The disproportionate sanctions of the Modelo 720, or when punishment becomes counterproductive

Brussels is to investigate Spain’s “disproportionate” sanctions regime, and the “non-applicability” of Modelo 720 for declaring assets and goods located overseas. Mariano Rajoy’s government approved this compulsory model following the announcement of a fiscal amnesty. “If the amnesty was the carrot, the Modelo 720 is the stick for those who failed to participate in this measure,” said Albert Sagués, a lecturer on the Master in Tax Consultancy at UPF Barcelona School of Management.

“The punishment is completely disproportionate”. It was passed as a demonstration of strength and maximum pressure to force standardization and the consequent declaration of overseas assets and any profit they generate. However, the real consequence is more tax evasion because if the penalty is higher than the value of the assets, people will try harder to hide them and avoid the Tax Authorities as far as possible,” says Sagués.

According to Sagués, a better solution would be to offer these individuals other ways -not cheap, but not prohibitively expensive- in which to regulate their situation. There must be a punishment, but to be effective it cannot be prohibitive, otherwise the system will cause people to continue avoiding taxes, even if they may not want to, he claimed.