For almost a decade, Modelo 720, the Spanish information return on assets and rights held abroad, carried the harshest penalty regime in the Spanish tax system: fixed fines per item of data on a scale that existed in no other information return, a proportional fine of 150 % and, above all, the possibility of treating the value of undeclared assets as an unexplained capital gain with no limitation period coming into play. That is over. It is worth setting out precisely what ended and what is still alive, because some people have understood that Modelo 720 stopped being compulsory, and that is not the case.
What the Court of Justice said
The judgment of the Court of Justice of the European Union of 27 January 2022, given in case C-788/19 (Commission v Spain), declared that Spain had failed to fulfil its obligations under EU law by attaching disproportionate consequences to failing to report, or reporting late, assets and rights held abroad, because this restricted the free movement of capital.
The criticism was not aimed at the reporting obligation itself. The Court accepted that a state may require that information in order to fight fraud; what it considered disproportionate were the consequences: the de facto absence of any limitation period that came with treating assets as an unexplained gain, the proportional fine of 150 % and the table of fixed fines per item of data.
We say it plainly because the opposite is doing the rounds: the judgment did not strike down the return. The form is filed just as before, within the same deadline and with the same thresholds. What changed is what happens if it is not filed, or filed wrongly.
What Ley 5/2022 did
Ley 5/2022, of 9 March, brought Spanish law into line with the judgment: it abolished the specific penalty regime for Modelo 720 and removed the rule that allowed undeclared assets to be treated as an unexplained capital gain in the oldest tax year not yet time-barred, however much time had gone by.
Since then, failure to comply with Modelo 720 is penalised under the general rules for information returns in the Ley General Tributaria, the Spanish General Tax Act, which is exactly what the Agencia Tributaria, the Spanish tax authority, explains today in the frequently asked questions on the form: articles 198 and 199 of that act apply.
What applies today
| Conduct | Rule | Consequence |
|---|---|---|
| Not filing on time | Article 198 of the Ley General Tributaria | A fixed fine of €20 per item or set of data relating to the same person or entity, with a minimum of €300 and a maximum of €20,000 |
| Filing late without a prior request | Article 198 | The penalty above is halved |
| Filing with incomplete, inaccurate or false data | Article 199 | A penalty for the data wrongly declared, under the rules of that article |
There is one more point that matters and that the tax authority itself stresses: penalties apply separately to each of the three information obligations (accounts, securities and rights, and real estate). A taxpayer who fails to comply in two blocks does not have one file, but two.
Filing late on your own initiative, before anything arrives, halves the penalty. Filing after a request from the tax authority does not. Between the two situations there is an exact moment worth knowing, and it is not always the one people think: which actions by the tax authority count as a prior request is explained in what counts as a prior request.
The penalty is measured in data, and that matters
On an information return the unit of measure is not money, it is data. The article 198 fine is set per item or set of data relating to the same person or entity that should have been included, with its minimum and maximum, and that produces a counter-intuitive effect: someone who fails to declare a single property worth a million euros is not penalised in the same way as someone who fails to declare twenty modest accounts.
The practical consequence is that the number of assets matters as much as their value, and that careful reconstruction of the inventory, asset by asset, is not an exercise in perfectionism: it is what determines the size of the problem. So does the split into blocks, because each obligation breached goes its own way.
The penalty proceedings have rules of their own
A penalty is not imposed by itself and it is not automatic. Proceedings have to be opened, a proposal notified, an opportunity to make submissions given and culpability reasoned, which is where most files are weakest: it is not enough to establish that the return was not filed, the authority has to explain why that conduct is blameworthy in the specific case. And once the penalty is imposed, the Ley General Tributaria provides for reductions whose interplay is worth working out before deciding whether to appeal or pay, because appealing can mean losing some of them. It is developed in the penalty and its reductions.
Deciding to dispute a penalty is not a question of principle: it is a calculation involving the amount at stake, the reductions lost by appealing, the cost of the proceedings and the reasonable prospect of success, which nobody can guarantee. We do it in writing and with numbers, and sometimes the honest conclusion is that it is not worth it.
The limitation period works again
This is the most important consequence of the whole episode and the one that really changes the strategy of a file. With the special rule gone, tax years become time-barred under the general rules: the ordinary four-year period, with its own rules on counting and interruption, which we develop in the four-year limitation period.
Put simply: undeclared ownership of an asset abroad no longer drags behind it an unlimited past. That does not mean everything old is beyond reach (the limitation period can be interrupted, and you have to check whether it was) but it does mean you reason within a closed horizon instead of an infinite one.
What did not change at all
Not the deadline, which is still 1 January to 31 March; not the €50,000 thresholds per block; not the valuation rules; and not the obligation to file again when a block rises by more than €20,000 or when a declared asset is closed. All of that lives in the implementing regulations and the judgment did not touch it. We repeat it because in 2022 the idea circulated that Modelo 720 had disappeared, and years later we still receive cases from people who stopped filing it then and have not filed it since.
What the judgment did not resolve
Two things, and both matter.
The first: Modelo 720 reports, but it does not declare income. If behind the undeclared asset there is income that was not declared either (interest, dividends, rents, gains), those tax years need their own regularisation, with the tax, the interest and the surcharge if it is done voluntarily. The difference between surcharge and penalty is in surcharge, interest and penalty, and the calculation, in how the surcharge is calculated. Whoever thinks that fixing Modelo 720 fixes everything is in for a surprise.
The second: the fact that a regime was contrary to EU law does not automatically give back what was paid by those who suffered it. The routes for review depend on the state of each file (whether the assessment is final, whether it was appealed at the time, what deadlines have passed) and not all of them succeed. If you were penalised under the old regime, it is worth having someone read the complete file before deciding; what we will not do is promise you a refund.
What we tell people who arrive frightened
Quite often the fear is bigger than the problem. People come to us convinced they owe six-figure sums for not having filed an information return, and when the file is reviewed it turns out they were only obliged for one block, in two tax years, and that the related income was small or non-existent. The first job, before any letter is written, is to measure the real size of the problem.
When the problem really is large, we say so just as clearly and just as early. What we do not do is keep the fear going to justify fees, or promise that there will be no consequences in order to win an engagement.
What we do with a late Modelo 720 case
- A real inventory of assets and blocks, tax year by tax year, with the valuations each key requires: how to fill in Modelo 720.
- A check of which tax years really carried an obligation, which are often fewer than the client fears: when you have to file again.
- Analysis of the related income and of the limitation period for each tax year.
- Voluntary filing, in the right order, before any request from the tax authority.
- Preparation of the answer in case one arrives, with the supporting documents already gathered.
We are international tax lawyers, and the work in this line is above all a matter of judgement: deciding what is filed, for which tax years and with what explanation. We do not guarantee that there will be no penalty, because that does not depend on us and it would be dishonest to say otherwise. What we can tell you, with the numbers in front of us, is the reasonable scenario for each option and the risk you take on in each one. Tell us about your case in the Modelo 720 form.