Every day it is more and more common to find people in Spain who, being habitual residents or not, have assets and rights abroad. Globalization, which also affects the economic and fiscal field, makes the Tax Agency create Form 720 regulating the obligation to report information on assets and rights located abroad, under Law 7/2012 issued on 29th October about the modification of the tax and regulation on budgetary, the adaptation of the financials for the intensification of the actions in the prevention and fight against fraud, in order to obtain greater control in a matter, in spite of its effect, that more easily escapes it`s knowledge.
Now, it is estimated that by the year 2024, Form 721 will come into force, which will establish the obligation to report "cryptocurrencies", following certain requirements that are still pending approval.
1- What is the utility and objective of thie Form?
Form 720 is in charge of imposing the obligation of information on assets and rights located abroad. The Tax Agency indicates that this Form must be filled in by any taxpayer being an individual or legal entity that resides in Spain, except with a few exceptions, without making distinctions based on nationality, place or time acquisition, or generation of the assets and rights that can be declared.
As in the case of Form 720, Form 721 is in charge of imposing the obligation of information on cryptocurrencies held by taxpayers, whether resident individuals or legal entities, as long as thet can demonstrate the requirements mentioned in subsequent paragraphs.
This Form has an informative purpose, so the Tax Authority does not collect anything with it`s presentation. The purpose of this Form is rather a census and the reasons for it`s requirement are more linked to the fight against tax fraud and to alleviate the difficulties that the Tax Administration has to obtain information on the assets and rights that taxpayers have abroad.
2- Are legal entities or only individuals obliged to report?
In relation to the tax residence of those who are obliged to report this Form, tha Tax Authorities do not make exceptions in the type of person who must do the report but include both individuals and entities that are real owners of assets located abroad; although, entities that have such assets and rights accounted for and identified in a differentiated manner in their books may be exempt from the obligation to declare this Form.
It is important to emphasize that the subjects being obliged to comply this Form include: those who, for diplomatic reasons, do not reside in Spain (e.g., members of consultates, either as official employees or active civil servants), and to whom the Protocol of Privileges and Immunities of the personnel in te service of International Institution is applicable.
Regarding Form 721, individuals owning cryptocurrencies who have a portafolio with a minimum value of 50,000 euros are obliged to file it.
On the other hand, companies and legal entities resident for tax purposes in Spain that are involved in the world of cryptocurrencies must file Forms 172 and 173. The first Form imposes on companies and particulars to declare the balances of their own virtual currencies and those of their clients, while the matter requires legal entities to report all the transactions they realize.
3- Which assets and rights must be declared in the Form 720?
Form 720 requires reporting, in a differentiated matter, of four relatively independent blocks of assets. Each block works as a watertight compartment and if only one of them exceeds the limits that oblige to delcare, there would be no obligation to include information on the others.
"Block I" of Form 720 covers information relating to the accounts opened in financial institutions located abroad, which must be reported if the combined balances of these accounts exceed 50,000 euros. In this csae, at the time when determining that the balances reach 50,000 euros, the higher of the following values must be taken into account: (i) the balance on the 31st of December and (ii) the average balance for the fourth quarter of the year.
"Block II" covers other movable assets, such as investment funds, loans, shares, all types of company shares, and certain pension plans, of course, provided that they relate to those investments made abroad. All these assets are included in "Block II" so that if they amount to more than 50,000 euros between the different types, full information on them must be provided.
"Block III" is composed of all the properties on real estate abroad, computing the same method as the two previous blocks. In this sense, if someone owns any type of real right on foreign real estate, that, together, represents a valuation of more than 50,000 euros, he will have to include them in Form 720.
"Block IV" is related to virtual currencies or "cryptocurrencies" and establishes the obligation to declare the "cryptocurrencies" owned by a Spanish resident as long as the storage service and access to them are provided by a foreign person or entity, however, the Ministry of Finance has decided to delay until 2024 the reporting obligations regarding virtual currencies or cryptocurrencies, since the publication of the Regulation for the development Law of 11/2021 of July 9th is still pending.
