Tax Refunds

The European Court of Justice stated the Spanish system for inheritance tax was contrary to the principles of the EU of freedom of movement and freedom of establishment as it allowed different treatment of tax payers depending on where they, or the deceased, had their last residence, or where the assets were located.

The reason for that, was that the right to collect inheritance tax was granted by the Spanish State to the individual Comunidades Autónomas and gave some regulatory autonomy which they used to give large allowances depending on age, relationship to the deceased, or existing wealth of the beneficiary. The advantages can also be in the form of a different rate for close relatives or even huge deductions on the amount to be paid.

These benefits were established in relation to the particular circumstances of each Comunidad Autónoma, so they were not applied if the deceased or the beneficiary were non Spanish residents, therefore the Spanish State law, without all those benefits, was applied to non residents.

To comply with the sentence of the European Court of Justice that declared the Spanish Inheritance tax system invalid, the law was changed ( Disposición Adicional Segunda Ley del Impuesto) so it now states that taxpayers can choose the law of the Comunidad Autónoma if:

A.-The deceased was resident in the Comunidad Autónoma, and the beneficiary is resident in the EU or the EEA

B.-The deceased was resident in another EU or EEA country other than Spain and:

a.-There are assets located in Spain ( In the Comunidad Autónoma where the most valuable assets are located)


b.-The beneficiaries are residents in Spain ( In the Comunidad Autónoma of their residence)

Moreover recent court rulings from the Spanish Supreme Court (22-3-2018 and 19-2-2018) established that the different treatment of the people involved, by way of their place of residence, was contrary to the fundamental EU principles either if they are residents in a Member State or in a Non-Member State and also ruled that any tax paid over the amount owed under the legislation of the corresponding Comunidad Autónoma should be refunded.
These court rulings were obtained on the grounds of public liability of the Spanish law maker in not complying properly with the resolution of the European Court of Justice.
These statements imply that inheritance tax has already been paid but as in every public civil liability claim, the claim has to be made within a year from the date of payment.

Furthermore, due to the principle of «primacía y efecto directo», of the EU legal system to all EU members, the Tax Authority must not apply a national rule that is contrary to the EU legal system, so the Tax Authority «Dirección General de Tributos» stated in a «consulta vinculante» (24-6-2019) that the above rule ( Disposición adicional segunda Ley del impuesto) may be understood to include non-residents when it states residents in EU or EEA member states, so it can be applied wherever the foreign residence of the deceased, the beneficiary or both was. In this last case, when both the deceased or the beneficiary had their residence in another country than in Spain the law of the Comunidad Autónoma where the assets were located may be applied.

AND FINALLY court resolutions of the Audiencia Nacional, regarding inheritance tax of non residents, the last being from 28 November 2019, in a case where inheritance tax was liquidated under State Law as the beneficiary was non resident, stated that the inheritance tax liquidation made was null and void, and required a new liquidation under the competent Comunidad Autónoma regulation, with the right for the tax payer to obtain a tax refund of what had been paid over and above the allowances of the competent Comunidad Autónoma’s rule, with the right to obtain interest from the date of the claim.

So now, there is a clear and secure precedent which allows a tax refund of the excess amount paid for up to four years from the date of payment, when Spanish State rule was applied, wherever the residence was, whether in a EU member State or in a third country.

NOW, FROM 13TH OCTOBER 2021 the law has finally changed to accommodate the European Court ruling in full, so there is no discrimination between EU residents and non EU residents for Inheritance and Gift Tax purposes ( Please note that insurance policies are not named in this new change of law, so the beneficiary of a life insurance policy who is not a resident may be obliged to apply Spanish State law that can lead to higher taxes than Comunidades’ Autónomas rules may establish for their residents. Let’s see how things develop. Until then maybe it is a good idea to name in the will as an inheritor, or as a legatee, the beneficiary of a life insurance policy.

Please contact us if you would like us to advise you on this issue.

Any Questions?

Contact us for specific personal advice for your individual case