EU probe into Spanish expat fines delayed - Blevins Franks

Added 7th June 2016

An EU investigation into a Spanish law, which requires every expat to declare all their foreign assets worth over €50,000 (£39,353, $56,762) or face heavy fines, may drag on for years, European advisory firm Blevins Franks has revealed.

EU probe into Spanish expat fines delayed - Blevins Franks

Last November, the European Commission (EC) opened an investigation against the Modelo 720 reporting measure to determine whether it infringes EU law after a host of complaints from law firms and tax adviser associations in Spain.

“Spain had two months to respond with its own arguments, they requested and obtained an extension. This extension appears to have no time limit, and at this moment we do not know when the ministry of revenue will reply with their counter arguments,” Blevins Franks director Jason Porter told International Adviser.

Porter, whose firm provides financial advice to British expats in France, Spain, Portugal, Cyprus, Malta, said the judicial review could be a cause for concern for the Spanish authorities which sees the tax as a “valuable generator of additional revenues for the government.”

Modelo 720

Modelo 720 was introduced in 2012 by the Spanish government as part of a wider move to tackle tax evasion. The penalties for late reporting or failing to report assets is very high, in some cases, more than the asset is actually worth.

Last year, Spanish tax authorities charged a resident the maximum penalty that can be imposed under the legislation - €439,266 - even though the assets in question were worth €340,000. 

“With the potential for penalties of 150% of the resulting tax liability, it is possible the sale value of the asset concerned may not even cover the overall liability."

“With the potential for penalties of 150% of the resulting tax liability, it is possible the sale value of the asset concerned may not even cover the overall liability,” said Porter.

Recent figures from the Spanish tax authorities reveal that since its introduction, the levy has led to more than 8,800 inspections that have generated €840m in penalties and surcharges.

The tax effects Spain’s sizeable expat population with the country’s finance ministry announcing that there could be approximately 2 million foreign taxpayers with assets overseas who have not submitted a Modelo 720 since 2012.

‘Disproportionate’ penalties

The EC’s main concerns are that the fines and penalties are “disproportionate” in relation to the non-declaration. Furthermore, as tax is not subject to any statute of limitation - Spanish tax authorities have an unlimited period to pursue the case – could infringe EU law.

Describing the EC probe as “good” for Spanish taxpayers, Porter warned that investigation is likely to “take years to resolve”. He added that even if the case makes it to the commission’s highest court, the European Court of Justice, it’s unlikely that those already unfairly affected by the fines will be reimbursed.

Data released by Santiago Menéndez, director of Spain’s tax office, show that €141 billion of non-Spanish assets have been declared since Modelo 720 was introduced, of which 32% of all the assets declared are in Switzerland and Luxembourg.

For the 2015 tax year ending 31 March 2016, €13.7 billion of new assets were disclosed by taxpayers.

Case studies

As part of its yearly update, the Spanish tax authority releases a number of case studies of the fines it has issued to taxpayers which it says have failed to report their foreign assets.

A Spanish resident, who claimed to live abroad, was found to have an offshore corporate structure.

For failing to declare his assets, the tax office charged him €3.5m on $6m worth of asset. In addition, the formal sanction. Which could be up to 150%, is yet to be paid.

In another case, a taxpayer, who declared two bank accounts in Switzerland in the 2013, was accused by the tax office of failing to declared them a year earlier when they were worth €260,000. As a result he was whacked with an unrealised capital gains bill of €140,000 as well as the formal sanction and late payment interest.

A resident who declared assets eight months after the deadline, including information about an investment fund worth €250,000. As he could not prove that it had previously been declared, he was charged an unrealised capital gain of €135,000. As a result, he is facing a huge tax bill of €64,000 and a formal sanction could be up to €96,000 (150%).

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About Author

Monira Matin

Senior Reporter

Monira joined International Adviser in March 2016 from Informa Global Markets where she worked as a eurobond reporter for over two years, covering fixed income markets. She has previously held a number of editorial positions covering politics, insurance and technology. Monira has a degree in Journalism and Economics from City University.


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