The European commission has brought the Kingdom of Spain to the Court of the European Union on 27.10.2011, because the Spanish tax regulations generally discriminate foreigners with no official residence when acquiring properties in Spain through an inheritance or a gift; they have to pay much more tax on an inheritance or a gift acceptance than the residents.
The European Commission had requested Spain to amend its provisions on inheritance and gift tax, which allow for a higher tax burden on non-residents and foreign assets. The commission sent Spain a reasoned opinion on 5 May 2010 (IP/10/513). Spanish legislation was amended, but was considered still not compatible with EU law. The commission has therefore decided to send Spain a complementary reasoned opinion, in which it requests further amendments to be made in order to achieve full compliance with EU law. As can be seen from the European Commission’s request in February 2011, provisions in the various Comunidades Autonomas (Spanish regions with their own legislative powers) are incompatible with the free movement of workers and capital under the terms of the Treaty on the Functioning of the European Union. The commission’s request was sent in the form of a complementary reasoned opinion. The Kingdom of Spain had two months to send the Commission a satisfactory response, but the Commission has finally decided to bring Spain to the European Court of Justice.
Since the founding of the Single Market, the European Union has protected the so-called “four freedoms”: the free movement of goods, capital, services and people. This means that in principle, trade between member states is therefore free from any restrictions, and EU citizens can enjoy the free movement of workers and right of residence. It also guarantees that any businessperson residing in an EU member state may also offer and provide their services in other member states, and that the transfer of any amount of funds and securities is not only permitted between member states, but also between member states and countries outside the EU. However, the exercising of the latter, the free movement of capital, can be affected when the regulations on capital tax within the EU (and even within member states) differ so greatly. This also applies to regulations on inheritance tax. In Spain, inheritance and gift tax is regulated both at national level and by the autonomous communities. In practice, regulations set by the autonomous communities mean that tax is considerably lower than under national regulations. If a gift or inheritance does not come under the jurisdiction of an autonomous community, only national regulations apply. This is particularly the case if the recipient of the inheritance or gift lives abroad or it involves foreign assets. Taxes on non-residents and foreign assets are accordingly higher. The European Commission views this as a breach of the freedom of movement of workers and capital, which are guaranteed under the terms of the Treaty on the Functioning of the European Union (Articles 45 and 63 respectively).
Carlos Prieto Cid, Lawyer