The European Court of Justice´s decision from the 3/9/2014 (case C-127/12) is very important for various reasons:

– As it ends with the discrimination of the non-residents, where they were paying more Inheritance and Gift Tax in Spain, than the residents,

– As it may also affect inheritances and donations with third countries (and not only the EU and the EEA),

– As due to it the current legislation adapts in order to avoid these differences,

– And because it opens the way for those who have paid excessive taxes and can request a refund


This Sentence was pronounced in an action brought by the European Commission, who has been warning Spain, that its Inheritance and Gift Tax Regulations infringe Community Law, by setting obstacles to the free movement of people and capital.



The Inheritance and Gift Tax is a state tax, and for inheritances or donations between immediate family members a progressive rate is applied from 7,65% to 34%.

Nevertheless, for inheritances or donations between residents in Spain the tax is transferred to the Autonomous Regions, which can introduce tax benefits applicable exclusively to their residents, something that most of the Autonomous Regions have done. For example, in the Balearic Islands the inheritance transfers between immediate family members, residents are taxed maximum 1%, and the donations 7%.

The problem is when the heir, the donee or the causative party, or when the donation is a property, located oversees, the tax is not transferred to any Autonomous Region and must be paid to the state and state regulations are applied, without having the possibility to apply any Autonomous advantage.

This gives rise to, for example, the following cases of discrimination:

1.- Inheritance with a deceased resident in the Balearic Islands and with all of his assets in Spain, of which 0,5 M corresponds to a child, who is a resident in Spain, who will pay in the Balearic Islands approximately 5.000 € (1%) and another 0,5 M to another child, resident in Germany, who will pay to the state approximately 106.000 € (approximately 21%).

2.- Inheritance with a deceased resident in Germany and with all of his assets there, of which 0,5 M corresponds to a child, who is a resident in the Balearic Islands, who cannot pay in the Balearic Islands the 1% and must pay to the state approximately 106.000 € (approximately 21%).

3.- Inheritance with a deceased resident in the United Kingdom and with a property in Majorca valued at 0,5 M, which is given to the spouse or to one of the children, both non-residents in Spain, who will pay to the state approximately 106.000 € (approximately 21%).

4.- Donation from a father, who is a resident in Germany, who donates a property in Majorca valued at 0,5 M to a child or to the spouse, both non-residents in Spain, who will pay to the state approximately 106.000 € (approximately 21%).

So, SECJ points out that these inheritances and donations with non-residents, not being able to benefit themselves from the Autonomous tax reductions, bear a greater financial burden than when only residents intervene, and this causes a decrease in value of the inheritance or of the donation.

The SECJ declares that the state legislation, by allowing such a different treatment, constitutes a restriction on the free movement of capital, prohibited by articles 63 SECJ and 40 from the EEA Agreement (comprised of the UE and Norway, Iceland and Liechtenstein).



The criterion of the sentence can be understood as applicable to inheritances and donations with residents in third countries, in which resides the causative party, the heir or donee, or in which is located the property, which constitutes the donation.

Indeed, the free movement of capital is the greatest freedom enshrined in the SECJ, as in principle are prohibited restrictions to the movement of capital both between EU Member States and between EU Member States and third countries.

Community Case Law considers that the inheritances and donations are a movement of capital to this effect, and that any fundamental exception or limitation of free movement must be interpreted strictly.

Actually, the SECJ with Sentence 17/10/2013 (case C-181/12) considered that the German law violates the free movement of people and assets as the taxes payable in an inheritance of a property situated in Germany, with both the causative party and the heir as residents in a third country (Switzerland), and in the same Sentence of 3/9/14 the SECJ rejects the difference in treatment with regard to third countries part of the EEA by simple virtue of the fact that no agreement exists on exchange of information with the same.

Most probably the Treasury will reject to extend the effects of this Sentence to inheritances or donations, in which third countries come into play (for example USA), but we think that in this case there will be good arguments to enforce its application before the Court.



Having been sentenced, Spain is obliged to reform its legislation in order to avoid this difference in treatment in the inheritances or donations with non-residents.

