that because the reporting obligation would be likely to deter, prevent or restrict the opportunities for residents of Spain to invest in other EU Member States, it constitutes a restriction on the free movement of capital.

 

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