In Case C‑788/19

Arguments of the parties

25According to the Commission, failure to fulfil the obligation to provide information or the partial or late presentation of ‘Form 720’ has consequences which are disproportionate in the light of the objectives pursued by the Spanish legislature, in that they give rise to an irrebuttable presumption that undeclared income has been obtained, equal to the value of the assets or rights at issue, resulting in the taxation of the corresponding sums in respect of the taxpayer, without the latter being able to rely on the rules on limitation periods or to avoid taxation by arguing that he or she has, in the past, paid the tax due in respect of those assets or rights.

26The Kingdom of Spain disputes that there is an irrebuttable presumption of tax evasion. It submits that the concealment of the assets or rights in question and the failure by the taxpayer to pay the corresponding tax must be established in order for the failure to declare or the late declaration of those assets or rights by means of ‘Form 720’ to give rise to a presumption that the taxpayer has received undeclared income. The Kingdom of Spain also disputes that there is no limitation rule. In its view, Spanish law merely contains a specific feature as regards the starting point of the limitation period, which, according to the actio nata rule, does not begin to run until the date on which the tax authority becomes aware of the existence of the assets or rights in respect of which the obligation to provide information has not been complied with, or has been complied with partially or late.

Findings of the Court

27In accordance with settled case-law, the mere fact that a resident taxpayer has assets or rights outside the territory of a Member State cannot give rise to a general presumption of tax evasion and avoidance (see, to that effect, judgments of 11March 2004, de Lasteyrie du Saillant, C‑9/02, EU:C:2004:138, paragraph51, and of 7November 2013, K, C‑322/11, EU:C:2013:716, paragraph60).

28Moreover, a provision which presumes the existence of fraudulent behaviour on the sole ground that the conditions laid down therein are satisfied, without giving the taxpayer any opportunity to rebut that presumption, goes, in principle, beyond what is necessary in order to achieve the objective of combating tax evasion and avoidance (see, to that effect, judgments of 3October 2013, Itelcar, C‑282/12, EU:C:2013:629, paragraph37 and the case-law cited, and of 26February 2019, X (Controlled companies established in third countries), C‑135/17, EU:C:2019:136, paragraph88).

29It is apparent from Article39(2) of the Law on personal income tax and Article121(6) of the Law on corporate tax that a taxpayer who has not complied with the obligation to provide information or who has done so partially or late may avoid the inclusion in the basis of assessment of the tax due in the earliest tax year which is not time-barred, as unjustified capital gains, of amounts corresponding to the value of that tax payer’s assets or rights not declared by means of the ‘Form 720’ by providing evidence that those assets or rights were acquired through declared income or income obtained during tax years in respect of which the tax payer was not subject to tax.

30The Kingdom of Spain also contends, without being effectively contradicted by the Commission, that the fact that the taxpayer has not retained proof of the tax paid in the past in respect of sums used to acquire undeclared assets or rights by means of ‘Form 720’ does not automatically lead to the inclusion of those sums in the basis of assessment of the tax payable by that tax payer as unjustified capital gains. That Member State notes that, under the general rules on the shifting of the burden of proof, it is, in all cases, for the tax authorities to prove that the taxpayer has not fulfilled his or her obligation to pay tax.

31It follows from the foregoing, first, that the presumption of acquisition of unjustified capital gains established by the Spanish legislature is not based solely on the holding of assets or rights abroad by the taxpayer, since its triggering is linked to the taxpayer’s failure to comply with, or late compliance with their specific declaration obligations in respect of those assets or rights. Secondly, according to the information provided to the Court, the taxpayer may rebut that presumption not only by proving that the assets or rights at issue were acquired by means of declared income or income obtained during tax years in respect of which he or she was not liable to tax, but also, where the taxpayer is unable to provide such proof, by arguing that he or she has complied with his or her obligation to pay the tax in respect of the income used to acquire those assets or rights, which it is for the tax authorities to determine.

32In those circumstances, the presumption introduced by the Spanish legislature does not appear disproportionate in relation to the objectives of guaranteeing the effectiveness of fiscal supervision and the prevention of tax evasion and avoidance.

33The fact that it is impossible for the taxpayer to rebut that presumption by arguing that the assets or rights in respect of which he or she has not complied with the obligation to provide information, or has done so partially or late, were acquired during a prescribed period cannot invalidate that conclusion. Reliance on a rule on limitation is not such as to call into question a presumption of tax evasion or avoidance, but merely serves to prevent the consequences that the application of that presumption should entail.

34It must, however, be ascertained whether the choices made by the Spanish legislature with regard to limitation do not, in themselves, appear disproportionate in the light of the objectives pursued.

