THE “THE SPANISH INHERITANCE&DONATION TAX” AFTER THE LANDMARK DECISION RENDERED BY THE EU COURT OF JUSTICE AND THE NEW SPANISH REGULATION: PRACTICAL TIPS
In Spain, the “Inheritance and gift tax” is a state tax applicable throughout the national territory (except in the Basque Country and Navarra who have their own completely different tax system), but is transferred to the several autonomous communities, (i.e, Murcia region, Valencian Community, etc), which can approve their own rules in order to supplement or replace the basic rules laid down by the central Government.
However, this chaotic situation of delegated regional legislation, has in practice led to very high differences in treatment between expats and non-residents depending on the specific location of the property or assets.
In simple words, the former Spanish law was totally DISCRIMINATORY because it established unjustified differences in treatment between residents and non-residents in the 17 different autonomous communities of Spain.
Fortunately, the good news is that this situation has changed as the European Court of Justice (ECJ), has determined in a recent landmark ruling (C127/12), that the Spanish Succession and Donation tax failed to comply with the European rules, by not permitting non-residents to benefit from the tax advantages and deductions offered by regional administrations to resident and Spanish citizens.
Moreover, the ECJ ruling declared that the design of the Spanish tribute was a blatant restriction on the free movement of capital within the EU territory, which is one of the fundamental principles of the European Union market, infringing the Treaty of Operation of the European Union.
According to the EU Commission, discrimination occurs when the deceased or donor, the heir or donee are not resident in Spanish territory and particularly in the case of donations, where the property being transferred is located abroad, regardless of the place of residence of the taxpayer.
The EU Court stated that it was contrary to the free movement of capital, because it discouraged non-residents from making or holding investments in any EU country.
To be accepted, any possible difference in treatment should be justified by overriding reasons of general public interest. In the Spanish case, the ECJ considered that there was no difference whatsoever between the “objective” situation of a resident and a non-resident that may justify a different tax treatment. In other words, any difference in treatment concerning tax reductions simply leads to discrimination and as a result it must be forbidden.
As a consequence, the ECJ decision has forced Spain to implement a new state regulation, which has taken place last November the 27th 2014, by means of the “26/2014 Act”.
In a nutshell, the new Spanish regulation establishes at present the following different categories, applicable for both the inheritance and donation tax:
1) If EITHER the deceased or alternatively the legal beneficiary might be non-residents IN SPAIN, BUT RESIDENTS IN ANY OTHER EU COUNTRY (England, Germany, etc), the appointed legal heir will benefit from the reductions applicable in the region where the dwelling or assets are located (i.e Murcia region).
2) However, reductions will NOT be applicable if the legal beneficiary might be a resident in a NON EU country. For example, let’s suppose the case of a Spaniard living in Argentina inheriting a dwelling located in Alicante. In this particular scenario, the legal beneficiary will be obliged to pay the inheritance tax in Madrid, without being able to benefit from any reductions whatsoever applicable in the Valencian Community.
Therefore, in our view, the new legislative reform is still defective and discriminatory because it infringes the free movement of capital BEYOND the EU territory.
Likewise, it implies a perfect argument for those non resident people who might have paid excessive taxes on inheritance or donations in the past, to bring legal action against the Government aimed to claim back the refund of those taxes paid in excess.
Therefore, should you ever need a reliable, 100% independent, honest, cost effective and efficient English speaking Spanish solicitor, to help you with your inheritance taxation matters, (or with any other legal problem), please visit any of our two websites: www.ricorabogados.com or www.englishsolicitorinspain.com or alternatively contact us by e-mail to firstname.lastname@example.org
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Thank you very much for your attention and permanent support and we look forward to helping you!
Mr Oscar Ricor “NON-PRACTISING ENGLISH SOLICITOR IN ENGLAND AND WALES”, under the “Solicitors Regulation Authority” (SRA) SRA number 519196 and practicing Spanish Solicitor