Synopsis: On 3 September 2014 the European Court of Justice ruled that the Spanish legislation that charges higher inheritance tax and gift tax rates to foreigners than it charges Spanish residents is discriminatory.
Date posted: Friday, September 12, 2014
The European Commission referred the issue to the ECJ in 2012 after considering that the Spanish legislation on IHT and gift taxes in relation to non-residents was incompatible with free circulation of people and money within the EU. While the ECJ accepted Spain’s argument that these tax laws did not impede freedom of movement of people, it found that they did contravene free movement of capital.
The problem with the current Spanish law is that it applies different rates of taxation to inheritances or gifts of property in Spain depending on whether the recipient is Spanish resident. This is because inheritance tax rates for Spanish residents are regulated at a regional level, where regional authorities are able to apply their own fiscal reductions, while for all non-Spanish residents (or where the property is situated abroad), the national tax rate applies, often at a much higher rate than for a Spaniard living in the same region.
The ruling should result in a reduction of the amount of inheritance/gift tax the state can charge non-Spanish resident recipients of legacies and gifts. A source at the Spanish Treasury Ministry has said that the government is looking at how to bring Spanish legislation in line with the ruling.
In addition, those non-residents who have paid IHT or gift tax during the past four years because they inherited, or were given a Spanish property, can now demand a refund of the difference between the amount of tax they were charged and the amount they would have been charged if they had been resident. In some cases it may be possible to claim refunds of tax paid more than four years ago. Local professional advice should be sought by anyone falling into this category.
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