# EUR-Lex - 52011DC0864 - EN

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# 52011DC0864

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Tackling cross-border inheritance tax obstacles within the EU /* COM/2011/0864 final */**

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1.
Introduction

In its "Europe 2020 strategy" for
smart, sustainable and inclusive growth in the EU[1], the European Commission stresses
that an element of putting the EU economy back on track consists in empowering
EU citizens to play a full part in the single market and in giving them the
confidence to do so.

Within the EU all citizens are able to cross
borders freely to live, work study or retire, and to purchase property and
invest in other EU Member States. However, the Single
Market Act[2] and the "EU Citizenship
Report"[3] have identified many
legal and practical obstacles that deter people from actually
exercising these rights across borders within the EU, as well as actions that need to be taken in a whole range of areas so that EU
citizens' rights are fully effective. Taxation is one of these areas. The European
Commission's Communication of 20 December 2010 on "Removing
cross-border tax obstacles for EU citizens"[4]
examined the most pressing tax problems that citizens
face when active across borders within the EU and outlined solutions to these problems.

Inheritances received across borders are one
of the problem areas identified in the Communication of 20 December 2010. The
problems consist mainly of double taxation and discriminatory tax treatment. The
snapshot of citizens' and businesses' concerns in the
Internal Market published in August this year confirmed that inheritance taxes feature
among the 20 top problems faced by citizens and businesses when active across
borders.[5]

The Communication on "Double taxation
in the Single Market"[6]
recognised that existing and planned instruments to relieve double taxation of
income and capital cannot efficiently tackle cross-border inheritance tax
issues and that separate solutions would be required in that tax field.

Therefore, the present Communication that
is being adopted together with a Recommendation[7],
and that will be accompanied by Staff Working Papers[8], outlines solutions to these
cross-border inheritance tax problems.

The approach in the package adopted today reflects
the Commission's view that some cross-border tax problems can be solved effectively
through coordination of national legislation (as well as cooperation in the
area of enforcement). The Commission underlined some years ago[9] that
in many cases it may be sufficient for Member States to abide by the rules set
out in the Treaties and to implement unilaterally certain well defined solutions,
in order to eliminate discrimination and double taxation and reduce the compliance
costs for businesses and citizens associated with being involved with more than
one tax system. Coordination of this type would also strengthen Member States' ability
to protect their tax revenues and avoid litigation concerning individual provisions.

The present initiative is also designed to
complement the Commission proposal for a Regulation “on
jurisdiction, applicable law, recognition and enforcement of decisions and
authentic instruments in matters of succession and the creation of a European
Certificate of Succession”, adopted in October 2009[10]. The proposed Regulation would
provide a mechanism for determining which Member State's succession law would
apply in the case of an inheritance across borders to which otherwise several,
possibly conflicting, sets of national rules might apply. That draft Regulation
does not deal with the taxation issues that arise in the case of cross-border
inheritances.

2.
Current rules on inheritance
taxation

There is no EU-wide law in the area of
inheritance taxation[11]
so Member States are free to design their rules in that
area as they wish provided that they do not discriminate on the basis of
nationality and do not apply unjustified restrictions to the exercise of the
freedoms guaranteed by the Treaty on the Functioning of the EU.

At
present, Member States' rules on the taxation of inheritances vary
considerably. Eighteen levy specific
taxes upon death while nine (Austria, Cyprus, Estonia, Latvia, Malta, Portugal,
Romania, Slovakia and Sweden) do not do so but some of those nine tax
inheritances under other headings such as income tax. Member States applying
inheritance taxes differ regarding whether they tax the estate or the heir i.e.
whether they tax on the basis of a personal link of the heir or the deceased,
or both, to those Member States. They may treat as a personal link the
residence, domicile or nationality of the deceased or of the heir[12] and some Member States use
more than one of these factors. The meaning of these terms may also differ from
one Member State to the other. Furthermore, most Member States apply
inheritance tax to assets located in their jurisdictions even if neither the
deceased nor the heir has a personal link with the jurisdiction in question. While
effective rates of inheritance tax may be low in the case of inheritances
passed to heirs who are closely related to the deceased, the rates can reach
60-80% in some Member States in cases where the deceased and the beneficiary
are not related. Some of the nine Member States that do not apply inheritance
taxes have abolished them in recent years. This may be because of certain
drawbacks in such taxes. One is that the rich often avoid them by using tax
planning so that the burden falls on the less wealthy. Another disadvantage is
the public perception that taxation on death is unfair in that it is taxing
wealth that has already been taxed. However, this
initiative does not call into question the existence of inheritance taxes, but
focuses on the difficulties that EU citizens can face when they inherit across
borders.

