We recently published our latest article dated September 1st on the possibility of a Judgement being issued shortly whereby Spain would be found guilty of “discrimination” as a result of its different application of the Inheritance and Gift Tax depending on whether the taxpayer is a “resident” or a “non-resident” who owns property in Spain.

Well, such a Judgement for Case C-127/12 has been handed down on September the 3rd and, albeit without having studied the Judgement in detail, we would like to comment on its main considerations and its ruling.

The ruling is as follows:

The Kingdom of Spain has failed to meet its obligations under Article 63 TFEU and Article 40 of the Agreement on the European Economic Area of May 2nd, 1992, by allowing differences to be established between the fiscal treatment of gifts and inheritances between resident and non-resident assignees and recipients in Spain, between resident and non-resident decedents in Spain and between gifts and similar disposals of property located within the Spanish territory or elsewhere.

The above ruling is based, among others, on the following considerations:

53 The Court of Justice has thus ruled that the tax charged on inheritances involving the transfer to one or more persons of the estate of the deceased, as well as the fiscal treatment of gifts –whether relating to money, movable property or immovable property -, falls within the scope of application of the provisions of the Treaty concerning movements of capital except where its constituents are confined within one only Member State (see Mattner Judgement EU:C:2010:216, section 20, and cited Case Law).

73 Consequently, a distinction must be made between the unequal treatment allowed by Article 65 TFEU and the arbitrary discrimination prohibited by virtue of paragraph 3 of the same Article. Case Law determines that a national fiscal regulation which for the purposes of payment of the Inheritance and Gift Tax differentiates between residents and non-residents, or between property located in the national territory and property located outside the national territory, may only be regarded as compatible with the provisions of the Treaty concerning free movement of capital if such different treatments exclusively affect situations which are not objectively comparable or which are justified by overriding reasons of general interest (see Arens-Sikken Judgement EU:C:2008:490, section 53).

78 Also, where a national regulation places residents and non-residents, or property located in the national territory and property located elsewhere, on an equal level for the purposes of the Inheritance and Gift Tax, such a regulation may not without giving rise to discrimination treat two categories of taxpayers or two categories of assets differently as regards tax deductions relating to the same tax (see Arens-Sikken Judgement EU:C:2008:490, section 57).

79 Consequently, it must be noted that the Kingdom of Spain has contravened the obligations by which it is bound under Article 63 TFEU by allowing the introduction of different fiscal treatments to gifts and inheritances between resident and non-resident assignees and recipients in Spain, between resident and non-resident decedents in Spain and between gifts and similar disposals of property located within the Spanish territory or elsewhere.

Lizarza Abogados 

September 2014