For all those non-residents outside the European Union (EU) and the European Economic Area (EEA) who paid the Tax on Inheritance and Donations years ago, the decision made by the Spanish Supreme Court on February 19 has been good news. The Spanish Supreme Court finally ruled that Spanish internal regulations discriminates non-residents in relation to Inheritance and Donations Tax, and therefore this regulation was null and void. According to this sentence (STS 550/2018), non-residents in the EU and EEA should be subject to the rules of the Autonomous Communities when paying this tax, and not the state regulations as has been done until now, which was less beneficial. Thus, discriminatory treatment was granted to non-residents in the EU and the EEA by applying regulations that harmed them, which is contrary to Community law, and therefore null and void.
But this situation already raised controversies in the past. In principle, when a non-resident in Spanish territory received a donation or inheritance in Spain, the state regulations were applied instead of autonomic ones, which in most cases contain tax advantages when paying this tax, such as deductions or bonuses, which state regulations do not include. Therefore, the fact of being non-resident turned out in a higher tax liability than in the case of residents, giving rise to a different treatment for the mere objective fact of the residence. This was contrary to European law, as it was discriminating against residents of the European Union and was violating the principle of free movement of capital in art. 63 of the TFEU (Treaty on the Functioning of the European Union), and the Court of Justice of the European Union concluded in its sentence of 3 September 2014 (Case C-127/12) that if European non-residents were taxpayers of the tax, the same rules should objectively be applied to them and, therefore, the regional rules should be applied.
Following this mandatory ruling, the Spanish internal regulation was modified by introducing the Second Additional Disposal in the text of the Inheritance and Donations Tax Law and correcting this situation, but instead of including all non-residents, only the modification was contemplated for residents in the European Union and the European Economic Area, once again establishing a situation of discrimination against residents in third countries. This disposal was already criticised at the time because the European legislation was once again being violated by establishing that the free movement of capital also applies to third countries.
Reaching the point of the publication of this Supreme Court judgement in 2018, it is finally concluded that third countries’ residents are also subject to the regulations of the autonomous communities in the settlement of Inheritance and Donations Tax, opening the way to possible challenges for those non-residents who paid a higher fee when settling the tax in accordance with state regulations.
How is it possible to make this claim?
For non-prescribed inheritance and donations tax settlements, a refund of the excess paid may be requested by submitting a Request for the refund of undue income to the corresponding Autonomous Community Tax Agency, in which it is alleged that the application of autonomic regulations are applicable instead of state regulations, when there are reasons for doing so. The specific case must be taken into account, that is to say, the Declaration (not prescribed) must be reviewed to verify whether or not applying the autonomic regulation, the resulting quota to be paid is lower than the original one, having the right therefore to the return of what has been unduly paid.
In the case of liquidations to be submitted now, the issue presents greater complications. The Spanish internal regulations have not yet been modified, eliminating this discrimination against residents of third countries. Therefore, if the liquidation is submitted by applying the autonomic regulations, even though we have the Supreme Court’s criterion in the ruling, we risk a rejection of this liquidation. Therefore, there are two possibilities: present the liquidation with the state regulations and, after that, challenge said declaration and request the refund of the unduly paid, or to take the risk and try to get the Autonomous Tax Agency to accept the liquidation with the application of the autonomic regulations.
We must add that there are already binding inquiries of the Directorate-General for Taxation (CV 3151-18 and CV 3193-18) in which it is estimated that effectively the Spanish legislation that governs Inheritance and Gift Tax is contrary to European regulations, since the principle of free movement of capital is violated, giving conformity to the criterion of the Supreme Court and, therefore, admitting that the autonomic regulations on this tax are also applicable to non-EU residents, thereby giving taxpayers greater expectations of success in tax declarations with the application of the appropriate legislation, that is, the autonomic one.
