Recently the media have echoed the STJUE of September 3, 2014 (Affair C-127/12) which states that Spain has failed to fulfill its obligations under the TFEU (Treaty on European Union Foundation) and the Agreement on the European Economic Area (EEA) to allow differences in tax treatment of donations and successions between residents and non-residents in Spain and also between the real estate in Spanish territory and beyond.
This judgment was rendered not in the preliminary ruling procedure (The procedure we use to know after cases like Azziz Affair in relation to unfair terms in mortgages, or like the affair Costeja, in the case of right to oblivion and Google), but in the context of one of its other powers: to control that Member States comply with their obligations under the treaties. (1)
The Spanish inheritance law allows regional governments assume responsibilities for inheritance tax and according to that they may apply tax reductions.
The same law says the tax inheritance transferred to the Autonomous Communities will be applied to succession happened in their territory and to determine that there’s two connection points: the habitual residence in the territory of the deceased or the filing in this territory of the property subject to the tax.
The consequence of this legislation according to the ECJ is that a not resident in Spanish territory or with a property outside the Spanish territory (and therefore any Autonomous Community) is applied to the central state regulations and in that case they cannot benefit from the reductions set by an Autonomous Community and this higher tax burden they have to bear these people is a restriction on the free movement of capital, as the ECJ in previous cases it has already stated saying that they are restrictions on capital movement national measures that cause a decrease in value of the estate. (2)
Therefore, the Spanish State is now required to change their rules on inheritance taxes. This change should not affect the tax transferred to the autonomous communities that the ECJ ruling does not question at all but will have to find a fit for residents and non-residents have the same reductions.
Now this important tax issue in the field of succession must be linked to other independent legal question of private international law in the coming months will surely come to light: the law applicable to cross-border succession and Jurisdiction: the August 17, 2015 comes into force EU regulation 650/2012 inheritance of the European Parliament and of the Council of 4 July 2012 on jurisdiction, applicable law, recognition and enforcement of judgments, acceptance and enforcement of authentic instruments in matters of succession upon death and the creation of a European Certificate of Succession [3], which contains the rules from now will determine what law applied to a succession and which courts have jurisdiction and between other topics.
The regulation makes it clear that it does not address the tax treatment, but clearly there is a big interrelation of this issue at the time of succession planning.
Current system of applicable law:
In the current system in the Spanish Civil Code (article. 9.8) determine that the law applicable to the succession is the law of the nationality of the deceased at the time of death
New system from the entry into force of EU Regulation:
The law governing the whole succession is the law of the habitual residence of the deceased at the time of death
The person may, however, make a will or any other disposition mortis causa saying he wants to apply to the succession the law of any nationality who holds at the time of making this choice or at the time of his death.
As de EU Regulation is configured with erga omnes character (it shall apply even if the law designated by this Regulation is not the law of a Member State) and taking into account their character rule directly applicable in Member States without transposition, the rule in the Spanish Civil Code is displaced.
This new regulation, therefore, is a fundamental change: the general criterion of nationality of the deceased by the criterion of habitual residence is changed.
The regulation contains many other provisions in the field of jurisdiction, but here it would not change the general point of connection based on residency, but other details, such as the possibility to choose the forum, all of this accompanied by rules for recognition and enforcement of these judgments.
We must remember that the subject of inheritance is explicitly excluded from the Brussels I Regulation and thus far remained in the hands of the legislation of each Member State to determine jurisdiction and instead now we are going to have rules of the EU, widespread application to all Member States that apply to them. [4]
Also keep in mind the creation of a European Certificate of Succession for use by heirs, legatees having direct rights in the succession and executors of wills or administrators of the estate who, in another Member State.
How we will act when planning an estate with clear elements of internationality?
This article is not intended as a detailed succession Regulation of the EU but to relate this new legislation, which has not yet entered into force, and the tax regulations that according to the interpretation established by the ECJ.
Therefore, when a succession is planning and, therefore, when we will make a will we must consider what law we will apply to the succession, which determine for example if there are legitimates but also what relationship will have to taxation.
Looking ahead to the horizon that arises beyond August 2015:
A German resident of the Catalan coast would care that the law governing the succession of their national law, but if he is a resident in Catalonia and let real here should also take into account the tax laws that will apply.
If the German is only a homeowner of a house only used during the summer months and has opened a bank account with some money to also use only when it comes to those dates but still lives at home, we would apply the German law of succession (law of habitual residence and also that one of his nationality), but their assignees may invoke Catalan tax reduction whether they are or not residents, following the criterion of STJUE.
But the many possibilities and combinations are possible and the results even more:
What happens if this German citizen also will hold another nationality? Could he have chosen to be governed by the succession law of that other nationality? In that case, what would be tax consequences?
If we complicate the situation and think of a British citizen (not bound by regulation) or a citizen of Canada (non-EU) who dies in Spain with real estate and other kind of goods in the two countries, which law applies? What tax consequences? The criterion of STJUE, would be apply widespread for all international successions or only for EU citizens?
The answers are not simple as they are a combination of the rules on applicable law and tax rules.
Thus, non-EU foreigners die in Spain and a succession here will apply the rules of the EU Regulation (habitual residence of the deceased), but their country of origin have other rules about international private law establishing law to be applied not be based on residency but on nationality and sure this national law will fix inheritance rights that are very different of that one of the law of habitual residence. So the conflict is settled. The courts must resolve these conflicts in many cases, but which court? If the State of nationality of the deceased is not bound by the EU Regulation may not recognize the jurisdiction of the courts of the residence and this situation could provide irreconcilable and unenforceable resolutions in both states.
Regardless of determining inheritance rights, which may be peaceful or not, non-resident nationals of EU countries successors should have the same tax treatment as residents (STJUE). Non-EU and non-residents in any member state, therefore, are not bound by European legislation the same tax treatment that is covered by non-discrimination and free movement of capital may not request, unless the rules tax from each member state allow its
(1) See the website of the ECJ to check their functions. Http://curia.europa.eu/
(2) Subject Jäger C-256/06, Welte Case C-182/12 and subject Mattner C-510/08 http://curia.europa.eu/
(3) 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 judgments, acceptance and enforcement of authentic instruments in matters of succession and the creation of a European Certificate of Succession.
(4)Remember that five or Gb, Ireland and Denmark are not bound by this regulation EU 650/2012
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