I am indebted again to Blevins Franks’ Paul Montague for the following:

The European Court of Justice released a ruling on 3rd September 2014 stating that Spain has failed to fulfil its obligations regarding succession and gift tax under Article 63 of the Treaty for the Functioning of the European Union (TFEU) and Article 40 of the Agreement on the European Economic Area.

Basically, because Spain has allowed differences in the tax treatment of gifts and inheritances between resident and non-resident beneficiaries, they have breached the EU treaties, particularly involving free movement of capital.

Spain has been told to comply with this ruling, but one point that the recent Spanish tax reform and draft legislation did not address was succession and gift tax. The Spanish Budget Ministry has not yet commented, and it is unclear when, or if, Spain will comply with the ruling at this stage.

Individuals who have been discriminated against are likely to be able to claim to have the resident rates applied and claim a refund of the difference, and this may be significant in regions where the rates were very significantly reduced.

Note:
Article 63 TFEU
1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.
2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.

Article 40 EEA
Within the framework of the provisions of this Agreement, there shall be no restrictions between the Contracting Parties on the movement of capital belonging to persons resident in EC Member States or EFTA States and no discrimination based on the nationality or on the place of residence of the parties or on the place where such capital is invested. Annex XII contains the provisions necessary to implement this Article.

More will be released shortly as we analyse the decision.

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