A new tax return form 720 (“Form 720”), has been approved by Order HAP/72/2013 of 30 January 2013 (the “Order”), which entered into force on 1 February 2013. By means of this Form 720 obliged taxpayers must inform the Spanish tax authorities of their assets and rights located outside Spain. The deadline for filing the Form 720 corresponding to 2012 expires on 30 April 2013. The Order is the final step of the implementation procedure of the new anti-tax fraud reporting obligation passed by Law 7/2012 of 29 October 2012, which incorporated Additional Provision 18 to the General Tax Law (“Law 7/2012”). These legal reporting obligation was regulated in more detail by new articles 42 bis, 42 ter and 54 bis of Royal Decree 1065/2007 (the "Royal-Decree"), approved by Royal-Decree 1558/2012, of 15 November; and has been now specified in Form 720 approved by the Order.
The new reporting obligation applies exclusively, as stated in Law 7/2012, to assets and rights located or deposited outside Spain. As it refers to shares and units issued by collective investment undertakings (“CIUs”), the reporting obligation would apply to shares and units deposited outside Spain. However, the ambiguous wording of both the Royal-Decree and the Order may lead to the conclusion that the reporting obligation also applies to shares and units deposited in Spain, but issued by a CIU “located” (situada) outside Spain, even if it continues to be uncertain when a CIU is “located” in this context, as it may refer to the CIU’s country of incorporation or of tax residence, its registered address, where the securities are traded, or even the jurisdiction from which the CIU is being managed.
In light of this uncertainty and of the serious consequences of the infringement of the new reporting obligations, without further clarifications from the Spanish tax authorities on this point, investors should be prepared to file the 720 Form and report their ownership of shares and units issued by non-Spanish CIUs, even if deposited in Spain, according to the 720 Form requirements.
Indeed, both the Order and the Royal-Decree specifically refer to the obligation to report on shares and units in the share capital or equity of CIUs located abroad. This could be interpreted in such a way that the reporting obligations apply not only with respect to the ownership of shares and units deposited outside of Spain, but also when the CIUs themselves are “located” abroad, regardless of the jurisdiction in which the shares or units are deposited. Both the Order and the Royal-Decree include this specific rule that applies exclusively to shares and units in CIUs, which is different from the more general Royal-Decree rule that refers to any securities or rights located abroad issued by any legal entity. The latter is a more comprehensive rule which content and scope is distinctive and which would not include investments in CIUs, as the reporting obligations in this respect are subject to specific regulations, as discussed.
The Law 7/2012 includes a very general description of the reporting obligations, so its terms are of little help to determine if the specific reporting obligations covered by the Royal-Decree and the Order, as they refer to investments in CIUs, are meant to apply not only to shares and units deposited outside of Spain, but also to shares and units issued by CIUs “located” outside Spain, even if the securities are deposited in Spain.
Notwithstanding this, in our view, to conclude that the reporting obligations also apply to shares or units deposited in Spain when issued by CIUs “located” outside Spain (as ambiguous as the definition of “to be located” may be), would be contrary to the aim of the Law and superfluous, as Spanish tax rules already include other mechanisms that ensure a proper reporting of information in these cases (such as tax form 189, which must be filed by financial entities entrusted, among others, with the distribution of units in UCITS and other securities, or even form D-6, which must be filed before the General Directorate of Commerce and Investments).
Moreover, such position would generate an unjustified restriction to the free provision of services and free movement of capital in the European Union, as set out in Articles 56 and 63 of the Treaty of Functioning of the European Union, respectively. Indeed, it could have a deterrent effect as regards the investments made by Spanish residents in other Member States, derived from the burden imposed on the particular investor to provide information and the significant sanctions that could result from the breach of such an obligation.
As for the possible justification of the measure under any of the mandatory requirements based on the public interest which have been recognized by the Court of Justice (including the effectiveness of fiscal supervision or the cohesion of national tax systems), the measure would have to be necessary and proportionate, which seems to be unlikely in the present case. First, as it has been stated before, to the extent that the information was already available for the Spanish tax authorities through the existing mechanisms, it could be considered to be superfluous. Secondly, the measure does not contemplate the possibility to gain access to the information through alternatives which are less deterrent or burdensome for the particular investor, such as bilateral or multilateral Treaties concluded with other Member States.
In any case, considering the doubts generated by the ambiguous wording of the Order and the Royal-Decree, the Spanish tax authorities should clarify this matter as soon as possible, especially taking into account the large number of Spanish resident investors which could be affected by the extension of this reporting obligation to shares or units deposited in Spain but corresponding to UCITs “located” abroad and who may be therefore obliged to file Form 720 in this coming month of April, as they could incur in very severe penalties otherwise.
 Taxpayers obliged to file Form 720 are those natural and legal persons resident in Spain, those non-residents which have a permanent establishment in Spain and those special entities specified in article 35.4 of the General Tax Act.
 For further details on this, please refer to our previous newsletter number 8, on the measures approved for the prevention of tax fraud in Spain by Law 7/2012.
 It must be noted that failure to comply with these reporting obligations results in very onerous penalties.