Technological advances, increasingly sophisticated, facilitate the use by organized crime of the deep internet for the trade and traffic of all kinds of illicit goods, as well as the massive use of cryptocurrencies as means of payment, which continues to represent one of the today’s most demanding challenges, urgently requiring rigorous control.
The increase in the use of digital money and the trend to reduce the use of cash has led to an increase in the use of cryptocurrencies as means of payment, with more than 6,500 cryptocurrencies in circulation at the end of 2020.
Recently, the Council of Ministers approved the Draft Law on measures to prevent and fight tax fraud, which will now begin its parliamentary process. By virtue of it, rules are established against tax avoidance practices that directly affect the functioning of the internal market, the modification of various tax rules and the regulation of gambling, in its article 11.22, it expressly incorporates the obligation to declare cryptocurrencies in model 720 “Declaration on assets and rights located abroad”.
In this way and with the aim of adjusting its content to the new circumstances in the economic world, cryptocurrencies should be included in model 720 of which it is the owner. The cryptocurrencies for which the status of authorized or beneficiary or in any other way has power of disposal must also be included, guarded by persons or entities that provide services to safeguard private cryptographic keys on behalf of third parties, to maintain, store and transfer virtual currencies.
In addition, with the aim of reinforcing the tax control of taxable events related to virtual currencies or cryptocurrencies, two new information obligations. Such obligations refer to the holding and operation of virtual currencies, included in the thirteenth additional provision of Law 35/2006.
On the one hand, the Obligation to provide information to the Tax Agency on the balances maintained by holders of virtual currencies, in charge of those who provide services to safeguard private cryptographic keys on behalf of third parties that enable the use and possession of such currencies, including exchange service providers of the aforementioned currencies if they also provide the aforementioned holding service.
Likewise, for these same persons or entities, the Obligation to provide information to the Tax Agency about virtual currency transactions (acquisition, transmission, exchange, transfer, collections and payments) in which they intervene. This same obligation also extends to those who make initial offerings of new cryptocurrencies.
But the control measures of the Tax Agency on cryptocurrencies do not end here. In the Resolution of January 19, 2021, of the General Directorate of the State Tax Administration Agency, which approves the general guidelines of the Annual Tax and Customs Control Plan for 2021, delves into this area by establishing the following actions:
- Obtaining information from various sources about operations carried out with cryptocurrencies. It is expected to be incorporated into the model of goods and rights abroad, as well as the establishment of an autonomous information obligation on cryptocurrencies.
- Systematization and analysis of the information obtained, in order to facilitate the actions to control the correct taxation of the operations carried out and the origin of the funds used in the acquisition of cryptocurrencies.
- Promote international cooperation and participation in international forums to obtain information on operations with cryptocurrencies and other virtual assets.
A specific model of the Tax Agency
This trend now included in Spanish legislation had already been monitored for a long time by the European Parliament in their July 2018 report Legal context and implications for financial crimes, money laundering and tax evasion or the United States Department of the Treasury in its report of December 18, 2020.
The informative declaration on assets and rights abroad (model 720) is a mandatory declaration if the taxpayer, natural or legal person residing in Spanish territory, has assets and rights abroad that exceed 50,000 euros in any of the groups that make up the declaration, therefore having no obligation to report those groups in which the sum of the assets and rights does not exceed said amount.
The law divides the assets and rights to report into three different groups, establishing for each of them some exemptions when reporting on them. These groups are:
- Accounts in financial entities located abroad.
- Securities, rights, insurance and income deposited, managed or obtained abroad.
- Real estate and rights to real estate located abroad.
Penalties for non-compliance
The penalties applicable to this model are substantial and object of continuous controversy in its application, whose normative development is included in the eighteenth additional provision of the General Tax Law, establishing the regime of infractions and sanctions regarding the obligation to inform about assets and rights located abroad.
This regime establishes the infractions and sanctions for each of the three information obligations, so that minimum sanctions are set for each of them. By way of example, in the event that the informative return is not presented, there is an obligation to present it with respect to the three information obligations mentioned above, the minimum penalty for failure to present form 720 would be 30,000 euros. If a single information obligation is breached, the minimum penalty would be 10,000 euros.
The deadline for submitting it to the Tax Agency is from January 1 to March 31, 2021, for the data to be declared for the year 2020.
In LABE Lawyers there is an area specifically dedicated to cryptocurrencies, providing solutions from both the legal and fiscal point of view. This innovative firm, whose main headquarters are in the Paseo de la Castellana, 30, in Madrid, has a wide professional career in advising cryptocurrency operations, adapting the solution to the specific case after a detailed study of the situation. If you operate with cryptocurrencies and you need experts to help you in the various aspects of its operations, contact LABE Lawyers.
Oscar Garcia is director of the Tax Department of LABE Abogados.