SPANISH INHERITANCE & GIFT TAX PROVISIONS DISCRIMINATE NON-EU RESIDENTS SAYS RULING FROM THE SPANISH SUPREME COURT
The Spanish Supreme Court ruled on 19th February 2018, that the Spanish Inheritance & Gift Tax (IGT) provisions under which non-EU taxpayers are charged with higher inheritance tax than EU or Spanish residents are contrary to EU Law.
This discrimination comes from the different IGT rules applicable within the Spanish territory. Spain’s regional territories have substantial tax reliefs -sometimes 99%– which are only applicable to taxpayers with fiscal residence or direct links to that regional territory. Because these regional rules are not applicable to taxpayers resident outside of the EU, they are obliged to apply the higher National IGT rules.
These regional reliefs were recognized to EU residents by the European Court of Justice (ECJ) decision of September 2014 (C-127/12). Consequently, in January 2015, Spanish law was changed to remove this discrimination against other EU and European Economic Area (EEA) residents.
But nothing changed for non-EU/EEA residents. With this new ruling, however, the Supreme Court has confirmed that the Spanish IGT is unlawful towards non-EU residents who inherit Spanish assets.
The Supreme Court decision was based on the EU principle of free movement of capital, which also applies to residents in non-EU countries, and recognizes their right to apply regional tax reliefs in order to protect that fundamental principle. On that basis, the Court has ruled in favor of refunding the excess tax paid by a Canadian resident because she was not allowed to apply the regional reliefs. This decision was strongly influenced by another ECJ case, in which a similarly discriminatory German inheritance tax regime was ruled illegal (ECJ, 2013, c-181/12).
In this case, the taxpayer did not make the usual request for a refund because the tax had been paid several years before and had become statute barred. He used the alternative procedure of asking for an indemnity since she had suffered due to illegal legislation. The Supreme Court declared that the Spanish State was liable for the compensation to victims of this discriminatory legislation. This means that claimants will not be limited by the usual four-year statute of limitations and therefore victims of this rule can now claim reimbursements for taxes paid many more years ago..