European Court Of Justice Rules On Spanish Succession Tax

05.09.14

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The European Court of Justice ruled that Spain has failed to fulfil its obligations regarding succession and gift tax.  Since Spain allows differences in the tax treatment between resident and non-resident beneficiaries, they have breached EU treaties.

The European Court of Justice released a ruling on 3rd September 2014 stating that Spain has failed to fulfil its obligations regarding succession and gift tax under Article 63 of the Treaty for the Functioning of the European Union (TFEU) and Article 40 of the Agreement on the European Economic Area.

Basically, because Spain has allowed differences in the tax treatment of gifts and inheritances between resident and non-resident beneficiaries, they have breached the EU treaties, particularly involving free movement of capital.

Spain has been told to comply with this ruling, but one point that the recent Spanish tax reform and draft legislation did not address was succession and gift tax. The Spanish Budget Ministry has not yet commented, and it is unclear when, or if, Spain will comply with the ruling at this stage.

This story dates back to May 2010 when the European Commission sent Spain a ‘reasoned opinion’, requesting it take action to comply with EU rules in regard to inheritance and gift tax provisions. While Spain did tweak its laws it was not enough to make them fully compliant with EU law, so in February 2011 the Commission sent Spain a ‘complementary reasoned opinion’ on the matter. When no further amendments were made to the Spanish legislation, the European Commission referred Spain to the Court of Justice in October 2011. The Commission argued that the Spanish rules were discriminatory because they require non-residents to pay higher taxes than residents, even if they live elsewhere in the EU.

Depending on what happens now, individuals who have been discriminated against may be able to claim to have the resident rates applied and claim a refund of the difference, and this may be significant in regions where the rates were very reduced.

4 September 2014

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

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