35In that regard, it should be noted that Article39(2) of the Law on personal income tax and Article121(6) of the Law on corporate tax in fact allow the tax authorities to make an additional assessment of the tax due in respect of amounts corresponding to the value of assets or rights situated abroad and not declared, or declared partially or late, using ‘Form 720’, without that power to make an additional assessment being subject to any time limit. This is true even if the view is taken that the Spanish legislature merely intended, pursuant to the actio nata rule, to defer the starting point of the limitation period and to set it at the date on which the tax authorities first became aware of the existence of assets or rights held abroad, since that choice has the effect, in practice, of allowing the authorities to tax income corresponding to the value of those assets for an indefinite period, without taking account of the tax year or year in respect of which the taxation of the corresponding amounts was normally due.

36It is apparent, moreover, from Article39(2) of the Law on personal income tax and from Article121(6) of the Law on corporate tax that failure to comply with or late compliance with the obligation to provide information results in the inclusion in the basis of assessment of the tax payable by the tax payer of amounts corresponding to the value of undeclared assets or rights which are located abroad, including where those assets or those rights became part of the taxpayer’s assets in a year or tax year already time-barred on the date on which he or she was required to comply with the obligation to provide information. By contrast, a taxpayer who has complied with that obligation within the prescribed period retains the benefit of the limitation period in respect of any concealed income used to acquire the assets or rights which he or she holds abroad.

37It follows from the foregoing not only that the measure adopted by the Spanish legislature entails an effect of non-applicability of any limitation period, but also that it allows the tax authorities to call into question a limitation period which had already expired vis-à-vis the taxpayer.

38Whilst the national legislature may introduce an extended limitation period with the aim of ensuring the effectiveness of fiscal supervision and combating tax evasion and avoidance connected with the concealment of overseas assets, provided that that period does not go beyond what is necessary to attain those objectives, having regard, inter alia, to the mechanisms for the exchange of information and administrative assistance between Member States (see judgment of 11June 2009, X and Passenheim-van Schoot, C‑155/08 and C‑157/08, EU:C:2009:368, paragraphs66, 72 and 73), the same is not true concerning the introduction of mechanisms amounting, in practice, to extending indefinitely the period during which taxation may take place or reversing a limitation period which has already expired.

39The fundamental requirement of legal certainty precludes, in principle, public authorities from being able to make indefinite use of their powers to put an end to an unlawful situation (see, by analogy, judgment of 14July 1972, Geigy v Commission, 52/69, EU:C:1972:73, paragraph21).

40In the present case, as has been stated, in paragraphs35 and 36 of this judgment, the possibility for the tax authorities to act without any temporal limitation, or even to call into question a limitation period which has already expired, results solely from the failure by the taxpayer to comply, within the prescribed periods, with the obligation to provide information relating to the assets or rights which that taxpayer holds abroad.

41By attaching such serious consequences to the failure to comply with a declaratory obligation, the choice made by the Spanish legislature goes beyond what is necessary to guarantee the effectiveness of fiscal supervision and to combat tax evasion and avoidance, without there being any need to consider the conclusions to be drawn from the existence of mechanisms for the exchange of information or for administrative assistance between Member States.

The proportionality of the fine of 150%

Arguments of the parties

42The Commission submits that, by penalising the failure to comply with, or late compliance with, the obligation to provide information with a proportional fine of 150% of the tax calculated on the amounts corresponding to the value of the rights or assets situated abroad, which is automatic and cannot be varied, the Spanish legislature introduced a disproportionate restriction on the free movement of capital.

43The Commission submits, in particular, that the rate of that fine is much higher than the progressive rates of the fine incurred in the event of a late declaration of taxable income in a purely national situation, which amount, according to the delay that is found to exist, to 5, 10, 15 or 20% of the duties payable by the taxpayer, even though, unlike the fine in a purely national situation, which is linked to the failure to comply with an obligation to pay tax, the fine of 150% penalises the mere non-compliance with a formal obligation to provide information, which does not generally involve the payment of additional tax.

44The Commission also states that, in its view, account cannot be taken of the possibility of variation provided for by a rescript of 6June 2017, since that rescript does not have the force of law and is subsequent to the date of the reasoned opinion. It points out that, in the absence of an investigation by the tax authorities, taxpayers who are unable to prove that their assets or rights abroad were acquired by means of declared and taxable income would automatically face a fine of 150%, which would be tantamount, once again, to introducing an irrebuttable presumption of tax evasion, and not taking any account of the overall tax liability borne by the taxpayer as a result of the concurrent application of the proportional fine of 150% with the flat-rate penalties provided for by the eighteenth additional provision to the General Tax Law.

45The Kingdom of Spain, for its part, considers that the proportionality of penalties is a matter for the national authorities alone to determine, since that issue has not been the subject of harmonisation at EU level. However, it submits that the purpose of the fine of 150% is to penalise failure to comply with an obligation to declare where there has been no adjustment of the corresponding tax, that is to say, acts of tax avoidance, and cannot, on that basis, be compared with the increases imposed in the event of a delay in making a declaration, which are intended solely to encourage taxpayers to comply with the time limits set.

