Tax discrimination of non-resident inheritors: Is it possible to claim overpayment?

The ruling of the Court of Justice of the European Union (CJEU) of September 3, 2014 (case C-127/12) considered at the time that the Spanish legislation on Inheritance and Gifts (“Impuesto sobre Sucesiones y Donaciones”). was contrary to the principle of free movement of capital, provided for in Article 63 of the TFEU and Article 40 AEEE because it did not allow the application of the reductions and allowances provided for in the Autonomous Communities to non-residents of Spain or, in other words, because it limited the application of the reductions and allowances provided for in the Autonomous Communities solely and exclusively to residents of Spain

In accordance with this ruling, the Spanish legislator adapted a State regulation to equate taxpayers, who are residents of another Member State of the EU or the EEA (Norway, Iceland and Liechtenstein), with residents in Spain for the purpose of the inheritance and gift tax. In this way, EU and EEA residents began to be able to apply the much more beneficial autonomous rules instead of those of the state when paying the inheritance and gift tax. However, this regulation left out non-EU residents of its scope of application.

Subsequently, Supreme Court jurisprudence (rulings of February 19, 2018, March 21 and March 22) established that non-EU residents could also apply the regional regulations. All this meant that non-residents from outside the EU were treated on the same terms as EU residents and residents in Spain themselves for the purposes of inheritance and gift tax (ISD).

The High Court thus resolved a debate, opening up the possibility of requesting the return of undue income, as well as the possibility of the State's patrimonial responsibility to all those EU and non-EU resident taxpayers who had paid this tax without being able to apply the regional regulations.

Recently, the Supreme Court, in a ruling of July 16, 2020, concluded that a petition for annulment must be considered, under Article 217 LGT, even of a final act issued under a rule contrary to EU law in order to satisfy the principle of effectiveness.

In this regard, the Court considers that the EUJT of September 3, 2014 does not, in itself, constitute sufficient grounds for declaring the nullity of any act, but it does oblige, even in the presence of final acts, to consider the petition without having to invoke a cause of nullity in its own right, the only possibility of satisfying the principle of effectiveness. All this because it is a settlement made to a non-resident taxpayer in Spain, for Inheritance Tax, in application of a law declared not to be in accordance with European Union law, which is final because it was consented to by the latter before that judgment was issued.

Lozano Schindhelm has extensive experience with this type of claims and procedures, so we recommend that those who have overtaxed ISD due to their non-residence in Spain should request the return of undue income, state liability and even the nullity of firm settlements or settlements that have not been appealed in time, before the STJUE has been issued.

Autor: Fernando Lozano
Autor: Claudia Cascant