Ever since the Spanish government rushed the introduction of the 720 model for the declaration of assets and rights abroad, the crypto community has been demanding, and rightly so, a review of the viability and even the legality of this procedure, which restricts the financial freedom of taxpayers. This has already led to a case being brought against Spain by the European Commission. Let's see how the declaration of cryptocurrencies abroad (form 720) is approached.
The declaration of assets and rights abroad entails the obligation for tax residents in Spain to declare and report the holding of this type of assets for an amount greater than 50,000 euros. By default, cryptocurrencies are not physically located anywhere, but as they are "deposited" in an exchange they can be considered as assets and rights abroad. Hence the nervousness and lack of clarity in framing the holding of cryptocurrencies within this tax obligation.
The poor track record of this imposition became known as it lacked sufficient legal and fiscal basis within the European Union and, despite the lack of information and the fear of sanctions, many users who owned cryptocurrencies and investments abroad, via Exchange or Cold Wallet, were willing to pay taxes for an act that today we can confirm bordered on immorality.
The ruling on case C-788/19 questioned the viability and compatibility of Model 720 with European Union law. Today the CJEU has ruled and declared Model 720 incompatible with the principle of free movement of capital and this will force Spain to take the appropriate measures to operate within the regulatory framework of the European Union.
What does this resolution mean?
This resolution is a further step towards mass acceptance into the decentralised system and goes some way towards clearing up the fiscal malpractice that citizens often suffer.
Despite the expected outcome of the ruling, it will now be up to the Treasury and Spain to respond to taxpayers who have declared these assets abroad, especially in the last year.
Taking into account the heavy taxation suffered in Spain and the lack of clarity and information that we have had in recent years, and remembering that this is not over yet, Spain continues with its tax collection efforts and has developed a new model. The 721 model that will result in a new regime of taxation for companies and individuals.
If the declaration of holdings or operations with cryptocurrencies is already a very complex effort for Spaniards who own, offer, develop, manage or hold cryptocurrencies, making an exhaustive tax and accounting report detailing the operations and balances with the risk of being sanctioned, the very declaration of holding assets and rights abroad means a loss of attractiveness for foreign investors with promising projects in the sector. Not to mention the flight of investors that Spain has been suffering for almost two years.
Digital assets in Spain
We remind you that in Spain there is not even a legal or tax definition of digital assets and that, pending the entry into force of the MiCA Regulation with EU-wide scope, which will strengthen the necessary Prevention of Money Laundering and Terrorist Financing, it is no less true that Technology and Innovation deserve a neutral regulation with a central focus on the technology itself and not impulses, sometimes unfounded, to tax or limit disruptive ideas and foreign investment.
On the other hand, Spain intends to promote models 172 and 173, obliging Spanish companies that offer services on cryptocurrencies to Spaniards, even if they have their headquarters in another jurisdiction.
In conclusion, the regulation of crypto-assets in Spain is focusing on the fiscal sphere and government empowerment over the information of this type of investor, without forgetting the natural protection of investors, consumers or users, such as those related to advertising, as the CNMV stated a few days ago, as well as the preventive policies of Money Laundering and Terrorist Financing.
We will continue to keep you informed of all the latest developments in crypto-asset regulation on our blog.
