Spain: Law requiring Spanish tax residents to report overseas assets or rights is contrary to EU law (CJEU judgment)
A judgment holding that a Spanish law requiring Spanish tax residents to declare and report their overseas assets or rights is contrary to EU law
Concerning Spanish tax residents declaring and reporting their overseas assets
The Court of Justice of the European Union (CJEU) today issued a judgment holding that a Spanish law requiring Spanish tax residents to declare and report their overseas assets or rights is contrary to EU law. The CJEU found that the restrictions on the free movement of capital imposed by that Spanish legislation are disproportionate.
The case is: Commission v. Spain, C-788/19 (27 January 2022).
Summary
As explained in a CJEU release [PDF 247 KB], Spanish law provides that Spanish residents who fail to declare or who make a partial or late declaration of assets and rights that are held abroad are liable for additional assessment of the tax due on the amounts corresponding to the value of those assets or of those rights, including when the assets or rights have been acquired during a period that is already time-barred. The measures also provide for penalty assessments.
The European Commission in 2017 issued a “reasoned opinion” concluding that certain aspects of the requirement for Spanish tax residents to declare their overseas assets or rights and to file Form 720 to report these assets or rights were incompatible with EU law. According to the EC, the consequences of a failure to comply with that reporting obligation were disproportionate in the light of the objectives pursued by the Spanish legislation—namely to guarantee the effectiveness of fiscal supervision and to prevent tax evasion and avoidance.
In today’s judgment, the CJEU found that Spain failed to fulfil its obligations under the principle of free movement of capital. The requirement to file a Form 720 and the penalties for failing to comply with or for partial or late compliance with that reporting obligation (which do not have an equivalent in respect of assets or rights if located in Spain) establish different treatment between Spanish residents based on the location of their assets. The court concluded that because the reporting obligation would be likely to deter, prevent or restrict the opportunities for residents of Spain to invest in other EU Member States, it constitutes a restriction on the free movement of capital.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.