3.
The problems and their
scale

Studies demonstrate that increasing numbers
of EU citizens are moving from one country to another within the European Union
during their lifetimes to live, study, work and retire; the number of EU-27
citizens that reside in a Member State other than their State of origin reached
approximately 12.3 million in 2010, an increase of 3 million compared to 2005.[13] Studies also show that
cross-border real estate ownership in the EU increased by up to 50% between
2002[14]
and 2010 and that there is also a massive growing trend in cross-border
portfolio investment[15].

Given these statistics, it is likely that
more assets may be inherited across borders in the future and therefore that
more inheritance tax issues will arise. At present, the number of potential
cross-border inheritance cases is conservatively estimated at between 290,000
and 360,000 per year[16].
SME organisations frequently point to the particularly
damaging effects of inheritance taxes on small businesses, and say that the
application of double taxation would aggravate the problems further[17]. There
is already some evidence of an increase in cross-border inheritance tax
problems in recent years. The Commission has received many more complaints and
enquiries from EU citizens in this area in the last decade than ever before. Furthermore,
the Court of Justice of the European Union (the Court), which never dealt with
an inheritance tax case before 2003, has, since then had to make decisions in ten
such cases. In cross border situations the following difficulties may arise:

(1)
Member States may discriminate between cross-border
inheritances and inheritances with no cross-border element. In other words, they
may apply a higher rate of inheritance tax where the assets, deceased persons
and/or heirs are/were based in other countries than they would apply in purely domestic
situations (i.e. in the case of inheritances of assets located in the territory
of the taxing Member State bequeathed by previously domestically resident deceased
persons to domestically resident heirs).

(2)
Where two or more countries have taxing rights
over the same inheritance, situations of unrelieved double or multiple taxation
may arise and, unlike in the case of income and capital taxation, there are few
national or international arrangements in place to relieve such double/multiple
taxation in an effective way.

Discrimination is prohibited under the
principles of the EU Treaty, and the Court has already found aspects of Member
States' inheritance tax laws discriminatory in eight out of the ten cases
examined since 2003. However, there may be many cases of discrimination which
have not reached the Court, in particular because court cases may involve high costs for taxpayers. However, the Court has found that
double taxation caused by the parallel exercise of taxing rights by two or more
Member States is not in breach of the Treaty[18].

In these circumstances, those receiving
inheritances across borders may potentially face tax problems leading to inordinately
high levels of inheritance tax. The overall tax bill in the case of some
inheritances received across borders could potentially be so high that an heir might
have to take out a loan or sell the inherited property in order to pay the tax
bills. In this respect it may be observed that the accumulation of taxes
imposed by more than one State might lead to results that, in some Member
States at least, would be considered as confiscatory and thus unlawful, had
these results been brought about by the provisions of that State alone. The following example of double taxation of a cross-border
inheritance is based on a case reported through the Commission's Your Europe
Advice service[19]:

Example: A Dutch citizen pursuing his career in France inherited a property in France from his deceased life partner who was also a Dutch citizen and who had lived in France for the previous 6 years. Their relationship had not been not formalised. The Dutch citizen had to pay French inheritance tax in view of his residence in France and of the fact that the property concerned was located in France. However, he also had to pay inheritance tax in the Netherlands because his life partner was deemed to have been resident in that State. For the purposes of inheritance tax, Dutch nationals are deemed to have resided within the national territory for 10 years following the date they leave the Netherlands to live abroad. The tax applied by France amounted to nearly 60% of the net assets. The tax applied by the Netherlands amounted to an additional 12.5%. Under the legislation applied by the Netherlands, foreign taxes are deductible as a liability on the inheritance received and, therefore, the tax applied by France led to a reduction of the taxable base in the Netherlands. Nevertheless, double taxation was not fully eliminated and the total tax due on the property concerned was higher than it would have been had the inheritance been confined to any one of the two Member States concerned.

While at individual level citizens can be affected heavily by double
taxation, revenues from domestic and cross-border inheritances taxes account
for a very small share - less than 0.5% - of total tax revenues in EU Member
States. Cross-border cases alone must account for far less than that figure.

Note: The
eight new Member States in the sample are: Cyprus, Czech Republic, Estonia,
Hungary, Lithuania, Malta, Slovakia, and Slovenia. Data were not available for
the other four new Member States.

Source:
Copenhagen Economics Study based on National Tax List: http://ec.europa.eu/taxation_customs/taxation/gen_info/economic_analysis/tax_structures/article_5985_en.htm.

