EU Court Rules Against Spain on Inheritance Tax Involving Foreigners
MADRID—Europe’s top court ruled on Wednesday 3rd September 2014, against Spain in a case that may force the country to lower the lucrative taxation of inheritances involving non residents.
The Luxembourg-based European Court of Justice said that, by applying high tax rates in cases where either the deceased or the recipient of the inheritance is a non resident, the country is in breach of European Union treaties. In inheritances involving Spanish residents only, such rates are much lower.
A court spokesman said Spain must comply with the ruling, but it is unclear when the country will incorporate it in its legislation. A spokeswoman for Spain’s Budget Ministry, which is in charge of tax issues, didn’t immediately respond to a request for comment.
The European Commission first told Spain to change its legislation regarding inheritance and donation tax in 2010 and, after Spain failed to comply, it brought the case before the European court.
The alleged discrimination is a result of the complex set-up of inheritance tax management and collection in the country.
Spain’s regional governments manage and collect these taxes, and many regions have mechanisms in place that sharply reduce or even eliminate the effective inheritance tax rate locally.
However, regions only apply these rules in cases where both the beneficiaries and donees are local residents. When non residents are involved, higher rates contemplated in national law are applied.
The ruling is significant for Spain, where about 14% of a population of 46 million is foreign, one of the highest percentages in the EU.
Source – Wall Street Journal Europe 03.09.2014 —Viktoria Dendrinou in Brussels contributed to this article.