Artículos legales

Legal news on the differences in the Tax on Inheritances and Gifts between residents and non-residents

As predicted in the February 6, 2014 edition of RECHT & STEUERN, on September 3, 2014 the Court of Justice of the European Communities finally pronounced the decree that stops the tax inequities existing in the Tax on Inheritances and Gifts between Residents and Non-residents; inequities that in some cases led to greater than 80% taxation.

The differences in taxation alleged before the Court of Justice of the European Communities originate in the tax regulation allowing each Autonomous Community to establish the reductions, deductions and allowances considered appropriate, applying these only to the residents of this Autonomous Community. In contrast, the state standard is applied to the Non-residents, this being the highest by far.

For this reason, the judgment of the Court of Justice of the European Communities was clear with regard to creating barriers against free circulation of people and capital in the European Territory, one of the basic principles of the European Union, and indicated that: “The regulations of a member state that makes the application of a reduction of the taxable base of the inheritance or gift dependent on the place of residence of the predecessor and of the inheritor at the time of the death, or of the place of residence of the donor and of the recipient at the time of the gift, or also of the place in which is located a real estate property subject to inheritance or gift, when it gives rise to inheritances or gifts between non-residents, or concerning properties located in another member state, bear a greater tax burden than the inheritances or gifts in which only residents are involved or that only concern properties located in the member state of imposition, constitutes a restriction of the free circulation of capital.”

In summary, it is NOT permissible in the countries of the European Union for regulations to exist that threaten the freedom of circulation. The Spanish regulation regarding the Tax on Inheritances and Gifts creates clear differences between residents and Non-residents; therefore, it must be modified.

In conclusion, the consequences of the judgment of September 3 are summarized below:

  • The Government must speed up the tax reform regarding the Tax on Inheritances and Gifts provided for 2016, with the objective of complying with the judgment of the Court of Justice of the European Communities.
  • This opens the door for those European citizens affected by the alleged inequities. These [citizens] may request (i) the return of undue taxes paid, as long as four years have NOT passed since the tax payment or (ii) the initiation of procedures to claim damages against the nation of Spain.

We believe, although it will be a complicated process, that now is the time to take the pertinent actions to equalize the treatment between the Residents and Non-residents, whose only difference is whether or not they live 183 days in one country or another.

In later articles, we will address the upcoming tax reform on which the government is working, which would apply from January 2015, and should bring discounts in both Personal Income and Corporate Taxes. This reform will also involve lowering the tax burden on Non-resident Income for European citizens.

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