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The European Commission reported Spain to the Court of Justice of the EU on the grounds that the legislations of various ‘Autonomous Communities’ (regions) in Spain resulted in discrimination between residents and non-residents inheriting the same estate.

The Impuesto de Sucesiones y Donaciones (Gift and Inheritance Tax) is governed by the national Act 29/1987 of 18th December, but there are supplementary legal regulations in each of the 17 ‘Autonomous Communities’ of Spain which envisage deductions, rebates and fiscal advantages generally, etc which only apply to those who are resident in the relevant Autonomous Community’s territory as “non-residents” always pay their taxes to the National Tax Administration Office under the national Act and do not have the possibility of enjoying the fiscal advantages of the ‘Autonomous Community’ where (for example) the property they purchased (house, business premises, etc) is located.

The case heard by the European Court against Spain finished in January of the current year and it is believed that a Judgement will be handed down shortly and that it will be contrary to Spain’s position by admitting the discrimination which the current, conflicting legal situation in the different Spanish territories causes between “residents” and “non-residents” which, among other implications, would require an amendment of the Spanish legal regulations (national and autonomous where applicable) so that such a discrimination ceases to exist in future, but it would also reverse the unfair discrimination of past situations, thus making it possible to apply for a refund of the amounts wrongfully paid by virtue of such a discrimination.

In any case, the latter possibility will only apply to inheritances and gifts where the tax has been paid and where the statute of limitations has not expired, i.e. those cases where not more than four years have passed since the tax was paid or since the four-year limitation period was discontinued (where such a refund has already been applied for or an appeal has been filed against the Tax Office’s refusal).

A similar precedent –at least with regard to the right to being refunded for any monies wrongfully paid on the grounds of discrimination against non-residents compared to residents and the possibility to apply for a refund of the portion of the tax “wrongfully paid” – occurred a few years ago when the Judgement rendered by the Court of Justice of the European Communities on 6th October 2009 considered that the 35% rate of tax on the capital gain obtained from the sale of real property which non-residents had to pay was discriminatory when compared to the lower 15% rate which residents had to pay on the same transaction. That is, non-residents paid 20% more than residents did on the same taxable event. Following this Judgement, the Tax Office finally agreed to refund the monies wrongfully paid provided that the aforementioned statute of limitations period had been reset. On the other hand, the Spanish law was amended to set one only rate for all taxpayers (resident or otherwise) at 18%, which was subsequently increased to 21%.

It is not possible at this time to be certain of whether a Judgement will be issued against Spain as a result of the European Commission’s claim (although it is generally believed that it will) or the exact content of such a Judgement and, therefore, the possibility of applying for a refund of any tax wrongfully paid, but, in those cases nearing the expiration of the statute of limitations period as aforesaid, there is the possibility of resetting the statute of limitations by filing the relevant claim and appeals.

On the basis of the foregoing, therefore, we can conclude that refunds would eventually take place (i) following the filing of an individual claim, (ii) in the event that the Spanish statute of limitations has not expired, and (iii) obviously if the requirements defined by the Judgement of the European Court are met.

Lizarza Abogados

1st. September 2014


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