Form 720 Spain: Can a person residing in Spain, who does not correctly declare his assets and rights abroad, be convicted of a tax offense?

The Second Chamber of the National Court has prosecuted for a tax offense the behavior of several taxpayers from the same family who, on September 14, 2009, opened bank accounts at the Andbank entity. In these accounts they made income and dispositions in 2009, 2010 and 2012. But the taxpayers did not include the information of these foreign investments in the declaration of assets located abroad (Form 720 Spain) that they submitted in 2014. Nor did they include the returns and gains derived from said financial investments in Income Tax Return.

Which is the unfulfilled obligation in this case with respect to Form 720 Spain?

The obligation imposed by Additional Provision 18 of Law 58/2003, General Tax, and article 39.2 of Law 35/2006, on Personal Income Tax, is breached in the above situation. By not including such assets in Form 720 Spain or Income Tax Return, unjustified capital gains were considered, with respect to the oldest non-prescribed fiscal year: in this case, 2013.

If I do not declare assets abroad, through Form 720 Spain, for an amount greater than 120.000 euros, I may be committing a crime against the Public Treasury of article 305 of the Criminal Code, based on article 39.2 of the Law on Personal Income Tax, due to unjustified capital gains derived from incorrectly declaring Form 720 Spain.

In relation to the unreported income in Andorra made in 2009, 2010 and 2012, the Public Prosecutor’s Office initiated an investigation in February 2018, which ended with Acts of conformity and sanction proposals in May 2018.

After the administrative sanctions, a criminal procedure was initiated. The State Attorney and the Public Prosecutor’s Office, in accordance with the classification of infringement that the AEAT decided, classified the facts as constituting several crimes against the Public Treasury of article 305 of the Criminal Code, based on article 39.2 of the Law On Personal Income Tax, due to unjustified capital gains derived from incorrectly declaring Form 720 Spain.

But the National Court ruled that they had not committed any crime against the Public Treasury, despite the fact that the taxpayers signed the Acts of conformity for the regularization of the unjustified capital gains, which supposed tax quotas higher than € 120,000, thus exceeding the threshold that marks the criminality to be prosecuted as a criminal offense.

Why should not the non-declaration of capital gains through Form 720 Spain and in the Income Tax Return be convicted in criminal proceedings, according to the National Court?

The National Court justifies that taxpayers should not be convicted of a crime against the Public Treasury because, by application of the basic procedural principles of Criminal Law, the failure to declare assets located abroad cannot be considered as a punishable criminal commission due to:

• Non-retroactivity of the most unfavorable criminal laws,
• Prescription of the crime,
• Criminal legality by normative predetermination of crimes and their penalties.

Both natural and legal persons, who, having the obligation to submit both personal income tax and corporate income tax, respectively, possess assets or rights abroad, must present Form 720 Spain, provided that the balance as of December 31 exceeds 50,000 euros, or in case of bank deposits when your average balance exceeds 50,000 euros.

This was motivated because the tax offense had prescribed in this specific case and, in addition, there had been a legislative change to the pecriminalnal code, not applying retroactivity in this case.

If you need to declare your assets and rights abroad, using Form 720 Spain, at Pérez Parras Economists & Lawyers we are experts in international tax law. Contact us so that we can help you and make your declaration of assets abroad correctly, avoiding the great penalties that any type of error in Form 720 Spain carries.