The Court of Justice of the European Union has ruled against Spain after upholding the appeal in March 2012 by the European Commission. The Court considers that some aspects of the Inheritance and Donation State Tax are incompatible with the free movement of capital.
In Spain, inheritance and gift tax is a state tax, applicable throughout the national territory, except in the Basque country and Navarra, which have their own regulations, but it is assigned to the Autonomous Communities, which can approve rules, which complement or substitute to the State.
The European Commission maintains that the Autonomous Communities can set different tax reductions, which apply only in the case of exclusive connection with its territory. Thus, inheritance or donation in which involved a non-resident person in the Spanish territory, or which aims at real property located outside the Spanish territory, cannot benefit of these tax reductions.
According to the Court this limitation is contrary to the free movement of capital. Given that all the Autonomous Communities have exercised their competence in this respect, the Commission argues that the tax due by the resident taxpayer is considerably lower than that imposed by State law. This applies only in cases of real contribute obligation (the derivative of the acquisition of property and rights by non-residents) and in cases in which the Autonomous Communities do not have or have not exercised their competence.
Discrimination occurs when the deceased or donor, his or their heirs or donees are not residents in Spanish territory and in the case the properties donated or transferred are located abroad, irrespective of the place of residence of the taxpayer. In these cases the tax reductions were not implemented and this constituted a restriction of the free movement of capital.
These differences in treatment are not justified on grounds of general interest. There is no difference between the objective situation of a resident and a non-resident that can sustain a difference of treatment and any differential treatment relative to reductions leads to a discrimination.
Consequently, it opens clearly a way to claim for differences of the tax paid for inheritances and donations in Spain by non-residents during the immediately preceding period of four years.