4.
Suggested solutions

The
Commission believes that cross-border inheritance tax problems may be resolved
without any harmonisation of Member States' inheritance tax rules which thus
would remain a matter of policy choice for each Member State. It may be sufficient
simply to ensure that Member States' rules interact more coherently with each
other so as to reduce the potential for double, or even multiple, taxation of
inheritances. Besides, by virtue of the fundamental freedoms enshrined in the
Treaties, Member States must in any event abstain from inheritance taxation which
would discriminate against cross-border situations. Better knowledge of the
applicable rules by all stakeholders could further contribute to compliance
with these freedoms.

As regards double taxation, the accompanying Commission Recommendation suggests how Member
States could cooperate to provide comprehensive double taxation relief for
cross-border inheritances within the EU. Given that Member States have few
bilateral treaties to eliminate double taxation of inheritances[20] and seem not to have taken the initiative to negotiate more such
treaties, the Recommendation focuses instead on improving Member States' existing national measures to relieve double taxation
of inheritances. In the short term, without any prejudice to the conclusion in
the future of bilateral or multilateral double taxation arrangements, the
Commission wishes to encourage a broader and more flexible application of these
existing national solutions to double taxation.

The
Recommendation sets out solutions for cases in which several Member States have
taxing rights, because of the location of the assets included in the
inheritance and because of personal links of the deceased and/or the heir with those
States. Furthermore, the Recommendation addresses the case of multiple personal
links, due either to the diverging situations of the deceased and the heir or
to the fact that one single person has personal links to more than one Member
State (e.g. resident in one the State and domiciled in another).

Member States are
invited to introduce the solutions suggested either in legislation or by way of
administrative measures which may entail adopting a more flexible
interpretation of existing provisions. The ultimate aim of such measures is to ensure
that the overall tax burden on a cross-border inheritance is no higher than in
an internal situation in one or other of the Member States involved. While
these solutions are unlikely to have major budgetary impacts on Member States'
revenues, given the low share that inheritance taxes represent of Member States'
total revenue, the positive effects on the individuals concerned could be
considerable.

As regards
tax discrimination, the accompanying Commission Staff
Working Paper[21]
sets out the EU case-law principles for non-discriminatory inheritance taxation
and aims to explain and illustrate the operation of the fundamental freedoms. EU
citizens would thus be more aware of the rules which Member States must respect
when taxing cross-border inheritances. It could also assist Member States in
bringing their inheritance tax provisions into line with EU law[22] and would thus support and
complement the Commission's ongoing infringement actions against discriminatory
inheritance tax provisions. In these circumstances EU citizens would be less
likely to encounter discriminatory taxation in the future.

The solutions
proposed would also be applicable and beneficial to those who inherit SMEs
across borders.

While the
Commission is not proposing any legislative measure at this time in relation to
double taxation, it may do so at a later stage if this proves necessary. The
Commission will, therefore, carefully monitor Member
States' laws and practices in taxing inheritances to assess what, if any,
changes are made as a result of the solutions proposed today and whether these
changes effectively tackle the problems outlined.

5.
Conclusion and
follow-up

Inheritance
tax rules were not designed to cope with the reality that citizens now change their
countries of residence more frequently and purchase and invest abroad. Appropriate
solutions must be found to address cross-border inheritance tax problems that are
likely to increase in the future if no action is taken. That is why the
Commission:

·
has adopted a Recommendation for a comprehensive
system of double taxation relief for cross-border inheritances within the EU
and will launch discussions with Member States to ensure appropriate follow-up to
this Recommendation;

·
is ready to assist Member States in bringing
their inheritance tax laws into line with the EU Treaty but will also, in its
role as guardian of the Treaties, take the steps it considers necessary to act against
discriminatory features of Member States' inheritance taxation rules;

·
will prepare an evaluation report in three years
time based on monitoring Member States' practices and any changes made as a
result of the initiatives presented today.

·
may, if the report demonstrates that cross-border
inheritance tax problems persist and subject to the results of an Impact
Assessment, make an appropriate proposal to eliminate those obstacles.

The
Commission invites the Council, the European Parliament, national parliaments
and the European Economic and Social Committee to examine this Communication
and related documents and to give their full support to the present initiative.

ANNEX I. LIST OF TAXES APPLIED TO
INHERITANCES IN MEMBER STATES

Country || Taxes/other duties

Belgium || Droits de succession et de mutation par décès / Rechten van successie en van overgang bij overlijden, (Inheritance tax and transfer duty upon death)

Bulgaria || Данък върху наследствата (Inheritance tax)

Czech Republic || Daň dědická (Inheritance tax)

Denmark || Afgift af dødsboer og gaver (Tax on Estates of deceased persons and Gift Tax)

Germany || Erbschaftsteuer (Inheritance tax)

Estonia || No inheritance tax || Various charges including income and capital gains tax in certain instances

Ireland || Inheritance and gift tax

Greece || Φόρος κληρονομιάς, δωρεών και γονικών παροχών (Tax on inheritance, gifts and parental provision)

