Important notice: This article is for general information only and does not constitute legal or tax advice. Every tax situation is unique — contact Jacob Salama for personalised advice.
The End of Financial Privacy Between Israel and Spain
Since 2017, Israel has participated in the OECD's Common Reporting Standard (CRS) — the multilateral framework for automatic exchange of financial account information between tax authorities. Spain is a CRS participating jurisdiction. This means that every year, the Israeli Tax Authority (ITA) transmits information on Israeli financial accounts held by Spanish tax residents directly to the Spanish Agencia Estatal de Administración Tributaria (AEAT).
The practical consequence is stark: the AEAT now has access to Israeli banking data that was previously invisible. Israeli accounts at Bank Hapoalim, Bank Leumi, Mizrahi-Tefahot, Bank Discount, First International Bank of Israel (FIBI), and all other Israeli financial institutions are reportable. Investment portfolios, Kupat Gemel balances, insurance policies with investment components, and even some Keren Hishtalmut accounts may fall within the CRS reporting obligations.
How CRS Works: The Reporting Chain
The CRS reporting chain operates as follows:
- Israeli financial institutions identify account holders: Banks, brokers, fund managers, and insurance companies are required to perform due diligence to identify whether any account holder is a tax resident of a CRS-participating country other than Israel.
- Self-certification: When opening accounts, institutions ask customers to self-certify their tax residency. An Israeli who has moved to Spain but maintains Israeli accounts must certify Spanish residency — triggering reporting obligations.
- Annual reporting to the ITA: Israeli financial institutions report identified accounts to the ITA, which aggregates and transmits the data to the AEAT under the bilateral MCAA (Multilateral Competent Authority Agreement).
- AEAT cross-referencing: The AEAT receives the data and cross-references it against the taxpayer's IRPF return, Modelo 720, and other compliance submissions.
What the AEAT receives: For each reportable Israeli account, the AEAT receives the account holder's name, Spanish TIN (NIE or NIF), account number, account balance at year-end, and income credited during the year (interest, dividends, capital gains proceeds). The exchange is annual and automatic — no request is required from Spain.
Modelo 720: The Spanish Foreign Asset Declaration
Independent of CRS, Spanish tax residents have been obliged since 2012 to file Modelo 720 — a declaration of foreign assets exceeding threshold values. The three reportable categories are:
- Foreign bank accounts: Balances in accounts held at foreign institutions. Threshold: €50,000 aggregate across all foreign accounts.
- Foreign securities, shares, and rights: Includes shares in foreign companies, Israeli mutual funds, Israeli bonds, and rights in entities. Threshold: €50,000 aggregate value.
- Foreign real estate: Property situated outside Spain. Threshold: €50,000 aggregate value.
Israeli assets in all three categories are reportable. For Israeli nationals who have relocated to Spain, this typically means declaring:
- Israeli bank accounts (Bank Hapoalim, Bank Leumi, etc.)
- Israeli brokerage accounts (TASE portfolios, Israeli ETFs, Israeli bonds)
- Keren Hishtalmut and Kupat Gemel balances (if characterised as financial accounts or rights)
- Israeli real estate
- Pension gimel and bituach menahalim policies (if investment-linked)
Modelo 720 is filed electronically by 31 March each year for the prior 31 December position. It does not need to be filed every year — only in the year of first declaration and in any subsequent year where a declared value has increased by more than €20,000 in any category, or where a new category crosses the €50,000 threshold.
The CJEU Ruling and the Revised Penalty Regime
The original Modelo 720 penalty regime was disproportionately severe. Non-disclosure attracted:
- A fixed penalty of €5,000 per undisclosed data element (with a minimum of €10,000 per category)
- A tax penalty of 150% of the tax that would have been due if the asset had been declared as an unjustified capital gain under Article 39.2 LIRPF
- No statute of limitations on the underlying asset (treating it as an unjustified capital gain in the most recent open tax year)
In February 2022, the Court of Justice of the EU ruled in Case C-788/19 (Commission v Spain) that these penalties were disproportionate and incompatible with EU fundamental freedoms. Spain enacted Royal Decree-law 13/2022 to bring the regime into compliance. The revised penalties are substantially lower:
| Infraction Type | Old Penalty | Revised Penalty (post-2022) |
|---|---|---|
| Failure to file within deadline | €5,000/element (min €10,000/category) | €250–€1,000/element (max €10,000) |
| Incorrect or incomplete declaration | €5,000/element | €250–€1,000/element |
| Unjustified capital gain treatment | 150% penalty on tax equivalent | Standard surcharges (10%–20%) |
Warning: Even with reduced penalties, failure to file Modelo 720 remains a serious compliance risk. The AEAT cross-references CRS data against Modelo 720 filings. Where a discrepancy is found — an Israeli account reported via CRS that does not appear on Modelo 720 — the AEAT will open an inquiry. The combination of back taxes, interest, and penalties can still be substantial.
What the AEAT Does with CRS Data
The AEAT uses CRS information in three main ways:
1. Cross-Referencing Against IRPF Returns
If the AEAT receives CRS data showing that a Spanish tax resident earned Israeli dividends or interest of €10,000 in a given year, and the taxpayer's IRPF return for that year does not include this income, the AEAT will issue a preliminary notification (propuesta de liquidación provisional) requesting an explanation or amended return.
2. Verifying Modelo 720 Completeness
CRS data confirms the existence of Israeli accounts. If a taxpayer declared their account balances on Modelo 720 but understated the values, the CRS data provides a comparator. The AEAT can identify material discrepancies without conducting a full tax inspection.
3. Targeting Tax Inspections
The AEAT's risk-profiling algorithms identify taxpayers with foreign financial income not matching declared amounts. Israeli nationals with significant Israeli financial assets who have failed to file correctly are a high-risk profile under these models. Tax inspections triggered by CRS data can extend to all open years (generally four years under the general statute of limitations, or longer in specific circumstances).
Voluntary Regularisation: Avoiding the Worst Outcomes
For Israeli nationals who are Spanish tax residents and have not yet fully declared their Israeli accounts and income, the most important action is to regularise voluntarily before the AEAT makes contact. Voluntary regularisation — filing amended IRPF returns and, where applicable, a late Modelo 720 — significantly reduces penalties and prevents criminal tax fraud proceedings (which apply to tax fraud exceeding €120,000).
The process involves: identifying all undeclared Israeli assets and income; calculating the tax due for each open year; preparing and filing amended returns; and negotiating with the AEAT where applicable. Jacob Salama's office handles voluntary regularisation procedures for Israeli nationals and can manage the process on your behalf.
Israeli Accounts Undeclared in Spain? Act Before the AEAT Does
Jacob Salama advises Israelis in Spain on CRS compliance, Modelo 720 filings, voluntary regularisation, and managing AEAT inquiries related to Israeli financial accounts.
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