The end of the discrimination of non-residents for Inheritance Tax in Spain

Víctor de Castro Esteller

Spain is divided into several regions with their own regulation in many issues, including taxes. For instance, there is a common law (federal law) for Inheritance and Donations Tax (IDT) approved by the federal Parliament. Additionally, all the regions have adopted statutes that have reduced the taxation. This implies that there are seventeen different regulations depending on the residence of the testator or the donee. The discrimination occurred if the testator or the donee lived outside Spain, when some assets were located in Spain or when the tax payers lived in Spain. The tax payers were not able to apply any regional regulation and they were obliged to calculate tax quotas taking into account the federal law. It determined higher tax quotas and a clear discrimination for those tax-payers.

In 2014, a judgement from the Court of Justice of the European Union declared that the different tax treatment jeopardized the free movement of capital. As a consequence, the Spanish Parliament approved a modification of the federal law in order to suit the IDT rules to the EU guidelines. In fact, the modification allowed non-resident people to apply regional laws – with many tax reliefs – instead of federal law, but only if they were resident in other EU countries.

In 2018, two judgements from the Spanish Supreme Court stated that EU guidelines are still violated by the tax treatment for non-EU resident people. Therefore, all the tax payers are already able to apply the regional tax reliefs. It means the definitive end to the discrimination and opens the door to claim the refund of the tax quotas paid in the past.

Wrapping up, beyond the application of the new interpretation to the future inheritances and donations, it is important to highlight that the tax quotas paid within the statutory limitation period (the last 4 years) must be refunded by the Treasury. To get the refund plus delay interest (around 4% per year), the taxpayer should submit a claim based on the abovementioned judgements. Nowadays, taking into consideration the huge number of claims, the Treasury spends between one and two years issuing the refund.


XLNC MAGAZINE | No. 02 | November 2018

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