Can EU residents recover amounts paid to inheritance and gift tax?
Victoria López Barrio
7 February 2016
The European Court of Justice (ECJ) Judgement of 3 September 2014, on Case C‑127/12, European Commission versus Spain, rules that the latter has failed to fulfil its obligations under articles 63.1 of the Treaty of the Functioning of the European Union (TFEU) and 40 of the Agreement on the European Economic Area of 2 May 1992 (EEA Agreement). This opinion was based on the fact that the relevant Spanish law warranted variations of inheritance and gift tax between successors and resident and non-resident donors in Spain, between resident and non-resident successors in Spain, and between gifts and similar disposition of property located on Spanish territory and abroad.
Articles 63.1 (TFEU) and 40 of the EEA Agreement prohibits the restriction on the free circulation of capital between Member States.
Compliance with the judgement, to which Spain is bound pursuant to art. 260 TFEU, means that the Member State must adopt the necessary measures to enforce the Court Judgement. The Judgement was implemented under the Third Final Provision of Law 26/2014 of 27 November, which entered into force on 1 January 2015, amending the Second Additional Provision of Law 29/1987 on Inheritance and Gift Tax.
The amendments to Inheritance and Gift Tax are as follows:
The new wording of the Second Additional Provision of Law 29/1987 implies that the settlement of Inheritance and Gift Tax must comply with the following rules:
- a) In the case of acquisition of property and rights by inheritance, bequest or any other inheritance deed, if the testator had been a resident of a Member State of the European Union or European Economic Area, other than Spain, the taxpayers shall be entitled to the application of the internal legislation approved by the Autonomous Community in Spain where the more valuable property and rights of the inherited state are located. If there were no property or rights located in Spain, every taxable person will be subject to the legislation of the Autonomous Community in which he/she resides.
- b) In the case of acquisition of property and rights by inheritance, bequest or any other inheritance deed, if the testator had been a resident of an Autonomous Community, the non-resident taxpayers, whether residents of a Member State of the European Union or the European Economic Area, shall be entitled to the application of the internal legislation approved by said Autonomous Community.
This legislative reform does not make any reference to the retroactive legislation on taxable transactions prior to 1 January 2015.
However, it is understood that this situation would be positively settled based on the doctrine of the Spanish Constitutional Court, STC 145/2012 of 2 July, which establishes the enforceability of TJEU declaratory judgements passed in infringement proceedings (which order jurisdictional bodies of Member States to ensure that they are implemented) and effective ex tunc (which proposes validity of their statements at the time the internal legislation deemed contrary to EU Law enters into force, and not on the date said judgements are passed).
In light of this, if there is link between the case and an Autonomous Community, those affected, who had paid the Inheritance and Gift Tax, may contact the Administration to request a refund of the unduly paid amounts plus the interest on arrears.
This procedure must be followed by the taxpayer within the 4-year limitation period as of the date on which the corresponding tax was paid. Another channel for claims is to resort to the relevant file on state financial liability.
This retroactive effectiveness is demonstrated in the recent High Court Ruling (Administrative Division, Sect. 2ª) of 23 July 2015. Ruling No. 90/2015. Rec. 411/204, in which the Administration acknowledges the application for a tax reduction established by the Autonomous Community of Madrid (where the testator resided at the time of death in 2009) by an appellant residing in France, the same way the reduction was applied to other heirs who were residents in the Community of Madrid. The appellant received a sum of €147,990.62, which was the amount collected for Inheritance and Gift Tax at the time, plus legal interests.
Naturally, this is all aside from the possible requirement in the corresponding channel of financial liability for state legislature acts, as the judgement expressly points out.