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EU lawyer slams Spain’s huge fines for not filing foreign asset declaration properly

A top EU lawyer has criticised Spain's controversial fines for taxpayers who incorrectly fill out model 720 or hand the form in late, calling them “disproportionate” and contrary to EU freedoms.

EU lawyer slams Spain's huge fines for not filing foreign asset declaration properly
A picture of the sign and logo of the Court of Justice of the European Union in Luxembourg. Photo: JOHN THYS / AFP

If you live in Spain and own assets abroad, you’re no doubt familiar with Modelo 720 and the risks you face for not declaring your assets overseas.

If you have bank accounts, assets/private pensions or a property abroad which are worth more than €50,000, you have to declare all this to the Spanish taxman.

READ MORE: Do I really need to declare foreign assets to the Spanish taxman?

Under current legislation, Spain establishes that income abroad that is not declared, or which is reported after the March 31st deadline, will be treated as an unjustified capital gain and will receive a penalty of 150 percent of the value of the amount.

These fines can exceed the real value of the assets declared after the deadline, since they are set at an amount of €1,500 for each group of goods affected, or €5,000 for undeclared or incorrectly recorded data, with a minimum of €10,000 per group.

On Thursday July 15th 2021, the Court of Justice of the European Union (CJEU), which interprets EU law to make sure it is applied in the same way in all EU countries, listened to a report in which these fines were dubbed as “disproportionate” and contrary to what’s accepted within in the EU framework.

The matter was presented by Advocate-General at the Court of Justice of the European Union Saugmandsgaard Øe, a prosecutor whose assessment is not binding for the Luxembourg-based court but is usually followed closely in the bulk of proceedings.

Øe’s criticism focuses especially on the fixed fines linked to each incorrect or excluded piece of data in the asset declaration of Spain’s model 720. 

Spain’s asset declaration penalty system was first implemented in 2012 by then Finance Minister Cristóbal Montoro under the right-wing PP government of former Prime Minister Mariano Rajoy, and the legislation has been causing legal problems for Spain’s Tax Agency ever since.

In February 2017, the European Commission issued a complaint against Spain arguing that the fines are in conflict with EU rules and breached four community freedoms of the European Economic Area: free movement of people and workers, freedom of establishment, free presentation of services and the free movement of capital.

Despite the EC’s damning report, in which it called for the “discriminatory” system to be overhauled within two months, nothing changed and Brussels ended up taking the matter to the Court of Justice of the European Union.

However, Spain’s Hacienda tax agency has continued to penalise taxpayers who don’t get their asset declaration 100 percent right, as the European Commission wasn’t able to show enough evidence of irregularities in Spain’s tax system.

A number of Spanish judges have lifted fines for these taxpayers but ongoing sanctions mean the matter is again set to be debated in the EU’s Court of Justice following Saugmandsgaard Øe’s report and the EC’s latest official complaint.

Will EU magistrates be able to convince CJEU judges this time that Spain is treating non-declared assets abroad as unjustified capital gains, and that penalties for getting the tax form wrong are far too harsh?

In the words of the EU’s Advocate General, “Spanish regulations effectively constitute a restriction on capital movements, since they may dissuade tax residents in Spain from investing in other Member States, or prevent or limit their ability to do so.

“However, this restriction may be justified by the objectives pursued in the fight against tax fraud and evasion.”

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MONEY

Rampant branch closures and job cuts help Spain’s banks post huge earnings

Spain’s biggest banks this week reported huge profits in 2021 and cheered their return to recovery post-Covid, but ruthless cost-cutting in the form of thousands of layoffs, hundreds of branch closures and the removal of many ATMs have left customers in Spain suffering, in this latest example of ‘Capitalismo 2.0’. 

A man withdraws cash from a Santander branch in Madrid.
More than 3,500 Santander workers lost their jobs in Spain in 2021 and a further 2,000 more employees working for Santander across Europe were also laid off. Photo: PHILIPPE DESMAZES / AFP

Spanish banking giant Santander on Wednesday said it has bounced back from the pandemic as it returned to profit last year, beating analyst expectations and exceeding its pre-COVID earnings.

Likewise, Spain’s second-largest bank BBVA said on Thursday that it saw a strong rebound in 2021 following the Covid crisis, tripling its net profits thanks to a recovery in business activity.

It’s a similar story for Unicaja (€137 million profit in 2021), Caixabank (€5.2 billion profit thanks to merge with Bankia), Sabadell (€530 million profit last year), Abanca (€323 million profit) and all of Spain’s other main banks.

This may be promising news for Spain’s banking sector, but their profits have come at a cost for many of their employees and customers. 

In 2021, 19,000 bank employees lost their jobs, almost all through state-approved ERE layoffs, meant for companies struggling financially.

