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Spain: The Spanish Supreme Court ends discrimination against non-resident heirs outside the EU


A recent judgment of the Spanish Supreme Court may bring to an end the discrimination suffered by residents of third countries (not belonging to the EU) who receive inheritances or gifts in Spain and are paying a higher Spanish inheritance tax than residents of Spain or of the EU. The Supreme Court judgment, rendered in February 2018, ordered the Spanish government to indemnify the taxpayer (a Canadian resident who received the inheritance from his mother, resident in Spain) with the difference between the tax he paid on receiving that inheritance, and the tax he would have had to pay if the relevant autonomous community legislation (which allows tax benefits to be claimed that reduce the tax for Spanish and European residents) had been applied to him, together with late-payment interest.

To place this in context, it must be recalled that until a few years ago, EU residents were also given worse treatment than Spanish residents for inheritance and gift tax purposes. This discrimination ended in 2015, but not without the Court of Justice of the European Justice (CJEU) first having to hold in a judgment on September 3 2014 (case C-127/12). That judgment deemed that this difference in treatment between EU citizens entailed a restriction on the free movement of capital, and therefore, was contrary to the Treaty on the Functioning of the European Union (TFEU). However, despite the effects of the free movement of capital having extended to the so-called third states (countries not belonging to the EU or to the European Economic Area – EEA) since the Maastricht Treaty (1994), the Spanish legislation on inheritance tax did not grant the same treatment to the residents of those third countries. Although case law already existed on the inheritance-related discrimination experienced by non-EU nationals (the best-known case is that decided in the CJEU judgment in case C-181/12, Welte), non-European citizens who received inheritances or gifts in Spain continued to receive worse treatment for tax purposes than Spanish residents in a comparable position (their siblings, for example).

Accordingly, the Spanish inheritance tax legislation continued to be contrary to European law. And, by relying on that legislation, the Spanish tax authorities continued denying refunds of the greater amounts of tax on the inheritances or gifts paid by citizens resident in third (non-EU) countries. The Supreme Court has fortunately brought an end to that discrimination through its judgment of February 19 2018, in which it found that taxable persons residing outside the EU and the EEA can also benefit from the same autonomous community reductions to inheritance and gift tax as those already enjoyed by the residents of Spain (or of the EU or of the EEA). According to the court, finding otherwise would be a breach of the free movement of capital which, as the CJEU has found repeatedly, also includes third countries. This clarification is important, because despite the clarity of the CJEU's findings, the Spanish law continues to give worse treatment to residents outside the EU and the EEA in other scenarios falling within the scope of the free movement of capital (the taxation of mutual funds, for example).

In its judgment, which contains an exhaustive analysis of the statutory and case law rules on the free movement of capital in the EU, the Supreme Court reproaches the state especially for its failure to act in the face of an evident factor (the discrimination mentioned above), brought to light, among other ways, by the CJEU's judgments in the mentioned cases of Welte and the Commission against Spain. In short, this serious breach of EU law has caused the Supreme Court to uphold the financial liability of the Spanish State, and the resulting refund to the taxpayer of the excessive amount of tax, together with the related legal interest.

Obviously, if the judgment allows a refund to be requested of the relevant taxes for statute-barred years (if the necessary procedural requirements are satisfied) as occurred in the examined case, there are the same or greater reasons for refunds of undue payments for non-statute barred years (the previous four years) to be made available. Therefore, this judgment undoubtedly opens up the option to bring a procedure to apply for a refund for all those adversely affected parties who have filed inheritance and gift tax returns in Spain in recent years. That application must be approached in the right way to prevent the Spanish authorities from trying to support the discrimination by pleading, among other possible arguments, the existence of non-comparable situations or the absence of exchange of information with the third country concerned (that should not be of relevance in these cases).


Rafael Calvo

Rafael Calvo (, Madrid

Garrigues, Taxand Spain


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