As mentioned in previous paragraphs, the State Agency of Tax Administration (AEAT) has been working on three different forms; Form 721, Form 172, and Form 172, in which individuals or legal entities are forced to report the cryptocurrencies they hold.
4- What requirements must be fulfilled in order to be obligated to complete this Form 720?
Generally, if the assets and rights abroad included in a certain block do not exceed the amount of 50,000 euros, it is not obliged to report on the assets that make up that block and, logically, if that amount is not reached in any of the blocks, there will be no obligation to file the Form 720. Once this amount has been exceeded for a certain block, it will be required to report in a complete and individualized manner on each one of the assets and rights that make up that block.
It is also important to emphasize that the values to be considered is that of each asset or right considered as a whole. For example, if (within "Block I") we are holders of 10% (with other 9 people) of a bank account with a balance of 100,000 euros, or even if we are simply authorized, wehave to report all the information relating to such account, as it is classified as an asset or right considered individually (in form we will indicate that our share is 10% or even 0% if we are merely authorized, but this does not exempt us from the obligation to declare).
On ther other hand, if (within "Block II") we only have 10 shares in a foreign company, each of which has a value of 1,000 euros, there is no obligation to report this "Block II", regardless of whether the total valuation of the company is several million euros (as each share is an individual right, even if it represents a cerain percentage of ownership of a foreign company). Likewise, if a given taxpayer has three properties abroad, one valued at 21,000 euros, another ar 12,000 euros and tha last at 18,000 euros, he must declare by Form 720 in this tax year as their combined valuation exceeds the amount of 50,000 euros.
However, it is important to emphasized that, although these limits apply to "Block I to III", it is not currently foreseen that by 2024 Form 721 will eneter into force, which, following the general rule mentioned above, will establish the obligation to report "cryptocurrencies", however, to date no exemption from the obligation to report has yet been approved with respect to the virtual currencies that make up "Block IV".
5- Do we have to file the Form 720 and Form 721 every year?
The obligation to present Form 720 has certain initial requirements (as mentioned in the previous paragraph) and, once this Form has been declared, we do not need to file it again, unless any of the assets or roghts located abroad of which you the owner increases in value by at least 20,000 euros (in aggregate) or any asset or right previously declared is extinguished.
However, as mentioned in the previous paragraph, this exemption from the duty to declare virtual currencies has not been regulated either, so until the corresponding regulaitons are approved, it will be mandatory to report annually all virtual currencies held throughout the year.
6- Deadlines and penalties for complying with the obligation to file Form 720
The Tax Agency grants a term of 3 months to complete and file Form 720. The deadline starts on January 1st and ends on March 31st. This filing period is always the same, so, if you meet the requirements for the annual filing of the model, you will be obliged to file it evey year in the mentioned period. In the event of failure to comply with the obligations to file on time, following the annulment of the penalties by the Court of Justice of the European Union, there is no specific penalty regimes for this Form.
Therefore, it is foreseen that in case of incorrect filling, out of time, or non-compliacne with the obligation, the generic sanction foreseen is in Article 199 of the General Tax Law.
In turn, as in Form 720, the taxpayer will have a period of 3 months to complete and file Form 721, which starts on January 1 and ends on March 31. In case of non-compliance, it is foreseen that in case of non-filling of Form 721, the general tax regime penalty.
Finally, we must emphasize the tax infraction for the lack of presentation or the presentation out. of term to the effects of the IRPF. It is article 39.2 IRPF which states that an unjustified capital gain may be imputed to the taxpayer in his IRPF for those assets not declared in Form 720, being considered as a very serious tax infringement, which will be sanctioned with a proportional pecuniary fine of 150% of the total amount resulting from a such capital gain in the IRPF.
If you want to know more about Form 720, it is advisable to have the advice and opinion of experts on the declaration of thei model. At Gentile Law, we have a team of experts in the filed ready to advise you.