IMPORTANT. FISCAL RESIDENCE IN SPAIN and OBLIGATION TO SUBMITT APPLICATION FORM 720 DECLARATION OF ASSETS AND RIGHTS ABROAD

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Created on Friday, 05 January 2018 15:23

In accordance with the considerations of a recent judgment of the Spanish Supreme Court, Third Administrative Litigation Section, of November 2017, for an individual to be considered as tax resident in Spain by the AEAT ( Spanish Tax Office ), it is taken in account the following:

1.-Permanence.

That means habitual resident; that is to say, that he stays in Spain more than 183 days in a calendar year. It is an objective aspect, regardless of whether you are a professional, student, or refugee; or others, it is not about whether or not it intends to settle in Spain, it is about 183 days in Spain within a calendar year, as set out in article 9.1 of Law 35/2006, of November 28, of Income Tax for Individuals.

2.-Sporadic absences do not enter the calculation ( for the 183 days )

Regarding the sporadic absences, the Supreme Court has understood, thus creating jurisprudence, that the concept of sporadic absences must exclusively focus on the objective data of the duration or intensity of the stay outside Spanish territory, maintaining that "(...) that legal permanence (the stay of 183 days in a calendar year) is not avoided by the fact that the taxpayer is absent temporarily or occasionally (...). ", which means that sporadic absences outside Spain when you have your habitual residence in Spain are not counted to "reduce" or decrease the number of 183 days, as an objective data for the determination of habitual residence.

3.- Formal obligation: INFORMATIVE Application form 720 of declaration of assets and rights abroad.

The application / mandatory declaration form 720 was approved in October 2012 for the prevention and fight against tax fraud and money laundering.

The application form 720 of the fiscal year 2017 must be filed in March 2018 and is mandatory, among others, for individuals and / or legal entities resident in Spanish territory and permanent establishments. It is an official form that only informs about assets and rights abroad, and that does not imply payment/tax obligation , to:

- Report on bank accounts in financial institutions located abroad.

- Report on securities, rights, insurance and income deposited, managed or obtained abroad.

- Report real estate and rights on real estate located abroad.

There is no obligation to submit and report on the 720 form those assets that add up between them do not exceed 50,000 euros, but if in a group of assets that amount is exceeded, all assets and rights must be declared.

For example, you have a home abroad worth 45,000 euros, and two bank accounts abroad with 30,000 euros each, you will have the obligation to report all assets abroad for all assets in its ownership.

In the years following the initial filing of the 720 from, you will only have the obligation to submit a new 720 form when there has been a higher increase (or decrease) in any of the asset groups (accounts, securities or real estate abroad). to 20,000 euros with respect to the last submitted statement.

4.- Penalty regime of the model 720.

The NO filing of the information form 720 today has associated these fines:

A) Fines of a formal nature for filing form 720 incompletely, inaccurately or with false data, from 5,000 euros for data (with a minimum of 10,000 euros) or 100 euros per item (with a minimum of 1,500 euros), depending on whether or not there has been a prior request from the Tax authorities.

Example. If you submit form 720 after the deadline and have forgotten to incorporate 3 bank accounts located abroad, you would have a penalty of 100 euros per item (3 accounts = 300 euros), but the minimum penalty would be 1,500 euros as you mark it well the regulations.

B) Fines on the debt unpaid. On the value of assets and rights located abroad, if discovered and the 720 from has not been submitted in due time and form (March 2018 for 2017 situations), an imputation of an increase/income in the taxable base of the older tax year not prescribed ( not exceed status of limitation ) in the IRPF, for all the value of assets and rights located abroad. And separately, on that amount/fee to be paid, it can apply a maximum penalty of 150% of the fee defrauded.

Example. If you do not fill the 720 form and the Tax Authority detects a home abroad valued at 60,000 euros and a bank account with 40,000 euros, you will have an increase in the last non-prescribed income tax of 100,000 euros, which will mean a fee to be paid about 30,000-40,000 euros approximately. On said fee left to be paid a penalty of 150% may be applied.

5.- Position of the EU and Recommendation.

The EU Commission has issued an opinion to force Spain to change the fine regulations of the Form 720 to make it more proportional, but for the time being no changes have been made. If the situation continues, the European Commission will be forced to sue Spain in the Court of Justice of the EU and the sentence will be mandatory. But at the moment the sanctioning regime as indicated is applicable.

From NEWCOUNSEL we advise all those tax residents in Spain to submit form 720 of the fiscal year 2017 not later March 2018 to avoid possible tax proceedings and penalties.

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Un cordial saludo,

New Counsel.