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Modelo 720 New Reporting Requirements 2013 Part 1

WHAT’S IT ALL ABOUT?


First of all let’s talk about what the new law (Model 720) is and why it has been introduced. The Spanish Government has launched a new anti fraud plan to prevent tax evasion. Much has been written about Spanish politicians being uncovered who have assets overseas.

Although aimed at discovering assets bought by Spanish nationals with irregular money, it may also affect expats living in Spain that are titleholders of assets abroad.

The law is to catch Spanish nationals, the expats are mere bystanders. However, it is important as expats that we don’t ‘bury our heads in the sand’ in the hope that it won’t affect us.


At Speed Financial Solutions we often come across expats living in Spain who still deem themselves to be UK tax resident. Very often, the underlying reason behind this is fear of the unknown. In fact, once our clients understand how to navigate the Spanish system (with our assistance) they realise that they can in fact take advantage of the tax breaks available to them as residents of Spain.


What is very important to remember, is that tax residency is usually based on the time we spend each year in a particular country, and that the onus is on individuals to be able to prove to the authorities should they investigate, that they do not in fact reside in Spain. The reality is that in most cases, it would be very difficult to demonstrate this to the Spanish Authorities and so most expats would be ‘deemed’ Spanish tax resident by the authorities, particularly I imagine, if it were to prove more beneficial to the authorities in terms of revenue!


WHO HAS TO REPORT?


Any person, permanent establishment or company who is tax resident in Spain and is the owner, titleholder, representative, authorized person, beneficiary, or has disposal powers of the assets located outside of Spain worth more than €50,000 must report the value of these assets (converted to Euros when held in other currencies) as at 31 December 2012, or the year declared for future tax years.


WHEN?


Between 1 January and 31 March of the following tax year on which information is submitted. However, according to the draft of the new Model 720, information for year 2012 will be submitted during March and April of 2013.


‘Informative statement of assets and rights located abroad’


We need to remember that this is an ‘information return’ designed to put worldwide assets on the radar and does not necessarily have to be completed every year. It should be completed in any particular tax year only if:


– there are new assets or rights that have not previously been reported. – the values of assets or rights already reported have increased, – in certain cases in which ownership in those assets or rights is relinquished.


WHICH ASSETS MUST BE REPORTED?


There are various descriptions of exactly what must be reported, but they can be categorised broadly under the following headings:


Bank/Building Society accounts located outside of Spain (if you have a number of accounts that are each under €50,000, but together they total more than €50,000 they must ALL be reported.

– Any values, assets, securities or rights representing capital, equity or assets of all types of entities, or the transfer to third parties of capital which is held or deposited or located abroad. This includes fiduciary agreements and trusts. (where the total value exceeds €50,000).

Life or disability insurance in which the taxpayer is the policyholder. This includes Life Assurance Bonds (Surrender value of the Bond). Life Assurance that only covers the risk of death and cannot be recovered does not need to be declared. Please note, the surrender value of a Life Assurance Bond should also be reported on your Annual Wealth Tax Return.

Annuities or temporary rents in which the taxpayer is a beneficiary, contracted with entities established abroad (capitalization value of the rent).

Real estate and property rights of the holder located abroad, worth more than €50,000 (including timeshare rights, usufruct, and other rights to use properties).


WHAT ARE THE PENALTIES FOR NOT REPORTING?


A system of penalties applies for cases in which the filing is:


– not submitted on time, – submitted with incomplete, inaccurate or false information, or – presented by means other than electronic, computer or telematic.


These are considered very serious offenses.


Penalties in these cases are fixed, generally in an amount of €5,000 per item or set of data on the same asset, with a minimum of €10,000.


The amount of data or data set is reduced to €100 (with a minimum of €1,500) if the information model is filed late without prior notification.


WHAT HAPPENS IF THE INFORMATION MODEL IS NOT FILED AT ALL?


For Personal Income Tax, tenure, statement or acquisition of goods or rights in respect of which the obligation to declare has not been fulfilled will be considered a taxable capital gain, and integrated into the overall tax base of the oldest non prescribed tax year.


On top of that, interests and penalties (150% of the tax arisen) will be imposed.


Eg. A house worth €150,000 is not declared in year 2012 return. If this is found out in year 2014 the total to be paid including interest and penalties in 2014 would be €95,931.20.


This will only be avoided if the taxpayer can prove that those rights or assets were acquired:


-With declared income, which would include income regularized by “special tax return” regulated in the first additional provision of Royal Decree-Law 12/2012, also known as “tax amnesty”.

– With income earned in tax years in which the tax payer was not a taxpayer in Spain of the Personal Income Tax respectively.


STOP! … What does that last paragraph really mean?


It refers to the penalties not applying for assets acquired from income earned before becoming Spanish tax resident. I would suggest that QROPS (built from UK tax relieved income) and properties bought whilst still in the UK (usually with the use of a mortgage whilst working) would be exempt. This makes a BIG difference to most expats living in Spain. Indeed, one of the most common questions we are being asked at Speed Financial Solutions is ‘how does this affect my QROPS?’


Interesting. Worth challenging and getting an opinion. I am in the process of doing exactly this, as it seems that this view has not yet been examined on behalf of our expat community.


As always, with any advice provided, even by so called experts, in terms of tax, we will only ever be offered an ‘opinion’. It is only if and when challenged by law that any one individual will know for sure how they will be taxed. I will endeavour to advise you further on this new rule as more information becomes available.


In the meantime, if you would like to know more about your own situation, please contact us at Speed Financial Solutions for a free consultation with one of our qualified and experienced Financial Advisers.


Andrea Speed Principal 23 January 2013

Please note that the information set out above is based on our current understanding of tax legislation and practice in Spain. Whilst every care has been taken, we cannot take any responsibility for its interpretation or subsequent changes.

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