Cross-border inheritance in the EU
EU citizens that inherit foreign property are frequently faced with a tax bill from more than one Member State. In fact, in extreme cases the total value of a cross-border inherited asset might even have to be paid in tax, because several Member States may claim taxing rights on the same inheritance or tax foreign inheritances more heavily than local inheritances. Citizens may be forced to sell inherited assets, just to cover the taxes, and small businesses may face transfer difficulties on the death of their owners. To tackle these problems, the Commission today adopted a comprehensive package on inheritance taxation. Through a Communication, Recommendation and Working Paper, the Commission analyses the problems and presents solutions related to cross-border inheritance tax in the EU. Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit, commented:
“Benjamin Franklin once said that nothing is certain except death and taxes. Unfortunately, when you put the two together, a huge amount of uncertainty seems to arise. The burden of cross-border inheritance tax can be crippling for citizens, due to discrimination and double taxation. Small changes in Member States’ rules to make them more coherent with each other could deliver real benefits for hundreds of thousands of people across Europe. This is what we aim to achieve.”
Background
Today’s Communication points out that there are two main problems when it comes to cross-border inheritance tax in the EU:
The first is double or multiple taxation, where more than one Member State claims the right to tax the same inheritance. Divergent national rules, a shortage of bilateral inheritance tax conventions, and inadequate national double tax relief measures can result in citizens being taxed twice or more on the same inheritance. Member States are free to apply national inheritance rules as they see fit once they are in line with EU rules on non-discrimination and free movement. The Commission is not proposing any harmonisation of Member States’ inheritance tax rules. Instead it is recommending a broader and more flexible application of national double taxation relief measures so as to provide a pragmatic, speedy and cost-effective solution to the significant tax burdens facing many citizens. The Recommendation in today’s Package suggests how Member States could improve existing national measures to ensure that there is adequate double tax relief. It sets out solutions for cases in which several Member States have taxing rights. The Commission invites Member States to introduce the appropriate solutions into national legislation or administrative practices.
The second inheritance tax problem that citizens can encounter is discrimination. Some Member States apply a higher tax rate if the assets, the deceased and/or the heir are located outside their territory. In such cases, EU law is clear: Member States are obliged to respect the basic principles of non-discrimination and free movement set out in the Treaties. The Working Paper published today sets out the principles on non-discriminatory inheritance and gift tax, using case-law to illustrate them. This will help Member States to bring their provisions into line with EU law, while also raising citizens’ awareness of the rules which Member States must respect.
Although cross-border inheritance tax problems may seriously affect individuals, revenues from domestic and cross-border inheritances taxes account for a very small share – less than 0.5% – of total tax revenues in Member States. Cross-border cases alone must account for far less than that figure.
Next steps
The Commission will launch discussions with Member States to ensure appropriate follow up to the Recommendation. In addition, it is ready to assist all Member States in bringing their inheritance laws into line with EU law. In 3 years time, the Commission will present an evaluation report showing how the situation has evolved, and decide on this basis whether further measures are necessary at national or EU level. Meanwhile, the Commission, as guardian of the Treaties, is continuing to take the necessary steps to act against discriminatory features of Member States taxation rules.
For the full texts of the Communication, Recommendation and Staff Working Paper, see here:
Source: Europa en breve– Delegation of the CGAE in Brussels.
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