COMMISSION STAFF WORKING PAPER Non-discriminatory inheritance tax systems: principles drawn from EU case-law
Date: 2011-12-15
Institutions: European Commission
Subjects: anti-discriminatory measure, capital transfer tax, cross-border cooperation, double taxation, free movement of capital, tax relief

EUROPEAN COMMISSION 

Brussels, 15.12.2011 
SEC(2011) 1488 final 

COMMISSION STAFF WORKING PAPER 

Non-discriminatory inheritance tax systems: principles drawn from EU case-law  

Accompanying the document 

COMMISSION RECOMMENDATION 

regarding relief for double taxation of inheritances 

{C(2011) 8819 final} 
{SEC(2011) 1489 final} 
{SEC(2011) 1490 final} 

 
 
 
 
  
 
This  document  is  a  European  Commission  staff  working  document  and  is  for  information 
only. It is not a statement of the Commission's current or future official position on the subject 
it addresses. 

1. 

INTRODUCTION AND BACKGROUND 

Eighteen  EU  Member  States  levy  taxes  upon  the  death  of  a  person  while  nine  (Austria, 
Cyprus,  Estonia,  Latvia,  Malta,  Portugal,  Romania,  Slovakia  and  Sweden)  have  neither  an 
estate tax nor an inheritance tax, although some tax inheritances under other tax laws. 

Some  Member  States  apply  inheritance  tax  on  the  heirs,  so  that  the  taxable  event  is  the 
enrichment of the beneficiary, while other Member States apply tax on the basis of the estate, 
in which case the taxable event is the transfer of property. The term inheritance tax is used in 
this document to mean taxes on both estates and beneficiaries on the occasion of the death of 
a person. 

For reasons of simplicity, the term inheritance tax as used in this document also includes gift 
taxes. Gifts are often made in order to anticipate later inheritances and such gifts are in many 
Member  States  taxed  under  the  same  provisions  as  inheritances.  Furthermore,  the 
jurisprudence of the Court of Justice of the European Union (Court) treats inheritance and gift 
taxes according to the same criteria. 

The Commission's Impact Assessment on solutions to cross-border inheritance tax problems1 
demonstrates that increasing numbers of EU citizens are moving from one country to another 
within the European Union during their lifetimes to live, work and retire, and are purchasing 
property and invest in assets in countries other than their  home country. 

The  Commission's  impact  assessment  also  indicates  that  citizens  and  businesses  may  be 
exposed  to  two  types  of  inheritance  tax  problems  in  cross-border  situations,  namely  the 
discriminatory application of a Member State's inheritance tax rules, and unrelieved double or 
even multiple taxation of a single inheritance. These problems may hinder EU citizens from 
benefiting  fully  from  their  right  to  move  and  operate  freely  across  borders  within  the  
European Union and may create difficulties for the transfer of small businesses on the death 
of owners. 

The  present  paper  examines  the  problem  of  discrimination.  The  double  taxation  problem  is 
dealt  with  in  a  Recommendation  that  the  Commission  has  adopted  on  the  same  day  as  the 
publication of the present document2. 

At  the  present  stage  of  EU  law,  Member  States  and  their  political  subdivisions  have  broad 
freedom to design their tax systems and allocate taxing powers between themselves.  

Nevertheless,  they  must  exercise  that  competence  in  accordance  with  EU  law.  That  means 
that  Member  States'  tax  systems  must  respect  the  fundamental  freedoms,  notably  the  rules 

1  

2  

Impact  Assessment  on  solutions  to  cross-border  inheritance  problems  –  reference  to  be  added  when 
available 
See Commission Recommendation regarding relief for double taxation of inheritances  - reference to be 
added when available 

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relating  to  the  free  movement  of  persons,  workers,  services  and  capital  and  the  freedom  of 
establishment (Articles 21, 45, 56, 63 and 49, respectively, of the Treaty on the Functioning 
of  the  European  Union  -  TFEU),  as  well  as  the  general  principle  of  non-discrimination  on 
grounds of nationality (Article 18 TFEU).3  

Under  Article  21  TFEU,  EU  citizens  have  the  right  to  move  and  reside  freely  within  the 
territory of the Member States. Broadly defined, this freedom enables citizens of one Member 
State  (irrespective  of  whether  they  are  economically  active  or  not)  to  travel  to  another 
Member  State  and  reside  there  permanently  or  temporarily.  Article  18  TFEU  ensures  that 
citizens who exercise this right to free movement cannot be discriminated against on the sole 
ground of their nationality.  

