This 3rd of September 2014 brought the ruling by the European Courts on the Spanish Inheritance and Gift tax legislation, which infringes on European Law. The Luxemburg Tribunal ruled that the state inheritance tax, ceded to the autonomous communities, is contradictory to the European law as it levies much higher taxes on non residents than residents, thus discriminatory. The majority of communities offer reductions on Inheritance tax, but only for residents of that community. In this case residents of another EU country or owners of property outside Spain will have to pay as per the State tax legislation, which is higher than the autonomous community tax.
The Tribunals consider that there is “no objective difference that could justify this discrimination” between the situation of a resident and that of a non resident or between a property situated in Spain or another that is outside of Spain. “All differences made are discriminatory”, the judgment states, and goes on to say that it considers this to be a restriction in the free movement of capital, so important to the European Union.
The Judgement cannot be appealed and Spain is compelled to comply. A spokesman for the Spanish tax office recognises the complexity of adapting this to the actual legislation and confirms that their technicians are already analysing the possibilities for the correct application of the Judgement.
So what does this mean to all the non residents that have inherited or received a gift in Spain? This means that all those that have paid their inheritance or gift tax within the last four years can claim back from the Spanish State the excess paid. And for those who have paid prior to those four years? A patrimonial responsibility claim can be made against the State for damages, when they applied a national law, contrary to EU law.
Finally, on a similar note, there is a further case against Spain being debated in the European courts that again refers to discrimination between residents and non residents; that of the Capital Gains Tax on the sale of a property. If a Spanish resident sells his permanent home he is not liable for Capital Gains Tax when purchasing another. However, when a person living in Spain sells his home to move to another country, in this case he is liable for Capital Gains Tax, currently at 21%. The Commission takes the view that this impedes the free movement of persons and workers between the EU States, part of the treaty. We must watch this space!