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Modelo 720, Residency & Common Reporting Standards

In 2011 the ‘Tax Justice Network’ put together a briefing paper on the cost of tax evasion worldwide. The research conducted when putting together this paper found that Spain was ranked in the top 10 countries worldwide for uncollected tax revenue as a consequence of tax evasion. It was estimated that the total sum of tax evaded by fiscal residents of Spain came to the equivalent of more than $100 million.

http://www.taxjustice.net/wp-content/uploads/2014/04/Cost-of-Tax-Abuse-TJN-2011

It is no wonder that in the following years Spain was not only among the first to exchange fiscal information via the ‘Common Reporting Standards’ (CRS) but also introduced the modelo 720. If you are unfamiliar CRS then more information can be found at the following:-

Already Here, a Deal to Crack down on Tax Evasion and Avoidance

These steps taken by Spain to clamp down on tax evasion make very clear Hacienda’s intentions to reduce the amount of tax revenue lost this way. Not only Spain but all jurisdictions that have signed up to CRS are doing so in a collaborative effort to increase their tax revenues and to go after the culprits of tax evasion. When CRS was first publicised in the UK press by HMRC the foot note to the advert was the statement ‘come to us before we come FOR you’. Clearly leaving no doubt whatsoever as to the goals that HMRC were hoping CRS would help them achieve. Sentiments which given the introduction of the modelo 720 were undoubtedly shared by Hacienda.

Despite these new efforts taken to catch people guilty of tax evasion and this new environment of information sharing I am still constantly talking with expats that wrongly claim to be non-residents of Spain. In years past it was both common and understandable for expats to hold this position when in reality they would be deemed fiscally Spanish were Hacienda ever to become aware of them. However, anyone wrongly claiming to be a non-resident of Spain today runs the very real risk of being hit with some potentially heavy consequences.

Getting your fiscal affairs in order and compliant with your local jurisdiction is now more important than ever. Not only that but there are ways to mitigate tax that make burying your head in the sand and hoping for the best completely unnecessary. As we are currently in the submission period for the modelo 720, any expats holding assets outside of Spain that meet the criteria for declaration and who are unsure of their fiscal residency should take the opportunity to get clarification and then draw a line in the sand. Any person deemed tax resident of Spain by Hacienda that holds assets declarable under modelo 720 should ensure they make the declaration fully and within the prescribed submission period. Failure to meet the modelo 720 obligations comes with the following potential consequences:-
• Late submission – €100 fine per item with a minimum fine of €1,500
• Failure to submit – €5,000 fine per undeclared asset with a minimum fine of €10,000

There is also still confusion over the tax status of assets such as ISAs even after a person becomes tax resident in Spain. Many think that the tax efficiencies of ISAs continue despite the holder of the ISA no longer being UK tax resident. This position is not only wrong but unnecessary as there are similar tax efficient structures available here in Spain.

If you would like any further information or have questions on residency, the modelo 720, CRS or perhaps would like a financial review then please contact me at:-

christopher.pickering@citizensadvice.org.es

Please note: The information provided is based upon our understanding of current legislation. It is not legal advice but is provided freely to enable you to be properly informed. We recommend that if you are considering taking action, you should seek professional advice.

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