Spain || Impuesto sobre sucesiones y donaciones (Succession and gift duty)

France || Droits de mutation entre vifs (donations) et par décès (successions), (Succession duty - Transfer duty)

Italy || Imposta sulle successioni e donazioni (Succession and gift duty)

Cyprus || No inheritance tax || Αποθανόντων Προσώπων –(Tax on land transfers)

Latvia || No inheritance tax ||

Lithuania || Paveldimo turto mokesčio (Inheritance tax)

Luxembourg || Droits de succession (Inheritance tax)

Hungary || Öröklési illeték (Inheritance tax)

Malta || No inheritance tax || Transfer duty in certain instances

Netherlands || Schenk- en erfbelasting (Inheritance and gift tax )

Austria || No inheritance tax || Stiftungseingangssteuer, Grundwerbsteuer (Tax on land transfers and contribution to private foundations)

Poland || Podatek od spadków i darowizn (Tax on inheritances and gifts)

Portugal || No inheritance tax || Imposto do selo (Stamp duty)

Romania || No inheritance tax ||

Slovenia || Davek na dediščine in darila (Inheritance and Gift Tax)

Slovakia || No inheritance tax ||

Finland || Perintövero/Arvsskatt (Inheritance tax)

Sweden || No inheritance tax || Various charges including income and capital gains in tax in certain instances

UK || Inheritance tax

Source : Taxes in Europe Database (2011) and IBFD (2011)

ANNEX II. EU MEMBER STATES' DOUBLE TAX CONVENTIONS ON
INHERITANCES

Note: √
means in force since before 1 January 2000; √* means new since 1 January
2000. The treaties between the Nordic countries are part of a multilateral
agreement signed by the Nordic countries in 1983: Nordiska skatteavtalet
(Nordic convention), signed in Helsinki on 22 March 1983. In the matrix each
treaty is shown twice, e.g. a treaty between UK and SE is marked for both SE-UK
and UK-SE.

Source: Copenhagen
Economics based on IBF, Tax treaties database.

[1]               COM(2010) 2020

[2]               COM(2011) 206

[3]               COM(2010) 603

[4]               COM(2010) 769 and Staff Working Paper SEC(2010) 1576

[5]               The Single Market through the eyes of the people: a
snapshot of citizens' and businesses' views and concerns - Staff Working Paper
SEC(2011) 1003

[6]               COM(2011) 712

[7]               C(2011) 8819

[8]               SEC(2011) 1488, SEC(2011) 1489 and SEC(2011) 1490

[9]               Commission Communication on "Coordinating Member
States' direct tax systems in the Internal Market" COM(2006) 823 of 19
December 2006

[10]             COM(2009) 154

[11]             Inheritance tax is taken to mean taxes levied upon the
death of an individual, irrespective of the name of the tax, of the manner in
which it was levied, whether it was applied at national, regional or local
level and whether it was imposed on the estate or on the heir. It also includes
taxes on gifts where these are made in anticipation of later inheritances and where
they are taxed under the same or similar provisions as inheritances. See Annex
I for non-exhaustive list of relevant taxes in Member States.

[12]             An individual could be "domiciled" (i.e.
considered a permanent resident because of strong ties) in one country and at
the same time be "habitually resident" in another country and be a
national of a third country.

[13]             Eurostat data and the Copenhagen Economics Study on
Inheritance Taxes in EU Member States and Possible Mechanisms to Resolve
problems of Double Inheritance Taxation in the EU, August 2010,

[14]             See Copenhagen Economics Study for details of these
other studies – page 63 - 64

[15]             See Impact Assessment on solutions to cross-border
inheritance tax problems – SEC(2011) 1489.

[16]             Impact Assessment on solutions to cross-border
inheritance tax problems – SEC(2011) 1489. Please note that the methodology
used is likely to underestimate the actual figures because the figures indicated
could only take account of cross-border cases of real estate ownership and not
of other assets such as bank savings.

[17]             See European Family Businesses – GEEF contribution to
the Commission's Consultation on possible approaches to tackling cross-border
inheritance tax obstacles within the EU -
http://www.efb-geef.eu/documents/EFB-EEF%20contribution%20to%20EU%20consultation%20on%20inheritance%20tax.pdf

[18]             The Block case (C-67/08)

[19]             See Impact Assessment on solutions to cross-border
inheritance tax problems, pages 21-22, for other real-life examples

[20]             Annex II to the present Communication gives an overview
of the existing double tax treaties on inheritances.

[21]             SEC(2011) 1488

[22]             Note that where an inheritance covers business assets
and a selective advantage is granted in the form of a differential inheritance
tax treatment, such a measure should also be in line with EU State aid rules
which are not dealt with in detail in the Staff Working Paper.