The legislation in question by DMS Consulting obliges the resident taxpayers in Spain to present Informative Statements over assets and rights abroad (Application 720), an obligation in addition to the duty of paying tax on them.

According to DMS Consulting, the legislation is incompatible with the Community Law as it presents an important restriction to the free movement of people and capitals, set out in Articles 21 y 63 of the Treaty on the Functioning of the European Union.

The planned penalties for not presenting the Informative Statement or doing it partially or not accurately are very hard, starting from 10.000 euros, and in some cases it might include “forfeiture” of the non-declared assets.

This obligation affects practically any person, who wants to have assets abroad and has a complex fulfillment, such that professioinal advice is needed in order to carry out and present it by telematic means.

According to DMS Consulting, this obligation is formal, disproportionate and unjustified, and can act as a deterrence to live in Spain and makes it more expensive and burdensome for a resident to have investments in another country of the European Union than here.

Palma, 5th of March 2013.-  The Majorcan law firm DMS Consulting (www.consultingdms.com) has filed a complaint against Spain before the Communitary Commission for having approved tax provisions, that oblige the taxpayers, residents in Spain to present Informative Statements over assets and rights abroad.

DMS Consulting considers that this new obligation, enforceable for 2012, is against Community Law, as it implies a clear and important restriction to the free movement of people and capitals, set out in Articles 21 and 63 63 of the Treaty on the Functioning of the European Union.

The reported regulation is Law 7/2012 from the 29 of October, which introduces the new obligation to inform, Royal Decree 1558/2012 from the 15 of November that develops it, and Order HAP/72/201, which approves the statement application (Application 720) and establishes that it must be presented by telematic means.

The lawyer, from DMS Consulting, who filed the complaint (formalised last 26th of February), Alejandro del Campo, warns that the regulation is disproportionate, as it affects many people, due to the burdensome penalty system it provides (penalties starting from 10.000 Euros and even almost “forfeiture of the non-declared asset) and for the complexity of its proceedings, that will oblige, practically all of the cases, the individuals to search for professional advice and cover the cost of that service. It is also unjustified, as since the 1 of January 2013 legal tools exist in the European Union, that allow a more efficient administrative coopearation in the taxation field.

Obligations that this legislation imposes 

Actually there are three obligations about tax information, as the residents must inform about three different categories of assets and rights, located abroad (bank accounts, securities and real estate) if they appear (eventhough simbolically) in any of these three groups of assets, if the combined value of the group is above 50.000 €, independently if the assets are located within or outside of the European Union.

For example, a resident must declare if he is a joint owner of a property in Germany, evaluated in 100.000 € and this person has only a share of 10% (10.000 €). And in the same way, a person who is listed as a titleholder of a bank account in France, with a balance of 60.000 €, must declare, eventhough he appears as an authorised person or is a titleholder of one third (20.000 €).

What is required is an extremely detailed information about each and every asset and right abroad, not always easy to obtain, under threat of hard penalties (starting from 10.000 €) for any small mistake or omission, and due to that the taxpayers need to hire the services of a specialized advisor, who would normally charge high fees for being responsable for a complex, arduous and risky Statement.

This new obligation affects mostly individuals, as the companies DO NOT  have to inform about any assets abroad, which are registered in its accounting.

Freedoms attacked

With the aforementioned conditions, the approved tax legislation represents a clear restriction to the free movement of people, as it candissuade Europeans from residing in Spain, as it will be expensive and problematic for them to do so and maintain assets and rights abroad. In fact, the new legislation has caused great concern among the foreign residents in Spain, many considering to return back to their countries.

It also presents a clear restriction to the free movement of capitals as it can dissuade resident taxpayers from moving their capitals abroad or maintaining them outside of Spain (in real estate, securities or in simple bank accounts). For example, a resident, who wants to have 200.000 € in Germany distributed in many different securities, as it is usual (deposits, shares, funds, bonds, etc.) has to pay in Spain the corresponding Income Tax Return and Property Tax, moreover he has to present a very complex, burdensome and expensive Informative Statement. It is not compatible with the Community Law, that for a person residing in Spain is more expensive and problematic to invest in Germany, than here, and this limits his freedom of decision about his assets.

Penalty system

The penalty system is hard, as not declaring a group of assets or doing it partially or not accurately will be penalized with a fine of minimum 10.000 Euros. If it is submitted after the deadline, the fine starts from 1.500 euros. The consequences are severe if an asset is not declared. In this case, the Treasury will consider the non-declared assets as non-justifiied Capital gain and will be attributed to the Personal Income Tax (PIT) of the oldest fiscal year among the ones where it was not applied, having to pay up to 52% of the value of these assets, plus interests on late payment and an additional penalty of 150%.

In certain cases, warns DMS Consulting, it is so disproportionate that “it could be said that the non-declared asset, is in some way seized by the Treasury”. This consequence will be applied evethough the affected alleges that the ownership of the asset comes from many years back, from prescribed periods. That, by preventing the affected from being able to allege the prescription, can even be contrary to the Spanish Constitution.

Unjustified legislation

Moreover, the approved legislation by Spain is unjustified, especially because since the 1st of January 2013 entered into force the Community Directive 2011/16/UE of 15 of February 2011, that the Council considers as the right tool to achieve an effective administrative cooperation in the tax field. This recent Directive eliminates the bank secret within the European Union and encourages the exchange of information between European Union Member States, and joins with the Directive 2003/48/UE from the Council of 3 June 2003 that imposes the automatic exchange of information about savings performance in the form of interest payments.

There is no record that another country in the European Union has approved legislation with similar characteristics. Indeed, Alejandro del Campo warns that “if all the countries of the European Union approved similar legislation, this could imply at last an implosion of the fundamental and founder idea of Europe itself.”

“It is not about” –adds Alejandro del Campo- “a legislation that pursues to bring out assets in tax havens, but it is a legislation that breaks the European Union rules, by pursuing, with the threat of severe penalties for any small mistake or omission, citizens, who in most of the cases are paying their taxes for the assets they have abroad”.

While the pursued aim of this new legislation is the fight against tax fraud, that brings out hidden assets abroad, DMS Consulting considers that the requirement is indeed totally disproportioned and unjustified concerning this aim.

In this sense, DMS Consulting defends that the correct way to fight against tax fraud goes through the exchange of information between States, according to what is exposed in the Community Directives and in the different Conventions in order to avoid double taxation, and not burdening the individuals and companies with new and cumbersome formal obligations, such as Application 720.

DMS Consulting has concluded the claim before the European Commission with the intention that the same begins infringement proceedings against Spain that will conclude with the elimination of this new informative legislation, or at least, to the extent of its limitation to make it compatible with the Community Law..

DMS Consulting is a multidiscipline officethat offers full-range legal advice to companies and individuals, with a clear European vocation. In fact, the Majorcan firm is the founder of the net ILAS (Internacional Legal & Accounting Solutions),  an international net of professional offices of lawyers, consultors and tax experts that offers to the client of each office international coverage in any European country that is integrated in the net. Currently, together with DMS Consulting, professional offices from Berlín, Dusseldorf, London, Paris, Milan, Niza and Amsterdam, form part of ILAS.