November 2nd, 2014
As covered previously, the European Court of Justice has ruled that Spain’s practice of charging non-Spanish resident beneficiaries Spanish Succession Tax (SST) at a different rate from Spanish residents is discriminatory; and therefore unlawful.
Entitlement to demand a repayment of previously paid SST
Thus far, there are no exhaustive guidelines. But in principle, where a non- Spanish resident has accepted an inheritance of Spanish assets and has paid SST during the last 4 years at a rate which is higher than they would have paid had they been Spanish resident, then they are entitled to demand a repayment of the difference between the non-resident rate and the resident rate.
For these past ‘discriminatory’ cases, it remains to be seen whether a specific, official process will be established in Spain, to enable repayments of previously paid SST to be reclaimed.
In the absence of a clear administrative process in Spain for demanding a repayment in these circumstances, an individual legal action needs to be mounted by each beneficiary who considers that they have overpaid SST and are therefore entitled to demand a repayment.
And the legal right in these cases to demand a repayment is time critical, so the right could be lost unless prompt action is taken.
Issues with the legal process for reclaiming SST
The assessment of eligibility for making a claim can be a fairly complex and time consuming exercise. In particular, there have been changes in the way several of the Spanish autonomous communities have charged SST over the last few years (mainly reducing allowances for residents). This means that in a surprising number of non-resident beneficiary cases, despite significant SST charges, no discrimination can be shown.
Pending official guidelines, it is considered to be essential that cases must be fully prepared and demands submitted within 4 years of the date of the original tax payment, otherwise the legal right to demand a repayment could be lost.
It should also be noted that the reclaim would only be in relation to SST, not in relation to other Spanish probate costs and taxes (eg. Plus Valia tax).
It is considered unlikely that the Spanish Tax Authority will establish a rapid, simple and economical system for processing applications for repayment. There will inevitably be detailed documentation requirements; and certification of a receiving bank account will be required.
The reclaim process is therefore likely to be fairly lengthy. The consensus is that the period from commencing the case to reaching a conclusion is likely to be typically in the region of 3 years.
The process of demanding a repayment is also likely to be fairly costly. Preliminary estimates are that, to assess/ initiate the process will be likely to involve a cost of a minimum of 250 Euros per claim. And then the total cost of the reclaim process could be in the region of up to 20-30% of the amount reclaimed in total. (Although some interest may be recoverable, partly to offset the costs).
If a credit for the SST paid has been obtained in the beneficiaries’ own country (for example, against UK IHT), then this could undermine the Spanish case for demanding a repayment.
From initial discussions with specialist practitioners in this area, the range of minimum cases (below which they would not consider it worthwhile taking a case on) is between 1,500 Euros- 2,500 Euros SST paid (per beneficiary).
Of course, any entitled beneficiary can pursue their own claim for any amount of SST which is reclaimable- with or without professional representation. There is no minimum level. But independent professional advice is always recommended, to ensure the case is worthwhile pursuing; and is handled correctly.
Spanish legal proceedings generally can be lengthy and complex; and therefore costly. So it is essential at the outset of any Spanish legal case, to have a clear understanding of the costs which will be incurred; and the chances of success, to avoid the risk of ‘throwing good money after bad’.
For Spanish probate cases currently in progress, the obligation remains for beneficiaries to pay SST according to the current Spanish law (even though not EU compliant); and then (maybe) subsequently have the right to make a reclaim.
From the Spanish property owner or beneficiary’s point of view, this situation is far from satisfactory. But the EU Court Ruling has unavoidably created a ‘legal limbo’; pending fresh fiscal legislation/ directions from Spain.
Many practitioners have concluded that the SST reclaim process is likely to be so fraught with potential issues- delays, costs, procedural uncertainty, that the number of individuals who will pursue cases- and see them through to a successful conclusion- will be relatively small.
It is anticipated also that some beneficiaries will conclude that, irrespective of the potential legal entitlement, they have drawn a line under completed Spanish probate cases; and have little interest in reopening the cases; and/ or taking on the cost and stress of embarking upon this Spanish legal process.
But, for those individuals who do wish to pursue an SST reclaim, it is recommended to be in the hands of a specialist professional, as any procedural errors could be fatal to the claim. Another risk inherent in reclaim opportunities of this nature is that non-specialist operators tend to ‘spring up’, even taking on claim cases with no real merit, but charging hefty up-front fees. As with all professional services providers, some investigation as to background, reputation and professional regulation/ indemnity cover is essential.
This general commentary is not intended to be exhaustive; and case-specific legal advice should always be sought.