Spain’s autonomous communities have devolved powers to legislate in certain tax matters. In the case we are examining here, that of inheritance and gift tax, the Canaries enjoys certain tax benefits for children and spouses that are greater than in other autonomous communities, specifically:heirs belonging to groups I and II (spouse, parents and children) are granted a 99.9% discount of the tax payable on lifetime gifts (“inter vivos”) provided that the donation is formalized in a notarial deed.
Spouses, descendants and adopted children also enjoy a 95% reduction on the net value of elements of a business or professional activity developed by the donor, provided that a series of requirements are met.There is another reduction of 95% for the acquisition of shares in unlisted companies where the donation is in favor of the spouse, descendants or adoptees, again provided that a series of requirements are met.
A reduction is set, moreover, for the donation of amounts in cash for the purpose of acquiring or refurbishing an habitual residence.
Furthermore, there is a 95% reduction on value over established limits for contributions to protected assets of the disabled.
So far these tax advantages have applied only to residents of the Canary Islands and, following the ECJ’s ruling of 3 September, also to EU residents.
A recent resolution of the Directorate of Taxes (14.12.2018), however, established that excluding third-country residents violates EU law as being contrary to the precepts governing the principle of freedom of movement of capital, which, according to ECJ jurisprudence, applies equally to those resident outside the EEA.
The reasons are as follows:
First: Spanish law governing tax on inheritance and gifts is contrary to EU rules insofar as it does not respect the principle of freedom of movement of capital regulated by Article 63 of the Treaty of Lisbon which prohibits all restrictions on the movement of capital between member states and between member states and third countries.
Second: in accordance with the jurisprudence of the Supreme Court and the ECJ on the scope of the principle of freedom of movement of capital enshrined in Article 63 of the Treaty of Lisbon, the effects of the ECJ’s ruling of 3 September 2014 are applicable to residents of non-EU countries.
Third: accordingly, the exclusion of third countries outside the EEA should not be considered regarding the scope of application of the second additional provision of Law 19/1987 of 18 December on inheritance and gift tax.
The system as regulated in this additional provision, therefore, will apply to all non-residents irrespective of whether they live in a member state of the EU or EEA, or in a third country.
In my opinion, given the Directorate of Taxes’ position, one could envisage the possibility of reclaiming inheritance and gift tax overpayments made by non-EU nationals.
