British expats in Spain may win some relief from the dreadful penalties imposed under the Modelo 720 tax declaration as the European Commission steps in to rule them unfair.
The process may be facing a legal challenge, but expats still have an obligation to tell the Spanish tax authority about their offshore assets, so what should they do?
What is the EU telling Spain about Modelo 720?
The European Commission has given the Spanish government two months from February 15, 2017, to scrap the existing penalties and to come up with a fairer system
What are Modelo 720 penalties?
Expats who make even the smallest errors on their returns must pay a minimum 10,000 euro charge, while capital gains penalties can be set at up to 150% of the tax due.
The EC argues the penalties are disproportionate and, discriminate against expats and conflict with EU rules.
Does this change Modelo 720 filing for expats?
No. The EC recognises Spain has the right to ask for the Modelo 720 information but disagrees with the severity of the penalties
What should expats do?
British expats tax resident in Spain who have assets overseas should fully declare the holdings before March 31.
Assets include QROPS pensions, property, investments and cash savings.
The form splits the assets into three types – money in the bank, investments and immovable property. If the value of any category is more than 50,000 euros, all the assets in that category should be reported.
Special rules apply to trusts, companies and joint owners.
I should have filed a Modelo 720 but have not done so
The EC argues that many expats who should have filed Modelo 720 forms have not done so because the penalties can outweigh the value of their assets.
If you should have filed a Modelo 720 in one of the four previous tax years the law has been in force, speak to a professional tax adviser in Spain about the best way to sort the matter out.
Find out more about Modelo 720
The Spanish tax authority has general Modelo 720 advice in English online. For specific personal advice, speak to a professional adviser.