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TAXATION UPDATE IN SPAIN

By Charles Hutchinson - Topics: Modelo 720, Spain, Wealth Tax
This article is published on: 16th January 2020

We now have a new government here in Spain, albeit quite far to the left which could cause some more interesting changes in taxation. Watch this space.

WEALTH TAX
So far, the reinstatement of the 100% allowance for Wealth Tax (which was approved in 2011) has been delayed again for one more year as part of the 2018 budget extension, due to the recent era of no federal government being in place. Nor has the Junta de Andalucia made any moves to reinstate the allowance in the 2020 budget either.

MODEL 720 DECLARATION OF FOREIGN ASSETS
On the 23rd October 2019, the EU Commission filed a complaint in the European Court of Justice to the effect that Spain has not complied with the Commission’s findings in November 2015 namely that Modelo 720 deters businesses and private individuals from investing or moving across borders in the Single Market. Also these provisions are in conflict with the fundamental freedoms in the EU; this conflict affects free movements of persons, free movement of workers, freedom of establishment, freedom to provide services and the free movement of capital.

Furthermore, the Commission has claimed that by introducing late filing penalties and the labeling of these foreign assets as unjustified capital gains (which are not subject to the statute of limitations), it has breached EU law. Additionally, whatever the amounts involved, they are all subject to tax at the top marginal rate (45% in 2012) plus a fixed penalty of 150% in addition to the tax and further fixed penalties for failure to file, which are higher than the general rules on similar infringements. Spain, therefore, is liable to comply with EU law and to pay costs.

Although precedence does not exist in Roman law, a precedent was set in 2011 when the EU successfully prosecuted Spain over discriminatory Inheritance and Gift Tax rules. This ended with a Court resolution in 2014 that led to an amendment in Spanish Law and opened the door for reclaims of taxes paid over the previous 4 years.

The issue of the Declaration continues to be of great concern to many people in Spain, particularly the expatriate community. Some of the most vulnerable assets are foreign bank accounts. These can be easily switched into other foreign assets where reporting under Modelo 720 is not required and the taxation of income from them (if taken) is greatly reduced.

If you have concerns in this area, please contact me where I can assist you with the problem.

Source: JC&A Abagados, Marbella

Article by Charles Hutchinson

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