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ECJ rules against Spanish Inheritance Tax

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6 Sep. 2014

The European Court of Justice has ruled last September 3 that the Spanish Inheritance and Gift tax provisions are discriminatory in nature towards non-Spanish residents and consequently contrary to articles 63 TFEU and 40 of the EEA Treaty.

The ECJ ruled that Spanish provisions are contrary to the freedom of movement of capital within the European Union (EU) and European Economic Area (EEA), currently formed by 27 of the 28 EU member states plus Austria, Finland and Sweden. Switzerland is not a contracting party to the EEA. Nevertheless, the ECJ ruled in a similar way last 2013 October 17 against Germany and its provisions in a case of discrimination for a Swiss resident.

It is not possible for Spain to appeal against the judgment and the Government must change the legislation to end with the discrimination. Furthermore, this judgment does not oblige Spain to refund the taxes overcharged but it can be used as argument to claim for refund at Court.

Inheritance and Gift tax (IHT) is shifted to the Regional Governments but non-Spanish residents are subject to taxation according to the State regulations, being these less favorable. The effects of the discrimination are different depending on the Regional Government where the Spanish asset is located, with mayor impact in Madrid.

The judgment has ruled that Spain has not met its obligations by allowing establishing differences in the tax treatment between heirs, donees or deceased resident and non-resident in Spain and assets in Spanish territory and outside it. The judgment is a valid argument for any non-resident.

The statute of limitation period in Spain is 4 years. For IHT this period starts counting as of the deadline to submit the tax, that is to say, 6 months as of the date of death (or gift). Anyone affected by this resolution who has settled Spanish IHT over the last 4-5 years can now take actions to claim a refund for excess tax paid.

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