Spanish rules for succession tax can be incredibly complex, with 17 different regions and one national law. Until recently, non-residents of Spain could not access the benefits of approved tax advantages in any of the regions. However, recent changes have seen the Spanish Supreme Court recognise the right, initially of EU residents but later of non-EU residents, to apply the relevant regional tax benefits that are in force. A change of law has not yet resulted from the case, but the tax authorities are now applying regional tax benefits to both EU and non-EU residents. Anaford Attorneys advises on cross-border tax matters such as this.
Inheritance Tax and Gift Tax
Succession tax includes both inheritance tax and gift tax. The Spanish Tax Authority has begun to recognise that regional level tax rebates and reductions can now be applied for the benefit of residents in the region, even if they are not from the EU. Relevant regulations for each region can now be applied if the assets being gifted or inherited are located in Spain or if the gift donor or recipient, decedent or heir reside in Spain. The choice of whether to apply national or regional regulations must be made within six months of death in the case of Inheritance Tax, and within one month of the gift being made for Gift Tax. If the tax has already been paid and the relevant regional benefits were not applied, the liable party has up to four years to file a request to have the improperly collected taxes refunded. Four years represents the statute of limitations, so this time period cannot be extended for the right to claim a refund.
Tax Regulation Changes for EU Residents
The tax regulations for EU residents were changed prior to this case, with new regulations coming into force on the 1st January 2015. These changes came about as a result of Judgement issued on the 3rd September 2014 by the European Union’s Court of Justice. The change enabled regional regulations to be applied to both EEA and EU residents, but not to non-EU residents.
Spanish Supreme Court Case Law
The rights of non-EU residents in Spain to have the appropriate regional succession tax benefits applied to them has been recognised within the Spanish Supreme Court in three rulings. A judgement was rendered on the 19th February 2018 on an appeal lodged against a Tax Appeal Board ruling. The Supreme Court ruled that EU law had been violated by Spain and non-EU residents were being discriminated against, as the regional succession tax incentives that should have been applicable were being denied to them. The appellant in this case was a Canadian resident whose mother had passed away in March 2007 in the Catalan region of Spain.
Free Movement of Capital Restrictions
The February 2018 ruling of the Spanish Supreme Court argued that the rules in place for Spanish Inheritance and Gift Tax restricted the free movement of capital in a way that was unjustifiable, through the exclusion of non-EU residents from regional tax rebates and reductions applications. Two similar judgements based on the same criteria were handed down on the 21st and 22nd of March 2018.
Conclusions & Recommendations
For Gift Tax purposes, the relevant regional regulations are applicable:
- If either the donor or the donee are residents of Spain, or
- If the gifted assets are located in Spain.
For Inheritance Tax purposes, the relevant regional regulations are applicable:
- If either the decedent or the heir are residents of Spain, or
- If the assets are located in Spain.
The choice of the regulations to be applied (regional or national) must be made within one month from the date when the gift was made. For succession purposes, the choice of regulations should be made within six months from the decedent’s death.
If Gift Tax or Inheritance Tax has been paid without applying the relevant regional benefits, a request for a refund of improperly collected taxes may be filed. This must be submitted within four years, which is the statute of limitations on the right to claim the refund.
About Anaford Attorneys
Anaford Attorneys is a specialised tax and wealth planning law firm with a global client base, taking care of international business interests and assets. With their diverse backgrounds and expertise in cross-border tax planning, the firm’s lawyers are ideally placed to work with clients on both a global and local level, combining regional knowledge and a flexible approach.
For news and updates, connect with Anaford Attorneys on LinkedIn.