November 2nd, 2014

Introduction

As covered previously, the European
Court of Justice has ruled that Spain’s practice of charging non-Spanish
resident beneficiaries Spanish Succession Tax (SST) at a different rate from
Spanish residents is discriminatory; and therefore unlawful.

Entitlement to demand a repayment of
previously paid SST

Thus far, there are no exhaustive
guidelines. But in principle, where a non- Spanish resident has accepted an
inheritance of Spanish assets and has paid SST during the last 4 years at a
rate which is higher than they would have paid had they been Spanish resident,
then they are entitled to demand a repayment of the difference between the
non-resident rate and the resident rate.

For these past ‘discriminatory’
cases, it remains to be seen whether a specific, official process will be
established in Spain, to enable repayments of previously paid SST to be
reclaimed.

In the absence of a clear
administrative process in Spain for demanding a repayment in these
circumstances, an individual legal action needs to be mounted by each
beneficiary who considers that they have overpaid SST and are therefore
entitled to demand a repayment.

And the legal right in these cases
to demand a repayment is time critical, so the right could be lost unless
prompt action is taken.

Issues with the legal process for
reclaiming SST

The assessment of eligibility for
making a claim can be a fairly complex and time consuming exercise. In
particular, there have been changes in the way several of the Spanish
autonomous communities have charged SST over the last few years (mainly
reducing allowances for residents). This means that in a surprising number of
non-resident beneficiary cases, despite significant SST charges, no
discrimination can be shown.

Pending official guidelines, it is
considered to be essential that cases must be fully prepared and demands
submitted within 4 years of the date of the original tax payment, otherwise the
legal right to demand a repayment could be lost.

It should also be noted that the
reclaim would only be in relation to SST, not in relation to other Spanish
probate costs and taxes (eg. Plus Valia tax).

It is considered unlikely that the
Spanish Tax Authority will establish a rapid, simple and economical system for
processing applications for repayment. There will inevitably be detailed
documentation requirements; and certification of a receiving bank account will
be required.

The reclaim process is therefore
likely to be fairly lengthy. The consensus is that the period from commencing
the case to reaching a conclusion is likely to be typically in the region of 3
years.

The process of demanding a repayment
is also likely to be fairly costly. Preliminary estimates are that, to assess/
initiate the process will be likely to involve a cost of a minimum of 250 Euros
per claim. And then the total cost of the reclaim process could be in the region
of up to 20-30% of the amount reclaimed in total. (Although some interest may
be recoverable, partly to offset the costs).

If a credit for the SST paid has
been obtained in the beneficiaries’ own country (for example, against UK IHT),
then this could undermine the Spanish case for demanding a repayment.

From initial discussions with
specialist practitioners in this area, the range of minimum cases (below which
they would not consider it worthwhile taking a case on) is between 1,500 Euros-
2,500 Euros SST paid (per beneficiary).

Of course, any entitled beneficiary
can pursue their own claim for any amount of SST which is reclaimable- with or
without professional representation. There is no minimum level. But independent
professional advice is always recommended, to ensure the case is worthwhile
pursuing; and is handled correctly.

Spanish legal proceedings generally
can be lengthy and complex; and therefore costly. So it is essential at the
outset of any Spanish legal case, to have a clear understanding of the costs
which will be incurred; and the chances of success, to avoid the risk of
‘throwing good money after bad’.

Conclusion

For Spanish probate cases currently
in progress, the obligation remains for beneficiaries to pay SST according to
the current Spanish law (even though not EU compliant); and then (maybe)
subsequently have the right to make a reclaim.

From the Spanish property owner or
beneficiary’s point of view, this situation is far from satisfactory. But the
EU Court Ruling has unavoidably created a ‘legal limbo’; pending fresh fiscal
legislation/ directions from Spain.

Many practitioners have concluded
that the SST reclaim process is likely to be so fraught with potential issues-
delays, costs, procedural uncertainty, that the number of individuals who will
pursue cases- and see them through to a successful conclusion- will be
relatively small.

It is anticipated also that some
beneficiaries will conclude that, irrespective of the potential legal
entitlement, they have drawn a line under completed Spanish probate cases; and
have little interest in reopening the cases; and/ or taking on the cost and
stress of embarking upon this Spanish legal process.

But, for those individuals who do
wish to pursue an SST reclaim, it is recommended to be in the hands of a
specialist professional, as any procedural errors could be fatal to the claim.
Another risk inherent in reclaim opportunities of this nature is that
non-specialist operators tend to ‘spring up’, even taking on claim cases with
no real merit, but charging hefty up-front fees. As with all professional
services providers, some investigation as to background, reputation and
professional regulation/ indemnity cover is essential.

This general commentary is not
intended to be exhaustive; and case-specific legal advice should always be
sought.