Court of Justice finds Spain in breach of EU law over overseas assets’ declaration


27 January 2022, the Court of Justice of the European Union (CJEU) ruled that Spain’s legislation requiring Spanish tax residents to declare their overseas assets or rights is contrary to EU law because it imposes restrictions on the free movement of capital.

Under the Spanish legislation at issue, Spanish residents who fail to declare or who make a partial or late declaration of assets and rights that they hold abroad are liable for additional assessment of the tax due on the amounts corresponding to the value they have been acquired during a period that is already time-barred, and to the imposition of a proportional fine and specific flat-rate fines.

On the 15th of February 2017, the European Commission issued a reasoned opinion in which it found that certain aspects of the requirement for Spanish tax residents to declare overseas assets or rights – including immovable property, bank accounts, securities, assets or rights representing the share capital, own funds or assets of any type of entity or life and disability insurance which they hold outside Spanish territory – by means of a form entitled ‘ Form 720’ were incompatible with EU law.

According to the Commission, the consequences of failure to comply with that obligation were disproportionate in the light of the objectives pursued by the Spanish legislation – to guarantee the effectiveness of fiscal supervision and to prevent tax evasion and avoidance. It, therefore, asked the CJEU to declare that the Kingdom of Spain had failed to fulfil its obligations under Article 63 of the Treaty on the Functioning of the European Union (TFEU) and Article 40 of the Agreement on the European Economic Area (EEA).

In the European Commission v Kingdom of Spain (Case C-788/19), the CJEU found that Spain had failed to fulfil its obligations under the principle of free movement of capital.

The Spanish government has announced it will change the rules to ensure they are proportional and will guarantee a statutory limitation period. However, the law remains in force for the movement.

Confused about US tax planning in Spain? Contact our knowledgeable US tax advisors for clarity.

Related Posts