The  principle  of  the  freedom  of  establishment  has  its  basis  in  Articles  49-55  TFEU.  These 
provisions  enable  an  economic  operator,  whether  a  person  or  a  company,  to  carry  on  an 
economic  activity  in  a  stable  and  continuous  way  in  one  or  more  Member  States.  The 
provisions also come into play where a holder owns significant amounts of shares giving the 
right to control the activity of the company. 

The free movement of capital, as enshrined in Article 63 TFEU, is the most essential freedom 
in  the  area  of  inheritance  taxation,  as  Court  decisions  in  the  inheritance  tax  area  have  been 
mainly  based  on  this  freedom.  The  Court  has  repeatedly  confirmed  that  an  inheritance 
involving a transfer to one or more persons of assets left by the deceased is a movement of 
capital within the meaning of Article 63 TFEU, except in cases where its constituent elements 
are confined within a single Member State. 

It is of utmost importance in the Internal Market that Member States do not pose obstacles to 
the exercise of the  fundamental freedoms by discriminating against cross-border  inheritance 
cases  compared  to  domestic  situations.  The  principle  of  non-discrimination  is  a  central 
element  of  the  Treaty  freedoms.  According  to  well-established  case-law,  discrimination  can 
result from treating differently situations which are comparable or treating different situations 
in the same way. In order for a national scheme providing for a difference in treatment to be 
compatible  with  the  Treaty  freedoms,  it  must  concern  situations  which  are  not  objectively 
comparable or it must be justified by an overriding reason in the general interest. Moreover, 
this  national  scheme  may  not  in  any  event  be  more  restrictive  than  is  necessary  in  order  to 
achieve the aim pursued; it must, in other words, be proportionate.  

In recent years, the problems of tax discrimination related to cross-border inheritances have 
become increasingly evident; the Commission has, on the basis of complaints received and its 
own  investigations,  had  cause  to  commence  infringement  proceedings  against  several 
Member States over aspects of their laws.  

Furthermore, since 2003, the Court has examined the inheritance tax rules of Member States 
in ten cases referred by national courts. The Court of Justice decided in eight out of the ten 
cases  that  the  national  inheritance  tax  and  gift  tax  rules  of  the  Member  States  in  question 
breached EU rules on the free movement of capital and/or freedom of establishment. 

The  Court  also  dealt  with  inheritance  tax  rules  in  another  case  which  concerned  higher 
succession duties for legacies made to charities in other Member States.  

3  

Furthermore, any selective advantage, in the form of a differential tax treatment, for business assets that 
constitute part of an inheritance, should be in line with EU competition rules. 

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These Court judgments have brought a certain amount of clarity and certainty to this matter. 
However,  in  many  instances,  it  may  not  be  entirely  clear  what  consequences  a  ruling 
involving  legislation  of  one  Member  State  should  have  on  legislation  of  another  Member 
State. Moreover, even where Member States introduce new tax rules as a result of a ruling, 
they may do so in vastly differing ways. 

Furthermore, Court judgments in individual cases may not make clear to EU citizens which 
principles Member States must respect when taxing cross-border inheritances.  

Therefore,  it  appears  appropriate  to  set  out  the  non-discrimination  principles  flowing  from 
case-law that should inform inheritance taxation systems. This could improve the operation of 
the  fundamental  freedoms  by  making  EU  citizens  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..  

The next chapters give an overview of the main judgments of relevance to inheritance and gift 
taxation and the principles flowing from this case-law. 

As a starting point, it may be noted that while, as a rule, residents and non-residents may be 
treated  differently  in  relation  to  direct  taxes  where  this  is  warranted  by  a  difference  in 
circumstances, the Court has found in most of its rulings in inheritance tax cases that residents 
and non-residents should be treated equally.  

