The Judgment of the First Chamber of the CJEU of 27 January 2022 (C-788/19), which has been widely publicised, declares that Spain violates European Union law – and specifically Article 63 of the Treaty on the Functioning of the European Union (TFEU), which prohibits all restrictions on the movement of capital between Member States and between Member States and third countries – by (i) making it impossible in practice for non-compliance with the statute of limitations for failure to file Form 720, and (ii) sanctioning such non-compliance with fines, and between Member States and third countries – by (i) making it impossible, in practice, to prescribe the non-compliance with the obligation to file Form 720 for information on assets and rights located abroad, (ii) penalising such non-compliance with fixed fines disproportionate to the penalties provided for similar offences at national level, and (iii) cumulating such fines with a proportional fine of 150% of the amount not taxed on the assets and rights in question.
The Judgment confirms that the mere existence of the information declaration does not contravene EU law “since the information available to the national authorities in relation to the assets held abroad by their tax residents is, on the whole, less than that available to them in relation to assets situated in their territory” (paragraph 24), although even if the objectives pursued are legitimate “it must be ascertained whether they do not (go) beyond what is necessary to attain them”.
In relation to the time limitation of the classification of assets held abroad as “unjustified capital gains” the CJEU appreciates that “although the national legislator may provide for an extended limitation period in order to ensure the effectiveness of tax controls and to combat tax evasion and avoidance arising from the concealment of assets abroad, provided that the duration of that period does not go beyond what is necessary to achieve those objectives, having regard, in particular, to the mechanisms for exchange of information and administrative assistance between Member States (see Joined Cases C 155/08 and C 157/08 X and Passenheim-van Schoot, EU: C:2009:368, paragraphs 66, 72 and 73), the same is not true for the institution of mechanisms which, in practice, amount to prolonging indefinitely the period during which taxation may be effected or which make it possible to render ineffective a time bar which has already expired’ (paragraph 38). It follows that the impossibility for a taxpayer to invoke a time bar which has already been triggered by the mere fact that he has failed to comply, or has defectively complied, with the obligation to provide information “goes beyond what is necessary to ensure the effectiveness of tax controls and to combat tax evasion and avoidance, without there being any need to question the consequences to be drawn from the existence of mechanisms for the exchange of information or administrative assistance between Member States” (paragraph 41). (paragraph 41).
With regard to the proportionality of the variable fine (150% of the amount not paid into the public coffers), the CJEU considers that this type of penalty confers on the fine “an extremely repressive character and that it can lead in many cases, given the accumulation of the fine with the fixed fines, that the total amount of the sums owed by the taxpayer as a result of the failure to comply with the obligation to provide information on his assets or rights abroad exceeds 100% of the value of those assets or rights,” (paragraph 53) a circumstance which causes “a disproportionate impairment of the free movement of capital. ” (paragraph 54).
And in relation to the proportionality of the fixed fines, the CJEU appreciates that the amount of the fines bears no relation to the fines provided for in the General Tax Law (arts. 198 and 199) for similar offences carried out in relation to assets and rights located in Spain.
Therefore, the judgment calls on Spain to:
(a) The urgent amendment of the eighteenth additional provision of the General Tax Law, which regulates the information obligation in question (Form 720), with regard to the amount of penalties and the statute of limitations for tax offences.
(b) The obligation to refund penalties imposed for non-compliance, or defective compliance with the information return that have been challenged in due time and form; and the feasible obligation to refund penalties that have become final, since the requirement to challenge Article 32.5 of Law 40/2015, which regulates the financial liability of Public Administrations may be excessively onerous for the citizen, since, in reason, the burden of foreseeing the existence of a judicial declaration of the CJEU as pronounced cannot be imposed on them. This issue is pending a new ruling by the CJEU: however, the Supreme Court, in its ruling of 16 July 2020, has already developed a line of argument in favour of the refund of undue revenue, even if the declaration and settlement had become final.