46The Kingdom of Spain also considers that account should be taken of the possibility for variation afforded by the rescript of 6June 2017, the content of which is incorporated into the law retroactively, and of the general power of variation granted to the administrative authorities under national law, in accordance with the principle of proportionality.

47Finally, that Member State disputes the automatic nature of the fine of 150%, arguing that the fine can be imposed only where the constituent elements of the offence which it penalises are present, that the burden of proving the taxpayer’s guilt is always borne by the authorities and that that fine is not, in practice, imposed systematically. Moreover, in view of the characteristics of the fine of 150%, its proportionality should be assessed by taking into account the penalties incurred in the most serious cases of non-payment of a tax debt, which, in the event of an offence against the tax authorities, could go as far as the imposition of a fine of 600% of the amount of the tax payable by the taxpayer.

Findings of the Court

48As a preliminary point, it must be borne in mind that, although it is for the Member States, in the absence of harmonisation in EU law, to choose the penalties which appear to them to be appropriate for failure to comply with the obligations laid down by their national legislation in the field of direct taxation, they are, however, required to exercise that power in accordance with EU law and its general principles, and, consequently, in accordance with the principle of proportionality (see, to that effect, judgment of 12July 2001, Louloudakis, C‑262/99, EU:C:2001:407, paragraph67 and the case-law cited).

49As regards the proportionality of the fine of 150%, it is apparent from the first additional provision of Law 7/2012 that the application of Article39(2) of the Law on personal income tax or Article l34(6) of the consolidated text of the Law on corporate tax approved by Royal Legislative Decree 4/2004 of 5March 2004, the provisions of which were subsequently reproduced in Article121(6) of the Law on corporate tax, gives rise to the imposition of a fine of 150% of the total amount of tax due on the sums corresponding to the value of the assets or rights held abroad. That fine is applied concurrently with the flat-rate fines provided for in the eighteenth additional provision to the General Tax Law, which apply to each missing, incomplete, incorrect or false data item or set of data which should appear on ‘Form 720’.

50Although the Kingdom of Spain maintains that that proportional fine penalises failure to comply with a substantive obligation to pay tax, it is clear that its imposition is directly linked to the failure to comply with reporting obligations. Only taxpayers whose situation is covered by Article39(2) of the Law on personal income tax or Article121(6) of the Law on corporate tax are penalised, that is to say, taxpayers who have not complied with the obligation to provide information relating to their assets or rights abroad, or have done so partially or belatedly, to the exclusion of those who, while having acquired such assets or rights by means of undeclared income, have, on the contrary, complied with that obligation.

51Furthermore, although the Kingdom of Spain submits that, in practice, the imposition of the proportional fine of 150% is the result of a case-by-case assessment and that its rate may be varied, the wording of the first additional provision to Law 7/2012 suggests that the mere application of Article39(2) of the Law on personal income tax or Article121(6) of the Law on corporate tax is sufficient to lead to a finding of the existence of a tax offence, which is regarded as very serious and punishable by the imposition of a fine of 150% of the amount of the tax avoided, that rate not being expressed as a ceiling rate.

52In that regard, it should be made clear that the possibility for variation offered by a rescript of 6June 2017, subsequent to the reasoned opinion sent by the Commission to the Kingdom of Spain on 15February 2017, cannot be taken into account in the present action since, in accordance with settled case-law, the question whether a Member State has failed to fulfil its obligations must be determined by reference to the situation prevailing in the Member State at the end of the period laid down in the reasoned opinion (see, to that effect, judgment of 22January 2020, Commission v Italy (Directive on late payment), C‑122/18, EU:C:2020:41, paragraph58). The fact that the interpretation contained in that rescript is applied retroactively to the law has no bearing on that point.

53Finally, as the Commission points out, the very high rate of the proportional fine incurred should be noted, which gives it a highly punitive nature and may lead, in a number of cases, taking account of the concurrent application with the flat-rate fines provided for elsewhere by the eighteenth additional provision to the General Tax Law, to an increase of the total amount of the sums payable by the taxpayer for failure to comply with the obligation to provide information relating to that taxpayer’s assets or rights overseas to more than 100% of the value of those assets or rights.

54In those circumstances, the Commission has established that, by imposing on the taxpayer in respect of failure to comply with his or her obligations to declare relating to the taxpayer’s assets or rights situated abroad a fine proportional to 150% of the amount of tax calculated on amounts corresponding to the value of those assets or those rights, which could be applied concurrently with flat-rate fines, the Spanish legislature caused disproportionate interference with the free movement of capital.

