The Supreme Court declares the nullity, with retroactive effect, of the Modelo 720 tax form fines

The Supreme Court has recognised the retroactive effect of the nullity of penalties imposed by Hacienda, the Spanish Treasury, on individuals who have not declared their assets and rights located abroad, the so-called Modelo 720 tax form.

The Second Section of the Third Chamber of the Supreme Court has established jurisprudential doctrine on tax penalties imposed by the Treasury. In two rulings handed down on 4th and 6th July, the Supreme Court declared null and void the fines imposed by the Tax Agency on individuals for failing to comply in due time with the obligation to report securities, assets, securities, rights, insurance and income deposited, managed or obtained abroad on tax form 720. The cases in question involved assets and rights located in Switzerland.

In these verdicts, the Supreme Court declares, in accordance with the ruling of the Court of Justice of the European Union of 27th January 2022, that the system of penalties established in the Spanish legislation violates the obligations incumbent on the Kingdom of Spain and infringes the free movement of capital, given that such penalties are "disproportionate" to the penalties provided for in a purely national context.

The rulings explain that the binding nature of European Union law obliges Spanish judges and courts not to apply the national rules on penalties. Moreover, it specifies that the right of individuals to have the Spanish law penalty rule contrary to EU law disapplied and the nullity of the penalties imposed under that Spanish law derives from the very provisions of EU law, and not from the ruling of the CJEU which declared it to be so.

"Therefore, the retroactive effect of the nullity of the nullity of the penalties is recognised, even before the decision of the CJEU of 27th January 2022," explains the Supreme Court.

It should be recalled that the Ministry of Finance in Spain, after learning of the CJEU ruling stating that aspects of the form had been declared illegal, modified the 720 tax form for the declaration of assets abroad, reducing the high penalties that it contemplated and eliminating the non-applicability of statutes of limitation for the offence, which now has a four-year statute of limitations.