The European Court of Justice finally delivered a long-awaited judgement on 3rd September 2014. The illegality of the Spanish rules on inheritance and gift tax, which discriminate against citizens of other EU countries (defined as non-residents), who are subject only to certain tax obligations when in Spain, have now been confirmed by the highest court.

The ECJ has clearly confirmed that the Spanish state is in infringement of primary community legislation by virtue of law 29/1987 of 18th December 1987, concerning inheritance and gift tax. Non-residents do not enjoy the inheritance-tax advantages that Spain’s autonomous local authorities have given their residents with tax liability, which lead in part to no tax at all being applied. A disadvantage for non-residents existed, and continues to exist, in the discrimination, which goes against European law, between the tax rates paid by residents and non-residents respectively, and also with regard to the location, or not, of assets in the territory of an autonomous local authority with a favourable tax regime. This connecting factor of location has a significant impact on issues such as the tax base, lump-sum allowances and tariffs, etc.. 

The ECJ has meanwhile unfortunately neglected to give the Spanish legislative authority any timetable or instructions on how to proceed with the necessary reforms of the laws governing inheritance and gift tax. It remains to be seen what form the legal amendments concerned will take.

Finally, there is the important question as to whether, and to what extent, successful claims for the recovery of inheritance and gift tax paid incorrectly (i.e. excessively) can be made. Although many questions remain unanswered in this respect, our current thinking is that claims that have not yet expired (at four years after the self-assessment and payment deadline) have a good chance of success. We tend to be more sceptical about both the outcome of claims that have expired and the possibility of establishing state liability.

This scepticism is based on our professional experience and the untoward tendency of Spanish courts to accept state-liability claims only in a restrictive manner, and only then after a long and tortuous legal process. As the ECJ judgment also lacks precision in some important respects, and does not address the delicate issue of the devolution of legal powers by Spain’s central government to its autonomous regional counterparts, we are not exactly euphoric about the prospects of a success outcome when it comes to possible liability-claims against the state. It might however be advisable, if claims are very high, to examine each case in order to determine whether an appeal might be lodged within the four-year time limit, as an extreme precaution in this respect. 

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