Should the Model 720 be presented in Spain for the obligation of information on securities managed or obtained abroad? A practical case

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Should the Model 720 be presented in Spain for the obligation of information on securities managed or obtained abroad? A practical case

Two tax residents in Spain have 50% each of the shares of a company resident in the Principality of Andorra. It is presumed that the company is valued at € 80,000 in total. These two people do not have more assets abroad.

The question arises of the obligation, for each of the two partners, to present the Model 720 in Spain.

To respond to the first approach, it is necessary to assess whether the assumption of the presentation of the 720 model occurs in Spain (emphasis will be placed on the specific case in which it hasn’t to be presented, which is the most favorable situation for the shareholders in this matter of fact). As in the present case we face the question of whether there is an obligation to provide information on securities managed or obtained abroad, we must turn to article 42. Ter of Spanish Royal Decree 1065/2017.

This provision establishes in its 4th point that the obligation of information provided in this article (which is done through the model 720) “will not be required when the securities or rights representing the participation in any type of legal entity (the company in this case), do not exceed, jointly, the value of 50,000 euros”.

It must be interpreted, in this sense, that the value that should not exceed 50,000 – € corresponds to the value that each individual has over the shares of the company, and not the total value of the company.

In accordance with the mentioned articles, it is necessary to make an assessment of the shares that these two individuals have in the indicated Andorran company. The same article that has been cited verifies that the valuations of the sections included in this, will be calculated with the rules established in Spanish Law 19/1991 of Wealth Tax.
Insofar as it is not a company with representative securities traded on organized markets or other specific features, it is necessary to refer to article 16 on other securities that represent the participation in equity of any type of entity.

This article indicates that the valuation of this type of participations will be carried out at the theoretical value resulting from the last approved balance, provided that it has been submitted to review by auditors. If this is the case of the company, the valuation must be made in accordance with the last approved and audited balance sheet available.

The theoretical value is obtained by dividing the net equity figure by the number of shares, by performing the following operation:

Theoretical value = Net equity / Number of shares in which the share capital is divided.

However, in case the last approved balance has not been audited, the valuation should be made for the greater value of the following three

  1. The nominal value.
  2. The theoretical value resulting from the last approved balance.
  3. The result of capitalizing at a rate of 20% the average of the benefits of the three fiscal years closed prior to the date of accrual of the tax.

Consequently, if in fact the two individuals have 50% of the shares of the Andorran company, and in accordance with the appropriate valuation criteria (taking as a basic assumption that it is the theoretical value resulting from the last approved and audited balance sheet), the total shares of the company being valued, for example, at 80,000 euros as hypothesis, both partners would own 40,000 euros in securities of this company.

Thus, by the fact of meeting the 4th point of article 42. Ter of Spanish Royal Decree 1065/2017, neither of the two partners would be required to present the 720 model in Spain, since the securities representing the participation in the company Andorran, for each of the partners, would not exceed 50,000 euros in value.

By Fiscal Department  Augé Legal & Fiscal

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