Case C-127/12 establishes that Spain must stop discriminating against non-resident heirs.
On the 3rd of September 2014, the ECJ entered/made a judgment resolving that the Spanish Inheritance Tax imposes restrictions on the free movement of capital, one of the fundamental principles of the EU’s Single Market. More precisely, as stated by the ECJ decision, the aforementioned tax violates article 63 of the Treaty on the Functioning of the European Union and article 40 of the Agreement on the European Economic Area.
According to Spanish law, non-residents in Spain are not entitled to apply for/take advantage of certain tax allowances set-forth by the different Spanish Autonomous Regions as opposed to Spanish tax residents. Such distinction becomes in practice a much lower effective tax for residents in such Autonomous Regions rather than for other EU residents.
Taking into account that resident heirs pay different levels of tax depending on what autonomous region of Spain they live in, in each case we would need to establish to which autonomous region’s tax system we need to compare the specific inheritance by a non resident to see if discrimination has existed.
Spain has not adapted it’s legislation yet.
The other matter is how do we deal with inheritance tax declarations of those who we consider are being discriminated as returns are done by self assessments and the norms and forms on which they are bases have not change since the sentence. Do we pay and then claim a refund through the courts, or do we disobey the methods of calculation which are still in existence to avoid paying in the first instance with the risk of suffering surcharges etc.
Theoretically the correct thing to do is to pay and then claim, but from a practical point of view I have my doubts. In doubt perhaps it is best not to pay, but only attempt this if you are absolutely sure of what you are doing.
Before you do this though you must consult with your solicitor to make sure that in your particular case (and comparing your situation with that of the system of the appropriate Autonomous region) their is in fact a discrimination. To determine which system to compare it with you have to look for the maximum connection. For example if the decease lived and deceased in Andalucia it would be clear that it is with this system that we have to compare, but things will not always be as clear.
Ask the solicitor to explain why he is comparing your situation with that of a particular autonomous region and not another and ask him to put this in writing. Then ask him to calculate inheritance tax for you as resident of that particular autonomous region of Spain and then as nonresident. Ask for all this in writing as you will need if to fight your corner with the tax Agencia Tributaria in Madrid who are the ones that deal with inheritance tax for non residents and who will need a well explained reason for zallowing the exemptions corresponding to Andalucia to be applied.
In any case at this moment in time even if you have been discriminated it will be a battle to avoid payment or return of the payment if this has already been paid. Be careful of claiming if the discrimination does not exist as you may end up paying substantial surcharges and legal costs.
Update: This post has since been updated. You can find our update on the post of 8th of January 2015. Please click to find the update:
