SUCCESION WITHIN EUROPEAN UNION - TAXATION

Many Canarian Weekly readers of different nationalities asked me about the new UE regulation about Inheritance. Questions have been focused to the material law applicable to the Inheritance (national law of decedent, law of last domicile, law of situation of assets) referring to the taxation, this is the application of Inheritance and Gift Tax. It is necessary to point out that in Spain there are many tax legislations: European, State and Autonomic (and Municipal).

Regulation (EU) No 650/2012 of the European Parliament and of the Council of 4 July 2012 on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession, in vigour since 17 August 2015, regulates the legal aspects of the applicable law to a succession by reason of death, trying to harmonize the different European laws. For instance, in the Spanish case, applicable law to the inheritance is the national law of the decedent. Consequently, succession of a British national (for example) would be regulated by British material law notwithstanding the formalities of the country of situation of assets. In the case of Spain, formalities are the Title Deeds or Public Documents (with access to the Land Registry). This article does not pretend to be exhaustive regarding the application of material and formal law applicable to inheritances (to be included in other columns) but to explain briefly why the inheritance tax in Spain (depending on each Autonomous Community where the assets are located) is still applicable in spite of the European Regulation.

In this respect, the Regulation expressly excludes matters related to Administrative Law (Public Law), which means that inheritance tax matters are regulated by the internal law of each Member State. Henceforth, it is the internal law the one that determines the calculation and way of payment of the taxes, being those taxes owed by the decedent at the time of the death of those ones originated in the inheritance.

The Inheritance and Gift Tax in Spain affects the personal duties of all contributors with residence in Spain (according to the rules of the Income Tax) and they will be personally liable for the payment of the tax irrespective of the situation of the assets. In the case of non-residents there is a real obligation that taxes the acquisition of goods and rights located in Spanish territory and the perception of sums originated in life insurance.

Law 22/2009 of 18 December which regulates the finance of Autonomous Communities states that the Inheritance Tax is produced in the Autonomous Community where the decedent has resided during the last five years before the death. Some Autonomous Communities require the payment of Inheritance tax meanwhile some others regulate the exemption (totally or partially). We will develop this matter in future columns.

Many non-resident UE nationals could think that with the new Regulation they could avoid the payment of Inheritance Tax (or double taxation). This is not correct. The Regulation does not affect the taxation. However, the different taxation for residents and non-residents should be reviewed to avoid discrimination. That is what the European Commission said in 2011 by means of a Recommendation (not enforceable) to avoid or moderate the double taxation in inheritance tax. In September 2014 the European Court ruled against Spanish State and that is why the legislation had to be modified in order to tax the non-resident inheritors in the same proportion of resident inheritors, this is, applying to non-residents the deductions applied to residents.

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