2. 

GENERAL ANALYS OF THE RELEVANT CASE-LAW  

2.1 

 Cases  where  the  Court  found  Member  States'  inheritance  and  gift  tax  laws 
incompatible with EU law  

2.1.1. The Barbier case (C-364/01) 

The  Court  ruled  in  this  case  that  a  Member  State  cannot  apply  inheritance  tax  rules  which 
would allow a certain deduction for tax purposes from the value of an estate if the deceased 
lived in that Member State at the time of death but would deny it if the deceased resided in 
another Member State prior to death. 

In this case the Court ruled that "inheritance" comes within the compass of the provisions on 
free movement of capital once its constituent elements are cross-border. It may be noted that 
is not necessary to have regard to whether the persons actually themselves engage in cross-
border economic activity for the applicability to inheritances of the free movement of capital 
provisions.  

In this case the Court ruled that it is contrary to EU law if, in order to assess the value of an 
immovable  property  situated  in  the  Member  State  concerned,  there  was  a  difference  in  tax 
treatment depending on whether the deceased was resident or not in that Member State at the 
time of death. In that case, the value of an obligation attached to the property should be taken 
into account for tax purposes irrespective of the Member State of residence of the deceased.  

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Moreover, the Court elaborated a key rule aimed at investigating whether national provisions 
may  entail  a  restriction  of  the  free  movement  of  capital  in  the  inheritance  tax  area.  In  this 
respect,  a  Member  State  is  prohibited  from  applying  a  measure  which  has  the  effect  of 
reducing the value of an estate belonging to a resident of another Member State to a greater 
extent than the value of an estate belonging to a resident of the same Member State The Court 
has followed this reasoning in all further judgments in the inheritance and gift tax area. 

The Court also made clear that, for the purposes of assessing the compatibility with EU law of 
domestic inheritance tax legislation, the existence of a tax advantage granted unilaterally by a 
Member  State  other  than  the  State  of  residence  is  not  relevant.  This  reasoning  was  also 
followed in the consecutive judgments. 

The Court did not specifically examine the case in the light of the right to free movement of 
persons  enshrined  in  the  Treaty.  However  it  stated  that  inheritance  taxes  are  among  the 
considerations which a national of a Member State would reasonably take into account when 
deciding whether or not to make use of the freedom of movement provided for in the Treaty.  

2.1.2. The Maria Geurts case C-464/05 

In this case the Court found it discriminatory to treat the owner of a family undertaking and, 
after his death, his heirs, in a different way according to whether that undertaking employed 
workers in the Member State at issue or in another Member State.  

The  domestic  legislation  in  question  granted  an  inheritance  tax  exemption  for  shares  in 
closely  held  family  companies  on  the  condition  that  such  an  undertaking  employed  a 
minimum number of workers in that Member State.  

In  this  case,  the  Court  examined  the  relevant  legislation  only  from  the  point  of  view  of  the 
principle  of  freedom  of  establishment.  This  was because the legislation was applicable only 
where at least 50% of the share capital in the company concerned was held, in the three years 
preceding death, by the deceased, jointly or not with members of his close family. The Court 
found that a share of this size gave those persons influence over the decisions of the company 
concerned and made it possible for them to decide upon its activities. The Court also held that 
any restrictive effects of the said legislation on the free movement of capital would merely be 
an unavoidable consequence from its effects on cross-border establishment.  

The Court established that a Member State could not deny an exemption for an inheritance of 
a family undertaking which employed at least five workers in another Member State when it 
would allow such an exemption from inheritance tax if the five workers had been employed in 
the same Member State. 

2.1.3. The Jäger case (C-256/06) 

The  Court  ruled  in  this  case  that  foreign  located  estates  should  not  be  evaluated  in  a  less 
favourable way than domestic located estates. 

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The  Jäger  case  concerned  a  less  favourable  tax  treatment  applied  by  the  Member  State  of 
residence with respect to assets situated in another Member State. 

