The Spanish Supreme Court has dealt a new setback to compensation claims linked to the controversial 720 modelespecially in cases with assets abroad such as Andorra. In a judgment of April 8, the high court rejects the request of a taxpayer who claimed more than 79,000 euros for damages derived from the application of a regulation that was later partially annulled by European justice.
The analyzed case has a clear connection with the Principality, as part of the undeclared assets were in Andorra. This circumstance reflects a recurrent reality in the years after the financial crisiswhen many Spanish taxpayers with heritage outside the country –especially in nearby jurisdictions like Andorra or Switzerland– were affected by the Model 720 penalty regime.
The taxpayer had presented in 2018 a supplementary income tax return corresponding to the 2013 financial yearin which he included as a Unjustified patrimonial gain on the assets he had in Andorra. This regularization, derived from the regulations in force at that time, entailed the payment of surcharges and interest. Years later, as a result of the judgment of the Court of Justice of the European Union (CJEU) of January 2022, tried to recover these amounts arguing that the Spanish sanctioning system was contrary to Community law.
It must be remembered that the The CJEU found some key elements of the 720 model illegal, such as the practice of non-statutory limitations on tax obligations associated with undeclared assets abroad and the high disproportion of penalties. This resolution opened the door to an avalanche of claims by taxpayers who had been penalized under this regime.
Despite this, the Spanish Supreme Court once again closes the door to these compensation claims. In its resolution, it concludes that the necessary requirements for demand patrimonial responsibility from the legislative State. In particular, consider that a “sufficiently serious infringement” of European Union law cannot be proven, an essential condition for a claim of this type to flourish.
The magistrates argue that the Spanish regulations, approved in 2012 in a context of strong pressure to combat tax fraud and increase public revenues, were not manifestly contrary to European law at the time. In fact, they emphasize that the question presented a high legal complexity and that there was no previous clear doctrine of the CJEU warning of its incompatibility.
In addition, the judgment highlights that the Luxembourg Court did not invalidate the entire Model 720 systembut only some specific aspects related to the proportionality of the sanctions and the treatment of the prescription. This reinforces according to the Supreme Court, the idea that one cannot speak of an obvious and serious violation of European law by the Spanish legislator.
Another key element in the decision is the response of the Spanish State after the European ruling. The court emphasizes that the government quickly modified the regulations in 2022 itself to adapt them to the criteria of the European Court of Justice, eliminating the aspects considered illegal. This “diligent” behavior works against the appellant’s thesis.
The resolution is part of a line of jurisprudence consolidated in recent months. The Supreme Court has already issued several similar rulings in which it refuses to compensate taxpayers affected by the 720 formdespite the European condemnation. This criterion reduces considerably the options for the success of future claims, including those related to assets located in Andorra.
For the Andorran context, the decision has special relevance. For years, the Principality was one of the most common territories for the location of assets not declared by Spanish taxpayers. Regulatory pressure and changes in international tax cooperation have changed this scenario, however the effects of the 720 model continue to generate litigation.
Finally, the Supreme Court not only dismisses the claim, but also imposes legal costs on the plaintiff, with a limit of 4,000 euros. An element that can have an additional deterrent effect for others affected who value initiating similar actions.
RESTRICTIVE INTERPRETATION
With this decision, Spanish justice consolidates a restrictive interpretation of the State’s patrimonial responsibility in cases linked to the 720 modeleven when there has been one clear censure by European justice. A scenario that leaves little to be done claims arising from one of the most controversial tax instruments of the last decadeand which will predictably mark the judgment of the courts in similar future litigation, limiting the expectations of economic recovery for those affected.
