Possible tax discrimination between residents and non residents in Spain

The European Commission is pressing Spain again to avoid any possible discrimination regarding taxes between Spanish residents and Spanish non residents, members of the EU. At the time this was the reason for the change in the capital gains tax rate for non residents to match that of the residents. Finally the Spanish legislation was adapted and the same rate is applicable to both.

In the case of Inheritance and Gift tax, there is a similar situation, Spanish non residents of certain regions pay much higher rates than residents and thus the European Commission has denounced this before the European Court of Justice. This tax discrimination is contrary to European Law because it goes against one of the fundamental freedoms of the EU Treaty: the free movement of persons and capital.

The situation is complex as this tax is not only regulated by the Spanish State but also by regional bodies (Autonomous Government) and the tax to be paid even by Spanish residents varies considerably depending in which community they live. Most of the Spanish regions have implemented amendments to the general State regulations and their resident tax payers, i.e. persons who receive an estate within their boundaries have to pay a lower inheritance tax.  At present the Spanish non residents are taxed according to the main State regulations, thus the amendments introduced by the regional bodies are not applicable to them. Therefore in order to avoid discrimination, any non resident should also benefit from any tax allowance based on the regulations established by the Autonomous Government where his property is located.

Until the necessary amendments are made by the Spanish government to adapt the legislation and avoid the tax discrimination any UE non resident who pays inheritance tax liabilities at a higher rate than a Spanish resident can claim the refund of the surplus tax paid based on the existence of discrimination in the tax treatment. This is also applicable to any inheritance tax paid in the last four years, but every case has to be analyzed carefully and individually, as the regulations applicable differ from one Autonomous Government to another. Summarizing both residents and non residents should receive the same tax treatment and thus  the regulations applicable have to be compared when arranging for the payment of the tax to establish the existence of a possible discrimination.

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