 The  Court  ruled  that  the  free  movement  of  capital  provisions  prohibited  Member  States' 
legislation  whereby  a  specially  favourable  valuation  system  and  partial  exemption  is 
applicable  to  assets  located  in  that  Member  State,  as  opposed  to  assets  situated  in  other 
Member  States,  which  are  evaluated  according  to  normal  fair  market  value  rules.  As  the 
calculation of the tax was directly linked to the value of the assets, there was objectively no 
difference in situation such as to justify unequal tax treatment.  

2.1.4. The Eckelkamp case (C-11/07) and the Arens-Sikken case (C-43/07) 

In these cases the Court found incompatible with EU law the application of different tax rules 
for the assessment of inheritance and transfer taxes payable in respect of assets, depending on 
whether the deceased resided in that Member State or abroad at the time of his/her death.  

The  Court  decided  in  the  Eckelkamp  case  that  it  is  illegal  for  a  Member  State  not  to  allow 
mortgage-related charges to be deducted from the value of property only because, at the time 
of  death,  the  person  whose  estate  was  being  administered  was  residing  in  another  Member 
State. 

The Court ruled in the Arens-Sikken case that it is contrary to EU law if an heir is allowed to 
deduct  debts  relating  to  the  property  inherited  only  where  the  person  whose  estate  is  being 
administered was residing, at the time of death, in the Member State in which the property is 
situated  

Both  of  these  cases  dealt  with  the  method  of  assessment  of  inheritance  duties;  and  they 
concerned situations similar to the one obtaining in the Barbier case.  

In the Eckelkamp case, the Court ruled that the denial of deductions for debts and liabilities 
was a breach of the provisions on the free movement of capital. The Member State concerned 
refused to take debts and liabilities relating to the inheritance into account for the purpose of 
assessing the inheritance tax due where the testator, at the time of death, did not reside in that 
Member State. However, it would have allowed the deduction of these debts and liabilities if 
the testator had been resident at the time of death. The Court stated that since the assessment 
of inheritance and transfer taxes was, under the legislation at issue, directly linked to the value 
of the immovable property, there was no difference in situation such as to justify unequal tax 
treatment with regard to immovable property situated in the Member State at issue, depending 
on the place where the deceased resided at the time of his death.  

In  the  Arens-Sikken  case,  a  property  was  left  to  a  surviving  spouse  who  was,  however,  by 
virtue of a testamentary parental partition inter vivos, obliged to pay each of the children the 
cash equivalent of their share of the estate. These “over-endowment debts” of the surviving 
spouse towards her children were not taken into account for the purposes of determining her 
transfer duty liability. If the testator had been resident in the Member State concerned at the 
time  of  his  death,  such  a  deduction  would  have  been  possible.  The  Court  ruled  that  such  a 
difference in treatment is incompatible with the free movement of capital. 

2.1.5. The Mattner case (C-510/08) 

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The  Court  declared  incompatible  with  free  movement  of  capital  a  gift  (and  inheritance)  tax 
provision according to which the tax allowance for children of the donor, in a case where all 
parties are non-resident, is lower than where one of them is resident. 

In this case, the Court extended the jurisprudence it had developed in the area of inheritance 
taxes to national gift tax legislation.  

The  case  at  hand  concerned  the  donation  of  a  piece  of  land  located  in  the  taxing  Member 
State.  Both  the  donor  and  the  donee,  the  donor’s  child,  were  resident  in  another  Member 
State. 

The  national  legislation  at  issue  distinguished  between  cases  in  which  the  taxpayer  was 
considered subject to limited liability to the tax, i.e. where both the donor and the donee were 
resident in another Member State at the time when the gift was made, and cases in which the 
taxpayer was considered subject to unlimited tax liability, i.e. where at least one of them was 
resident  in  the  taxing  Member  State.  In  the  latter  situation,  the  legislation  provided  for  a 
relatively high tax free allowance in the case of donations between parent and child, whereas 
the allowance was much lower in the former situation.  

