September 29th, 2014


The European Court of Justice has
ruled that the Spanish Tax Authority’s succession tax system conflicts with the
European Union principles of freedom of movement of EU individuals and
circulation of money within the EU.

Spain must comply with this EU Court
Ruling by making changes to its succession tax system, to become EU compliant
within 6 months. Otherwise, Spain will face financial penalties.

As yet, there has been no formal
response from the Spanish Tax Authority as to its proposals to comply with the
EU Court Ruling.


Spanish Succession Tax is not
administered centrally; or charged in a uniform way nationally; or at a single
rate; or subject to universal national allowances and reductions.

In many countries, the calculation
and charging of succession taxation is simplicity itself. However in Spain, it
is a highly complex system, which creates a great deal of uncertainty,
inconsistency and controversy.

At the heart of the complexity is
the fact that for Spanish residents, the responsibility for succession tax
administration lies with the 17 individual autonomous communities. Each
autonomous community has discretion as to charging basis; practice; and
allowances/ exemptions.

This fiscal quagmire alone creates
bewildering inconsistencies across Spain.

But the further peculiarity,
(central to the EU Court Ruling), is that for non-Spanish residents, succession
tax is administered by the Central Spanish Tax Office, which strips from
non-Spanish residents, the more ‘generous’ succession tax allowances/
exemptions which the autonomous communities otherwise offer. So, for non-
residents, a meagre succession tax-free inheritance amount of just below 16,000
Euros per spouse/ descendent beneficiary is allowed. Any inheritance received
above that value is taxable.

And as a side issue of great
consternation, it has been acknowledged that many Spanish families living in
Spain also suffer discrimination under the current system, according to where
(in Spain) their family members live.

So the current system not only
unlawfully discriminates against non- Spanish owners of Spanish properties. For
Spanish families also, its haphazardness can be financially ruinous.

The ball is now in Spain’s court, to
see how they will react, in order to bring Spanish Succession Tax into line
with the EU requirements.

It remains to be seen whether this
will be by centralizing/ standardising administration or (if that is deemed too
radical), at least a harmonisation of practice across Spain; and/ or a switch
of criteria from individual place of residency to asset location.


• A period of just six months is
very tight indeed for Spain to implement a complete overhaul of- and radical
change to- its succession tax system.
• With Spanish elections on the horizon, it is perhaps unlikely the current
Spanish Government will progress matters with great dynamism. Any change will
benefit some, but disadvantage others. Succession tax can be an emotive issue
for voters.
• If the six month deadline is not met, then Spain will face EU financial
penalties; but meanwhile, continue to administer succession tax on the current
• Pending fresh Spanish legislation/ directives, any individual wishing to
challenge a Spanish Succession Tax charge or to reclaim previously paid tax,
will presumably need to bring their own legal case, citing the EU Court Ruling.
• If (to comply with the EU Court Ruling) Spain reduces the succession tax
impact on non-residents, to be equal to the current impact on residents, then
not only would that add fuel to the fire for a potentially massive number of
reclaimants, but this would guarantee a reduced future fiscal income; therefore
being hugely expensive for Spain.
• Conversely, if Spain were to increase the succession tax impact on residents,
to be equal to the current impact on non-residents, then the issue of demands
for refunds could be conveniently complicated. And overall, this would
significantly benefit Spain by increasing future succession tax revenue.
• So, a feasible strategy for Spain could be: to leave matters as they are for
now; and just pay any EU fine for interim non-compliance. Then, after the
elections, introduce new national regulations to standardize succession tax,
with the emphasis on asset location rather than individual residency. And in so
doing, phase out resident reductions, to equalize the impact of succession tax
across the board.
• Perhaps a cynical posture, to react to the EU Court Ruling by increasing
succession tax impact. But with the stark choice between potentially facing a
huge fiscal loss; and increasing fiscal revenue, it would be surprising for
Spain to choose the former option.
• Ultimately therefore, the EU Court Ruling could mark a turning point, from
which the overall impact of succession taxation in Spain, (although
standardized in some form, to satisfy EU requirements), actually increases- in
particular for Spanish residents.
• In terms of reclaims for previously paid tax, even if a clear reclaim route
is established, if the reclaimants had received credits against fiscal
liability in their own countries (e.g. pursuant to double taxation relief
treaties), it is assumed that any Spanish reclaim application would be denied.
• It is also likely that if a clear reclaim route is established, the process
itself would be complex, lengthy and therefore expensive to pursue. It is
unlikely that the Spanish Authorities would be inclined to make it a rapid,
simple and economical process.


As regards Spanish inheritance cases
currently in progress, the current Spanish legal/ fiscal obligation continues,
pending fresh Spanish legislation/ fiscal directions. So, inheritors of Spanish
assets are legally obliged to continue to pay succession tax on the basis of
the current system- even though it has been determined by the European Court of
Justice to be operating contrary to EU rules!

An uncomfortable position for
inheritors in the meantime. And furthermore, if they fail to make tax payments
when due, they may face interest/ penalties on late tax payments. But then
having paid tax sums due, although there are certainty changes anticipated to
the Spanish succession tax system, the exact nature and timing of the changes
is uncertain. And finally, if any reclaim option does arise, it is likely to be
lengthy, complex and expensive to pursue.

We will report further as soon as a
decision on the way forward for Spanish Succession Tax is announced.

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

The Legal 4 Spain team provides a
full probate service for properties and other assets anywhere in Spain. We are
always happy to provide a competitive cost estimate in the first instance, on a
no-obligation basis.