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Spain: Recent European Court of Justice (ECJ) judgment relating to Spanish inheritance tax. Case C-127/12 | Tax Connect Flash

On the 3rd of September 2014, the ECJ entered/made a judgment resolving that the Spanish Inheritance Tax should impose restrictions on the free movement of capital, one of the fundamental principles of the EU’s Single Market. More precisely, as stated by the ECJ decision, the aforementioned tax violates article 63 of the Treaty on the Functioning of the European Union and article 40 of the Agreement on the European Economic Area.

This Case (i.e. C-127-12) was originated in July 2007 when the European Commission formally requested Spain to take actions to achieve the compliance of EU rules in regard to inheritance and gift tax rules, in particular, those related to non-residents. Indeed, according to Spanish law, non-residents in Spain are not entitled to apply for/take advantage of certain tax allowances set-forth by the different Spanish Autonomous Regions as opposed to Spanish tax residents. Such distinction becomes in practice a much lower effective tax for residents in such Autonomous Regions rather than for other EU residents.

Despite the above-mentioned requests made by the EC, no amendments were made by Spain to such legislation regarding this matter. As a consequence, in March 2012 the European Commission initiated a process against Spain before the EU’s Court of Justice.

We could expect that the Inheritance Tax Act may be amended by the Spanish Government as a consequence of the ECJ decision. Different alternatives for such amendment are, of course, possible.

From a practical point of view, and as a result of the above facts, non-Spanish resident taxpayers, particularly EU residents who have been subject to the inheritance tax in Spain, have now the opportunity to analyze the possibility of claiming a refund from the tax authorities for the amounts (potentially) unduly paid. Several proceedings may be applicable and a case-by-case analysis is required, but amounts at stake may be relevant and may potentially include delay interest.


Raúl Bañó Sánchez