The  Court  found  no  objective  difference  between  the  two  situations  that  could  justify  the 
difference in treatment. Moreover, the Court discussed a number of justifications presented, 
namely the need to prevent the same tax advantage being received twice by the same taxpayer 
and  to  prevent  the  circumvention  of  the  limits  through  multiple  donations,  as  well  as  the 
coherence  of  the  national  tax  system.  However,  the  Court  accepted  none  of  these 
justifications. 

2.1.6. The Halley case (C-132/10) 

In  this  case  the  Court  found  it  discriminatory  to  set  different  limitation  periods  for  the 
valuation of registered shares for inheritance tax purposes depending on whether the centre of 
effective management of the issuing company, in which the deceased was a stakeholder, was 
situated in the taxing Member State or in another State. 

In  this  case  the  estate  included  registered  shares  in  a  company  which  had  its  centre  of 
effective  management  in  a  Member  State  other  than  the  taxing  State  and  which  were 
transferred by way of inheritance to a heir in the taxing State.  

The national legislation of the taxing Member State provided that its tax authority may require 
an expert valuation of certain assets located in that Member State in order to establish whether 
they  have  been  undervalued  in  the  inheritance  tax  declaration.  The  limitation  period  for  the 
tax authority to introduce claims for such an expert valuation and possible consequent upward 
adjustment in the amount of inheritance tax due was set at 2 years from the date on which the 
inheritance tax declaration is made.   

However, in the case of shares held in a company whose centre of effective management was 
situated outside the territory of the taxing Member State, no expert valuation was possible and 
the tax authorities could file a claim regarding undervaluation with a consequent increase in 
inheritance tax as well as interest and fines for a much longer period i.e. up to 10 years. 

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The  Court  stated  that  such  legislation  is  contrary  to  the  provisions  on  free  movement  of 
capital,  because  the  application  of  a  longer  limitation  period  to  heirs  holding  shares  in  a 
company which has centre of effective management abroad may have the effect of deterring 
residents  of  the  taxing  Member  State  from  investing  or  maintaining  investments  in  assets 
situated outside that Member State. Heirs of such residents will experience a longer period of 
uncertainty regarding the possibility of being subject to a tax adjustment.  

The Court did not find any justification for such restriction on the free movement of capital, in 
particular because the period of 10 years was not based on the time needed to have effective 
recourse to mechanisms of mutual assistance between tax administrations or other alternative 
means of investigating the value of the shares in question. 

2.2 

 Cases  where  the  Court  found  Member  States'  inheritance  tax  laws  compatible 
with EU law  

2.2.1. The Van Hilten-van Der Heijden case (C-513/03) 

The Court decided in this case that the provisions on free movement of capital did not forbid a 
rule whereby the estate of a national of a Member State who dies within 10 years of ceasing to 
reside in that Member State is to be taxed as if that national had continued to reside in that 
Member  State.  The  important  element  was  that  the  said  rule  did  not  distinguish  between 
residents and non-residents. 

In  accordance  with  the  double  taxation  convention  between  the  two  States  concerned,  the 
estate of a national of a Member State who dies within 10 years of ceasing to reside in that 
Member State was to be taxed as if that national had continued to reside in that Member State. 
The double taxation convention also stipulated that the taxing State would reduce the tax so 
due by the amount of tax due in the other State by reason of residence there.  

The  provisions  at  issue  were  not  considered  discriminatory  because,  unlike  in  the  Barbier 
case,  they  did  not  distinguish  between  taxpayers  according  to  their  residence.  Rather,  they 
provided for identical treatment for the estates of nationals who had transferred their residence 
abroad and of those who had remained in the Member State concerned.  

According  to  the  Court,  such  legislation  would  neither  discourage  a  national  who  had 
transferred his residence abroad from making investments in the taxing Member State nor a 
national who remained in the taxing State from investing in another Member State. Nor would 
such  legislation  diminish  the  value  of  the  estate  of  a  national  who  had  transferred  his 
residence abroad. As the Court pointed out, as long as there is no harmonisation in this area, 
Member States are free to determine the criteria for allocating their powers of taxation. In this 
respect, as an anti-abuse measure, they can also provide for an extended concept of residence, 
such as in the case at hand.  