BBVA employees protest against layoffs in May 2021 in Madrid. Spain’s second-largest bank BBVA is looking to shed 3,800 jobs, affecting 16 percent of its staff, in a move denounced by unions as “scandalous”. (Photo by GABRIEL BOUYS / AFP)

Around 11 percent of bank branches in Spain have also been closed down in 2021 as part of Spanish banks’ attempts to cut costs, even though they’ve agreed to pay just under €5 billion in compensation.

Rampant branch closures have in turn resulted in 2,200 ATMs being removed since the Covid-19 pandemic began, even though the use of cajeros automáticos went up by 20 percent in 2021.

There are now 48,300 ATMs in Spain, levels not seen since 2001.

READ MORE:

Apart from losses caused by the coronavirus crisis, Spain’s financial institutions have justified the lay-offs, branch closures and ATM removals under the premise that there was already a shift to online banking taking place among customers. 

But the problem has been around for longer in a country with stark population differences between the cities and so-called ‘Empty Spain’, with rural communities and elderly people bearing the brunt of it. 

 

Caixabank laid off almost 6,500 workers in the first sixth months of 2021. Photo: ANDER GILLENEA/AFP

Just this month, a 78-year-old Valencian man has than collected 400,000+ signatures in an online petition calling for Spanish banks to offer face-to-face customer service that’s “humane” to elderly people, spurring the Bank of Spain and even Spain’s Prime Minister Pedro Sánchez to publicly say they would address the problem.

READ MORE: ‘I’m old, not stupid’ – How one Spanish senior is demanding face-to-face bank service

It’s worth noting that between 2008 and 2019, Spain had the highest number of branch closures and bank job cuts in Europe, with 48 percent of its branches shuttered compared with a bloc-wide average of 31 percent.

Below is more detailed information on how Santander and BBVA, Spain’s two biggest banks, have reported their huge profits in 2021.

Santander

Driven by a strong performance in the United States and Britain, the bank booked a net profit of €8.1 billion in 2021, close to a 12-year high. 

It was a huge improvement from 2020 when the pandemic hit and the bank suffered a net loss of €8.7 billion after it was forced to write down the value of several of its branches, particularly in the UK. It was also higher than 2019, when the bank posted a net profit of €6.5 billion.

Analysts from FactSet were expecting profits of €7.9 billion. 

“Our 2021 results demonstrate once again the value of our scale and presence across both developed and developing markets, with attributable profit 25 per cent higher than pre-COVID levels in 2019,” said chief executive Ana Botin in a statement.

Net banking income, the equivalent to turnover, also increased, reaching €33.4 billion, compared to €31.9 billion in 2020. This dynamic was made possible by a strong increase in customer numbers, with the group now counting almost 153 million customers worldwide. 

“We have added five million new customers in the last 12 months alone,” said Botin.

Santander performed particularly well in Europe and North America, with profits doubling in constant euros compared to 2020. In the UK, where Santander has a strong presence, current profit even “quadrupled” over the same period to €1.6 billion.

Last year’s net loss was the first in Banco Santander’s history, after having to revise downwards the value of several of its subsidiaries, notably in the UK, because of COVID.

The banking giant, which cut nearly 3,500 jobs at the end of 2020, in September announced an interim shareholder payout of €1.7 billion for its 2021 results. “In the coming weeks, we will announce additional compensation linked to the 2021 results,” it said.

BBVA

The group, which mainly operates in Spain but also in Latin America, Mexico and Turkey, posted profits of €4.65 billion ($5.25 billion), up from €1.3 billion a year earlier.

The result, which followed a solid fourth quarter with profits of €1.34 billion, was higher than expected, with FactSet analysts expecting a figure of €4.32 billion .

Excluding non-recurring items, such as the outcome of a restructuring plan launched last year, it generated profits of 5.07 billion euros in what was the highest figure “in 10 years”, the bank said in a statement.

In 2020, the Spanish bank saw its net profit tumble 63 percent as a result of asset depreciation and provisions taken against an increase in bad loans due to the economic fallout of the virus crisis.

“The economic recovery over the past year has brought with it a marked upturn in banking activity, mainly in the loan portfolio,” the bank explained, pointing to a reduction of the provisions put in place because of Covid.

In 2021, BBVA added a “record” 8.7 million new customers, largely due to the growth of its online activities. It now has 81.7 million customers worldwide.

The group’s net interest margins also rose 6.1 percent year-on-year to €14.7 billion, said the bank, which is undergoing a cost-cutting drive.

So far, it has axed 2,935 jobs and closed down 480 branches as the banking sector undergoes increasing digitalisation and fewer and fewer transactions are carried out over the counter.

At the end of 2020, BBVA sold its US unit to PNC Financial Services for nearly 10 billion euros and decided to reinvest some of the funds in the Turkish market.

In November, it launched a bid to take full control of its Turkish lending subsidiary Garanti, offering €2.25 billion ($2.6 billion) to buy the 50.15 percent stake it does not yet own.

The deal should be finalised in the first quarter of 2022.

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