Spanish Supreme Court rules against Inheritance Tax discrimination on third-country residents

The Supreme Court, under Judgement 242/2018, of February 19, 2018, has stated that it is unlawful the difference in the tax treatment applied upon a gift or intheritance involving residents outside Spain or another EU/EEA member State.

After the 2014 Judgement of the Court of Justice of the European Union (case C-127/12 of September 3, 2014), the Spanish Inheritance and Gift Tax Law was modified in order to let the EU/EEA residents apply, as from year 2015, the specific Autonomous Community legislation as applied to Spanish tax residents. This could provide for significant tax savings. Conversely to the general tax rules, certain Autonomous Communities establish a 99% tax allowance on gifts or inheritances between direct family members, between other benefits.

The Supreme Court Decision has gone beyond this by allowing third-country residents (a Canadian tax resident) to apply the beneficial legislation of the Autonomous Community of Catalonia. On its pronouncement, the Court paid special attention on the 2013 Judgement of Court of Justice of the European Union (case C-181/12, October 17, 2013) where it was considered that the German legislation dispensed worse tax treatment in an inheritance of a property located in Germany to a heir resident in a State that is not a member of the EU/EEA, specifically Switzerland.

Subject to detailed analysis, at Altalex we are already assisting clients in claiming the refund of taxes as per the application of EU principles (“free movement of capital”), case law and, now most relevant, as per the recent Judgement of the Supreme Court.

Should you want to discuss the above, please feel free to contact us.