2.2.2. The Block case (C-67/08) 

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In this case the Court concluded that a Member State is not obliged to avoid double taxation 
on  an  inheritance  which  arises  from  the  exercise  in  parallel  by  Member  States  of  fiscal 
sovereignty, for example by crediting inheritance tax paid abroad against its own inheritance 
tax. 

In  the  Block  case  the  Court  had  to  rule  on  the  compatibility  with  the  provisions  on  free 
movement of capital of national legislation which does not provide for inheritance tax paid in 
another Member State to be credited against inheritance tax payable by an heir in his Member 
State of residence.  

This case differs from the cases already examined in that it does not concern the inheritance 
tax  system  of  a  single  Member  State  but  the  consequence  of  the  parallel  exercise  of  the 
taxation powers of two Member States.  

Both the heir and the deceased were resident in one Member State but movable assets of the 
estate  were  located  in  another  Member  State  and  taxed  there  as  well  as  in  the  country  of 
residence of the heir. 

The  Court  ruled  that  the  use  of  different  connecting  criteria  for  levying  inheritance  tax  on 
capital claims is not contrary to EU law because at the current stage of EU law, there are no 
general criteria at EU level for the attribution of competence between the Member States in 
relation to the elimination of double taxation within the European Union.  

Member  States  are  therefore  free  to  decide  their  own  rules  on  direct  taxation,  including  the 
connecting factors according to which a person or an income is taxable in its territory.  

Furthermore, they are not obliged to adapt their own tax systems to the different systems of 
tax  of  the  other  Member  States  in  order  to  eliminate  the  double  taxation  arising  from  the 
exercise in parallel by those Member States of their fiscal sovereignty. In particular, they do 
not need to credit inheritance tax paid abroad against their own inheritance tax.  

2.3. 

 Other relevant cases - Tax treatment of foreign charities 

In  Missionswerk  Werner  Heukelbach  (C-25/10)    the  Court  decided  that  a  Member  State 
granting  certain  inheritance  tax  advantages  to  domestic  charities  has  to  apply  the  same  tax 
treatment to foreign charities if the foreign charities satisfy the conditions laid down in that 
Member State for the grant of tax advantages. 

The  Court  had  previously  examined  the  tax  treatment  by  Member  States  of  charities 
established in other Member States as well as of donations to such entities. The Stauffer case 
(C-386/04) dealt with the first hypothesis whereas the Persche case (C-318/07) dealt with the 
second. In both cases, the Court ruled that domestic tax provisions that discriminate against 
foreign charities are incompatible with the provisions on free movement of capital.  

In  Missionswerk  Werner  Heukelbach,  the  Court  extended  the  non-discrimination  principles 
set  out  in  those  earlier  judgments  to  Member  States'  inheritance  tax  legislation.  The  case 
concerned the applicability of a reduced rate of succession duty to a legacy in favour of a non-

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profit-making association. The national legislation in point provided that the reduced rate was 
applicable only where the association had its centre of operations either in the taxing Member 
State or in the Member State in which, at the time of death, the deceased actually resided or 
had his place of work, or in which he had previously actually resided or had his place of work.  

The  Court  ruled  that  Article  63  precludes  such  legislation  where  a  non-profit  organisation 
recognised as such in its Member State of establishment fulfils also the conditions governing 
analogous organisations  imposed by  the taxing Member State. The fact that a foreign charity 
does not have its centre of operations in that Member State or in the Member State where the 
deceased had worked or resided was considered immaterial. 

3. 

