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Spain: Would EU law preclude Spanish inheritance and gift tax legislation in relation to cases involving parties resident in third states?

30 May 2017

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Rafael Calvo Salvador Pastoriza

The EU institutions have emphasised in the past that European law precludes the Spanish inheritance and gift tax legislation. As a result, the European Commission commenced an infringement procedure against Spain to put an end to the discrimination being suffered by some EU citizens as a result of the wording of the Spanish (central and autonomous community government) legislation in force at that time, applicable to inheritances.

More precisely, the European Commission indicated that the decentralisation of the powers of territories, and of tax rules in Spain, could on occasion run counter to European law and, in particular, to the freedom of movement of persons and capital (although the European Court of Justice (ECJ) ultimately only examined incompatibility with the latter, as we shall see). The fact was that the autonomous community rules applicable to some cases (based on the connecting factors to the territory) resulted in tax reductions for the residents of some autonomous communities. By contrast, the heirs or gift recipients residing in other EU member states were charged higher taxes, without any reductions, because they were subject to the central government legislation (applied by default when the taxpayer was non-resident in Spain).

That scenario changed with the ECJ judgment of September 3 2014, in case C-127/12, European Commission v Kingdom of Spain, resulting from the infringement procedure mentioned above, and the consequent amendment of the Spanish legislation to align it with the contents of EU law.

However, that amendment to the legislation which, according to the letter of the ECJ's judgment mentioned above, made it possible to apply the reductions provided in autonomous community law to residents of the EU and of the European Economic Area, may have turned out to be incomplete by not covering cases in which either element of the equation (e.g. the deceased, heir, nonresident recipient of the gift or gifted real estate) was in a third country.

All of this results from the fundamental freedom of movement of capital recognised in the Treaty on the Functioning of the European Union, and which had already been interpreted by the ECJ, in a similar case, in the judgment of October 17 2013, in case C-181/12, Yvon Welte. There, the German legislation being examined, which allowed a greater reduction to the inheritance tax base if either the heir or the deceased resided in Germany, was held to be contrary to EU law according to the ECJ. The novelty of that judgment lay in the examined facts of the case, because both deceased and heir were Swiss residents. In this respect, as the ECJ has found in settled case law, the freedom of movement of capital also applies in relation to third states, although the legal rules differ slightly to those existing between member states. The ECJ has held in this connection that the effective exchange of tax information between the states concerned, through the effective exchange of information instruments in force between both states, will have to be taken into account.

In Spain, the courts have already rendered decisions awarding the tax benefits mentioned for EU residents. The tax authorities gave a negative reply, however, to the first applications for tax refunds filed in cases involving connecting factors outside the EU (e.g. an heir resident in Switzerland or in Argentina where the deceased was Spanish, or a Spanish-resident heir where the deceased was resident in Mexico).

We therefore predict a sharp rise in the number of lawsuits concerning the matters explained above due to this potentially insufficient adaptation of the Spanish legislation to EU law, on the one hand, in addition to how the Spanish authorities, and, foreseeably, the economic-administrative courts are applying the law, on the other. This is why the arguments and evidence put together for lawsuits that will almost certainly end up in the contentious jurisdiction will have to be finely tuned.

Rafael Calvo ( and Salvador Pastoriza (
Tel: +34 915145200

International Correspondents