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Latest data on the Spanish Modelo 720 regime to target tax avoidance shows it has proved costly for many… and that ignorance is no defence.

Modelo 720 may be unpopular with residents of Spain, but it is proving rather successful for the Spanish government – which was the intention, of course.

In May, the Spanish tax authority Agencia Tributaria published new data regarding Modelo 720. Everyone who is resident in Spain needs to submit this informative annual declaration listing the non-Spanish assets they own worth over €50,000.

  • Since it was introduced in 2012, €141 billion of non-Spanish assets have been declared. This equates to 12.6% of the Spanish gross domestic product.
  • In the 2015 declaration (submitted by 31st March 2016), €13.7 billion of new assets were declared: €2.6 billion in bank accounts; €1 billion of real estate and €10.1 billion in investment funds, shares and insurance products.
  • To date, there have been more than 8,800 inspections as a result of Modelo 720. So far this has generated €840 million penalties, surcharges etc.
  • 32% of all the assets declared with the Modelo 720 are in Switzerland and Luxembourg.

The tax authority also provided data from actual inspections. Here are three examples.

  1. A taxpayer declared two bank accounts in Switzerland in the 2013 Modelo 720. However, after reviewing the file, the tax office realised that he should have declared them in the 2012 form, when they were worth €260,000. The taxpayer could not prove that these had previously been declared. They were therefore treated as unrealised capital gains and he had to pay €140,000 as well as the formal sanction and late payment interest.
  2. The tax office discovered that a taxpayer (convicted in the past for tax fraud) had an offshore corporate structure. In addition, this individual claimed that he lived abroad when he was actually a Spanish resident. For not submitting Modelo 720, the tax office charged him with an unrealised capital gain of €6 million. This implied a €3.5 million to be paid (including the tax due plus the late payment interest). In addition, the formal sanction is yet to be paid (which could be up to 150%).
  3. A taxpayer submitted the 2012 Modelo 720 eight months after the deadline, including information about an investment fund worth €250,000. Since he could not prove that the fund had previously been declared, an unrealised capital gain of €135,000 was charged. This resulted in tax due of €64,000. The formal sanction could be up to €96,000 (150%).

There are currently around 7,000 taxpayers being investigated as a result of Modelo 720. The Spanish Finance Ministry also believes there could be around 2 million foreign taxpayers resident in Spain with overseas assets who have not submitted this form since 2012.

It is essential that everyone resident in Spain, with non-Spanish assets worth over €50,000, submit this form. If you spend time in Spain but believe you are not resident, make sure you have got this right – you may be resident without realising it and this could prove a very costly mistake. Taxation in Spain need not be as high as you fear, particularly on your investment assets.

Any questions? Ask our financial advisers for help.