The TEAC, regarding the taxation by Inheritance Tax of residents in third countries, changes the criteria regarding the Applicability of SpaSpanish regulations considered contrary to European regulations

A person resident in Switzerland inherits from his mother in January 2014, having presented at that time the corresponding ISD, model 652 of Non-Residents. However, after learning of the  CJEU 3-9-14, which considered that Spanish tax regulations in certain aspects granted discriminatory treatment to non-residents, a rectification of the tax settlement was presented, which was denied by the Administration when it considered that it was not applicable since Switzerland is not a member country of the European Union (hereinafter, EU) or of the European Economic Area (hereinafter , EEA). In disagreement with the above, an economic-administrative claim was presented alleging again the discrimination of the Spanish regulations already mentioned.

In the Spanish sphere, for the purpose of taxation by personal obligation (residents in Spain) or by real obligation (non-residents), the residence or the situation of the goods and rights, respectively, are established as connection points (LISD art.6 y 7). However, even though the ISD is a tax assigned to the Autonomous Communities, in the case of non-residents it was not possible to apply said regional regulation, which the CJEU understood that it was a restriction of capital movements, by causing a decrease in the value of the inheritance or donation of a resident in a State other than that in whose territory the inheritance or donation was taxed, or of a resident in a different State in that in which the affected goods were found and that taxed said operation (CJEU 3-9-14). Therefore, it was understood that Spain had infringed the TFEU by establishing such differences in treatment between the successors or donors resident and not resident in Spain, between the causers resident and non-resident in Spain and between donations and similar provisions of real estate located within and outside of Spain.

As a consequence of the foregoing, the Law on Inheritance and Donation Tax addit.prov.II was introduced by virtue of which, in general, the application of the regulations of the competent Autonomous Community is allowed, in the following terms:

a) Inheritance, legacy or any other inheritance title if the deceased had been resident in an EU or EEA Member State, other than Spain: taxpayers will be entitled to the application of their own regulations approved by the Autonomous Community where the highest value of the assets and rights of the relict flow located in Spain is found; if there is no good or right located in Spain, the regulations of the Autonomous Community in which it resides are applicable to each taxpayer.

b) Inheritance, legacy or any other inheritance title if the deceased had been resident in an Autonomous Community: on-resident taxpayers, who are resident in an EU or EEA Member State, have the right to apply the own regulations approved by said Autonomous community.

c) Donation or any other legal business free of charge and «inter vivos» of real estate located in Spain: if the taxpayers are non-residents in Spain but reside in an EU or EEA Member State, they will be entitled to the application of the own regulations approved by the Autonomous Community where the properties reside; however, taxpayers resident in Spain have the right to apply their own regulations approved by the Autonomous Community in which they reside.

d) Donation or any other legal business free of charge and «inter vivos» of personal property located in Spain: If the taxpayers are non-residents in Spain but resident in an EU or EEA Member State, they will be entitled to the application of the own regulations approved by the Autonomous Community where the aforementioned movable assets have been located a greater number of days of the period of the previous five years, counted from date to date, ending the day before the tax becomes chargeable.

In relation to this issue, the Supreme Court decides on the restriction of the free movement of capital for these purposes, based on the argument already mentioned above by the CJEU, understanding that a State regulation cannot make the application of an exemption in the ISD depend on the residence of the deceased and the successor at the time of death, causing in those cases a greater tax burden to non-residents in the inheritance than to the residents involved (TS 19-2-18, EDJ 10107; TS 19-2-18, EDJ 28854).

As a consequence of the above, the TEAC changes the criteria maintained so far in this regard and, in line with the TS criteria, concludes that when an internal standard is considered contrary to European regulations, despite not being expressly repealed, it must be disapplied by the administrative bodies and, therefore, the restrictions contained in the Spanish internal regulations that discriminate against residents in third countries with respect to the goods or rights subject to the ISD should be considered inapplicable.