The most logical thing, since there are also important differences in tax treatment of inheritances and donations between residents, depending in which Autonomous Community they live (which the SECJ by no means calls into question), would be to harmonise the Inheritance and Gift Tax throughout Spain in order to avoid big differences between the Autonomous Regions and between residents and non-residents. This is what the experts advising the Government on the Tax Reform advised, mentioning that the huge differences between the Autonomous Regions have been questioned by our Supreme Court, who in May 2013 raised the question of unconstitutionality regarding the Valencia regulations. However, to harmonise the Tax throughout Spain, would require agreements with the different Autonomous Regions, which could be very complicated and take a lot of time.

That is why, we believe that most probably within a short time the state regulations will be modified (Law 29/1987) in order to allow the inheritances and donations with non-residents to obtain the benefit of the established advantages in the Autonomous Region with which there is a clear and reasonable connection.

For example, and referring to the 4 examples exposed in Part I, it is possible to try to avoid the discrimination in each of these cases setting the following connections:

1.- Apply the regulations of the Autonomous Region, where the causative party lives (longer during the last 5 years), to the heir resident , as well as non-resident.

2.- Apply the regulations of the Autonomous Region where the heir lives.

3.- Apply the regulations of the Autonomous Region where the biggest part of the inherited assets are, when both the heir and the causative party are non-residents.

4.- Apply the regulations of the Autonomous Region where the assets to be donated are located between non-residents.

It remains to be seen if the Treasury will choose this solution and what connection points are fixed for each case, because it is true that the SECJ does not make it very clear on how to modify the state legislation to comply with the Community law in the multiple cases that may arise, with so many and so different autonomous regulations.



A key aspect of the SECJ of 3/9/14 is that its effects are not affected by time, therefore those people who have paid the tax on inheritances or donations with non-residents, applying the state regulations (up to 34% between immediate family members) and without being able to apply the tax benefits of any “cheap” Autonomous Region (for example the Balearic Islands, with a maximum of 1%) with which there is a connection, can request a reimbursement of what was paid in excess.

There are two ways they can do this:

– Request the corresponding corrections for the self-settlement and refund of undue income, provided that the prescribed legal period has not passed (4 years),

– Request financial liability from the state for having required taxes with a taxation regulation not complying with Community Law (until the 3/9/2015).

The problem is, as has been mentioned, that the SECJ has created a regulatory gap and in some cases it is not easy to determine what regulations to apply in order to calculate the paid tax in excess. It remains to be seen how the state Treasury will interpret and apply it in calculating the possible refunds.

Of course, if in the following months the legislator changes the state regulations and fixes connections for the future that will allow to apply tax benefits from a determined Autonomous Region, in order to avoid the discrimination of non-residents, to the extent that they are favourable they will be the best argument to apply them as well to inheritances and donations caused in the past and in this way to quantify and ask for a possible refund.

On the other hand, for inheritances and donations, which are done now, and while the Treasury and the legislator do not declare themselves, there are various possibilities (apart from requesting an extension of another 6 months in order to save time):

– The most conservative option would be to make a self-settlement and pay the tax according to the state regulations and later require a correction and a refund of the undue income for the existing difference of applying the regulations of any Autonomous Region with which there exists a connection

– Another option would be not to make a self-settlement and require the state Treasury to make an administrative settlement (they take several years), but alleging the SECJ and requiring the application of Autonomous tax benefits that correspond, and later appeal if the Treasury decides to make a settlement without having them in mind

– Lastly, it is possible to make a self-settlement before the state Treasury applying not only the state regulations, but also the regulations of the Autonomous Region, with which there is a reasonable connection, although this is not envisaged in any regulations or in any application form and the Treasury could reject these calculations and issue immediately a provisional settlement, which can be appealed.



Benjamin Franklin said: “‘In this world nothing can be said to be certain, except death and taxes.

The European Court of Justice had to come and tell us how to join both things in Spain, although truly, it has not been explained very well.

In any case, it is legitimate that the tax payers interpret in their favour, in reasonable terms, to pay less from now on or to require a return of the excessively paid taxes, although we have to wait to know how the Treasury and the legislator interpret it and react.

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