CFE Tax Advisers Europe has issued an Opinion Statement prepared by the CFE ECJ Task Force on the CJEU decision of 27 January 2022 in Case C-788/19, European Commission v Kingdom of Spain (Form 720), on the lack of proportionality of the consequences derived from the failure to provide information concerning assets or rights held in other Member States of the European Union or the EEA.
The Court held that the Kingdom of Spain had failed to fulfil its obligations under articles 63 TFEU and 40 of the EEA Agreement by imposing disproportionate measures on the failure to duly comply with the obligation to provide information concerning assets and rights located abroad. The Spanish legislation provided for very serious economic consequences, such as the taxation of the value of not duly declared assets and rights as unjustified capital gains with no statute of limitations period. The legislation also provided for a proportional fine of 150% of the tax calculated on amounts corresponding to the value of those assets or those rights, which could be applied concurrently with flat-rate fines. At the same time, such flat-rate fines were much higher than the penalties imposed in respect of similar infringements in a purely national context, not being capped by any amount. Commission v. Spain is an important case as it addresses a number of relevant issues regarding the limits that the Member States must respect when implementing measures to counteract international tax avoidance and evasion.
Proportionality plays an important role in ensuring the compatibility of the measures designed by the Member States to counteract tax evasion and abuse, and in particular, its scope, extent, consequences and intensity. However, a more precise analysis of the proportionality principle would require one to distinguish the reaction against those situations that can be considered tax evasion from those that can only imply abuse of rights or tax avoidance instead of taking an overall approach and analysis.
This is an important case for the recognition of rights derived from the EU fundamental freedoms limiting the discretionary and broad exercise of taxing powers by the Member States to counteract potential tax evasion and abuse. The CFE stresses the need to ensure the effectiveness of the rights enshrined by the TFEU and the EEA Agreements, by promoting decisions within a shorter period of time and by reinforcing the access to domestic remedies available to restore the primacy of EU Law in infringements by the Member States. Limitation periods, restrictions, and legal constraints under domestic legislation to use available remedies may hamper the aphorism ubi ius ibi remedium.
It is justified to guarantee the effectiveness of tax controls and to provide tax administrations with the necessary legal mechanisms to combat tax evasion and abuse, but this must be done with full respect for the fundamental rights and freedoms of taxpayers.