PRINCIPLES FOLLOWING FROM THE CASE-LAW  

Principles  may  be  identified  from  the  relevant  case-law  that  can  be  grouped  under  the 
following headings: 

Geographical links of the assets forming part of cross-border inheritances 

1.  Member  States'  inheritance  tax  provisions  are  in  breach  of  the  provisions  on  free 
movement of capital if they provide for different tax treatment for assets that are part 
of the inheritance, depending on whether these assets have a given link to the national 
territory, notably whether they are located there. This means, inter alia, that: 

a.  Valuation methods cannot be less favourable for assets located abroad.  

b.  There  should  be  no  restrictions  on  deductibility  of  debts/liabilities  related  to 

assets located abroad if there are no restrictions for local assets. 

c.  Member  States'  inheritance  tax  provisions  cannot  provide  for  a  higher 

inheritance tax rate with regard to inherited assets located abroad. 

d.  Member  States  cannot  set  different  limitation  periods  for  the  reevaluation  of 
registered shares for inheritance tax purposes depending on the location of the 
issuing company's centre of effective management.  

2.  The  underlying  principles  could  equally  prohibit,  inter  alia,  inheritance  tax 
treatment that: 

a. 

b. 

c. 

is  less  favourable  in  the  case  of  inherited  shares  registered  on  foreign 
exchanges  or  held  in  a  company  located  abroad,  than  in  the  case  of  shares 
registered on domestic exchanges or held in domestic companies;  

privileges  payments  made  by  domestic  pension  insurances  as  part  of  the 
inheritance over payments made in the same situation by foreign insurances;  

is less favourable in the case of public debt securities issued by other Member 
States than in the case of similar securities issued by the taxing Member State.  

Residence of persons concerned in cross-border inheritances 

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2.  Member States' inheritance tax provisions are contrary to EU law if they provide for 
higher  tax  free  allowances  for  residents  than  for  non-residents  in  relation  to  gifts  or 
inheritances, where residents and non-residents are in a comparable situation.  

Depending on the case, this could mean, inter alia, that Member States cannot provide 
for lower inheritance tax allowances on the sole basis that the deceased and the heir 
were/are not resident of the Member State granting such an allowance. 

3.  Regarding the determination of the value of inherited assets, it is contrary to EU law to 

allow deductions only if the deceased resided in the taxing Member State. 

This could also mean, inter alia, that Member States' inheritance tax provisions are not 
in line with EU law if they restrict the deductibility of debts and liabilities related to 
assets  inherited  by  a  non-resident  but  do  not  apply  any  such  restriction  to  assets 
inherited by residents.  

4.  More  generally  and  in  the  absence  of  objective  justifications,  Member  States' 
provisions  are  incompatible  with  free  movement  of  capital  if  they  provide  for  less 
favourable inheritance tax treatment with regard to non-resident heirs or deceased. 

Inheritance tax treatment of businesses such as SMEs 

5.  Member  States  cannot  provide  for  preferential  tax  treatment  for  an  inheritance  of  a 
business that is conditional on the business being carried on/continued domestically. 

6.  Member  States  cannot  provide  for  a  less  favourable  tax  treatment  of  an  inherited 

business merely because its employees are located abroad. 

7.  Inheritance tax relief for businesses, such as exemptions or special relief for transfers 
of  family-owned  and  closely-held  businesses  upon  death  should  be  provided  in  the 
same way for heirs who are not resident in the Member State providing the relief as 
for resident heirs. 

Inheritance tax treatment of charities 

8.  Member States' inheritance tax provisions cannot apply less favourable inheritance tax 
treatment for legacies made to a charity on the sole basis that the charity is established 
in another Member State rather than in the taxing Member State. 

4. 

CONCLUSIONS 

Many  principles  relating  to  non-discrimination  in  the  field  of  inheritance  taxation  have 
already  been  fixed  by  jurisprudence.  The  Court  may  in  the  future  be  requested  to  examine 
other situations not so far addressed, in which the applicable legislation distinguishes between 
purely  national  situations  and  situations  with  a  cross-border  element.  However  it  is  already 

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clear that distinctions between purely national and cross-border situations are not compatible 
with EU law in the absence of any objectively relevant difference between these situations or 
a justification linked to overriding requirements of general interest. 

EU  citizens  are  entitled  to  seek  redress  if  they  detect  any  incompatibility  between  the 
inheritance tax rules of a Member State and EU law.   

For its part, the  Commission is entitled, as guardian  of  the  EU  Treaties,  to  take  appropriate 
steps when it detects violations of EU law in the inheritance and gift tax area.  

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