The proportionality of the flat-rate fines

Arguments of the parties

55Finally, in the Commission’s submission, it is a disproportionate restriction on the free movement of capital to impose, in the event of failure to comply with the obligation to provide information relating to assets or rights held abroad, or for partial or late compliance with that obligation, flat-rate fines at a higher rate than that imposed for similar infringements in a purely national context, without taking into account the information available to the tax authorities concerning those assets.

56In any event, the Commission submits that the fact that the failure to comply with or the partial or late compliance with the obligation to provide information, which is a purely formal obligation failure to comply with which does not cause any direct economic loss to the tax authorities, leads to the imposition of fines which are, as the case may be, 15, 50 or 66 times higher than those imposed on similar infringements in a purely national situation, provided for in Articles198 and 199 of the General Tax Law, is sufficient to establish that the amount of those fines is disproportionate.

57While agreeing that the flat-rate fines provided for by the eighteenth additional provision to the General Tax Law penalise failure to comply with a formal obligation, failure to comply with which does not cause the tax authorities direct economic loss, the Kingdom of Spain takes the view that the comparators identified by the Commission are not relevant. In its view, it is more appropriate to compare the flat-rate fines incurred in the event of failure to comply with or late compliance with the obligation to provide information with the fines incurred in the event of failure to comply with the ‘declaration of related transactions’, provided for by Spanish law, since that declaration also takes the form of an obligation to provide information relating to monetary data, which must be made by the taxpayer concerned by the information in question. That Member State is also of the opinion that the level of information available to the tax authorities regarding the assets held by a taxpayer abroad should not be taken into account in assessing the proportionality of the flat-rate fines incurred, which should be examined solely on the basis of the taxpayer’s conduct.

Findings of the Court

58According to the eighteenth additional provision to the General Tax Law, taxpayers are required to provide the tax authorities with a set of information relating to their assets or rights abroad, including immovable property, bank accounts, securities, assets or rights representing the share capital, own funds or assets of any type of entity or life and disability insurance which they hold outside Spanish territory. The fact that a taxpayer has declared incomplete, incorrect or false information to the tax authorities, has failed to provide them with the required information or has not done so within the time limits or in accordance with the prescribed forms is classified as a ‘tax offence’ and entails the imposition of flat-rate fines of EUR5000 per data item or set of data which is missing, incomplete, incorrect or false, with a minimum of EUR10000, and an amount of EUR100 per data item or set of data declared late or not declared digitally where so required, with a minimum of EUR1500.

59The eighteenth additional provision to the General Tax Law also provides that those fines may not be applied concurrently with the fines provided for in Articles198 and 199 of that law, which determine generally the penalties applicable to taxpayers who do not comply with their obligations to declare or who do so partially, late or not in the prescribed form. Under those provisions, in the absence of direct economic harm to the tax authorities, failure to submit a declaration within the prescribed period is, except in special cases, to be penalised by a flat-rate fine of EUR200, the amount of which is reduced by half in the event of late submission by the taxpayer, without a prior request from the tax authority. The submission of an incomplete, incorrect or false declaration is punishable by a flat-rate fine of EUR150 and the submission of a declaration that is not in the prescribed form by a flat-rate fine of EUR250.

60It follows from the foregoing that the eighteenth additional provision to the General Tax Law penalises failure to comply with mere obligations to declare or purely formal obligations connected with the possession, by the taxpayer, of assets or rights abroad by the imposition of very high flat-rate fines, since they apply to each data item or set of data concerned together with, as appropriate, a minimum amount of EUR1500 or EUR10000 and the total amount is not capped. Those flat-rate fines are also applied concurrently with the proportional fine of 150% provided for by the first additional provision to Law 7/2012.

61It also follows from the foregoing that the amount of those flat-rate fines is disproportionate to the amount of the fines incurred by taxpayers on the basis of Articles198 and 199 of the General Tax Law, which appear to be comparable in so far as they penalise failure to comply with obligations similar to those laid down by the eighteenth additional provision to the General Tax Law.

62Those characteristics are sufficient to establish that the flat-rate fines imposed by that provision introduce a disproportionate restriction on the free movement of capital.

63Having regard to all the foregoing considerations it must be held that:

–by providing that the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets and rights located abroad entails the taxation of undeclared income corresponding to the value of those assets as ‘unjustified capital gains’, with no possibility, in practice, of benefiting from limitation;

–by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to a proportional fine of 150% of the tax calculated on amounts corresponding to the value of those assets or those rights, which may be applied concurrently with flat-rate fines, and

–by subjecting the failure to comply with or the partial or late compliance with the obligation to provide information concerning assets or rights located abroad to flat-rate fines the amount of which is disproportionate to the penalties imposed in respect of similar infringements in a purely national context and the total amount of which is not capped,

the Kingdom of Spain has failed to fulfil its obligations under Article63 TFEU and Article40 of the EEA Agreement.