COMMISSION STAFF WORKING PAPER EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT
Date: 2011-12-15
Institutions: European Commission
Subjects: European tax cooperation, anti-discriminatory measure, capital transfer tax, cross-border cooperation, double taxation, tax relief

EUROPEAN COMMISSION 

Brussels, 15.12.2011 
SEC(2011) 1490 final 

COMMISSION STAFF WORKING PAPER 

EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT 

Accompanying the document 

COMMISSION RECOMMENDATION 

regarding relief for double taxation of inheritances 

{C(2011) 8819 final} 
{SEC(2011) 1488 final} 
{SEC(2011) 1489 final} 

 
 
 
 
  
 
EXECUTIVE SUMMARY 

This impact assessment has been prepared to analyse problems of discrimination and double 
taxation of inheritances within the Internal Market and decide on the best solution on the basis 
of which the Commission will make a proposal.  

More EU citizens than ever are moving abroad within the Internal Market to find work, marry 
or  retire,  leaving  family  members  behind  in  their  country  of  origin.  Others  are  purchasing 
property and investing in assets abroad. In these circumstances, the application of inheritance 
taxation to bequests made across borders is becoming an increasingly important issue.  

Problem definition 

EU  citizens  and  businesses  can  potentially  face  two  types  of  inheritance  tax  problems  in 
cross-border situations. First, they may be exposed to tax discrimination. Second, there is the 
risk of taxation of a single inheritance by several Member States with no relief or only partial 
relief for the double taxation.  

This problem may lead to overall levels of taxation appreciably higher than those applicable 
in situations that are purely internal to one or the other Member State involved. An increased 
tax burden may negatively affect the value of an inheritance and may cause great difficulties 
for  citizens  and  businesses  who  take  advantage  of  their  right  to  move  and  operate  freely 
across borders within the Internal Market.  

The problems can arise not just from Member States' inheritance tax laws but also from their 
private laws on inheritances, or from a combination of both sets of laws. 

As  for  the  discrimination  problem,  when  individuals  inherit  property  or  other  assets  across 
borders, they may be subject to inheritance tax rules that are less favourable than those that 
would apply if there was no cross-border element.  

As for the problem of double or even multiple taxation, this can arise essentially because of 
differences between Member States' rules concerning who should be taxed and the type of tax 
applied. In addition, this double taxation can in many cases not be relieved. This is because 
Member  States'  domestic  relief  mechanisms  are  not  comprehensive  and  they  have  few 
bilateral conventions in this area and do not seem to be negotiating more in recent years.  

As  for  the  quantification  of  the  problem,  the  impacts  are  not  significant  at  macro  level. 
Member States' revenue from domestic and cross-border inheritances taxes together account 
for  less  than  0.5%  of  total  tax  revenues  in  EU  Member  States  so  cross-border  cases  alone 
must  account  for  far  less  than  that  figure.  However,  at  micro  level,  both  discrimination  and 
double taxation, when it happens, might have an enormous impact on the individuals actually 
concerned because of the high rate of taxation that might result. This is notwithstanding the 
trends towards lower general levels of inheritance taxation. 

All  EU  citizens,  businesses  and  other  entities  subject  to  inheritance  taxes  are  potentially 
affected  by  these  issues.  With  a  steadily  increasing  tendency  in  migration  and  cross-border 
ownership  of  assets  within  the  EU,  it  can  be  expected  that  the  number  of  complaints  and 

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referrals to the Court about discriminatory aspects of Member States' inheritance tax laws will 
increase, as will double taxation.  

Analysis of subsidiarity 

It is appropriate for the Commission, in the light of its responsibility for ensuring the smooth 
functioning of the Internal Market and promoting the general interest of the Union to examine 
and consider action when solutions to cross-border tax problems cannot be found at national 
level.  

There are currently no EU harmonisation rules in the area of inheritance taxes. In the absence 
of  such  rules,  inheritance  taxation  falls  within  the  competence  of  the  Member  States. 
However, in the exercise of this comptetence, they must respect the fundamental freedoms of 
EU law and are therefore not allowed to discriminate on the basis of nationality or to apply 
unjustified restrictions to these freedoms. The Court of Justice has confirmed the application 
of these principles to inheritance tax in several recent cases. However, the Court of Justice has 
also stated that Member States are not obliged to eliminate double taxation arising through the 
parallel exercise of their taxing rights.  

Given the recent increase in court cases and in complaints, enquiries and responses to relevant 
public consultations, it appears necessary for the Commission to consider what kind of action 
could  complement  and  support  ongoing  infringement  proceedings  and,  at  the  same  time,  to 
propose appropriate solutions to the double taxation of cross-border inheritances. 

The objectives 

The general objective of the initiative is to allow citizens to exercise their right to move and 
operate freely within the Internal Market and not be deterred by cross-border inheritance tax 
obstacles. To this end, the initiative would aim at: 

promoting the elimination of discrimination in the area of inheritance taxation; and 

reducing the double taxation of inheritances within the EU, 

in  particular  in  order  to  avoid  an  excessively  high  tax  burden  or  even  confiscatory  rate  of 
overall taxation. 

The policy options 

Policy Options A to address tax discrimination related to cross-border inheritances  

Policy Option A1 - Continuation of current situation 

Policy Option A2 – Publication of principles for non-discriminatory inheritance tax systems 
Under  this  option,  the  a  staff  working  paper  could  be  published  that  would  assemble  the 
principles  flowing  from  the  case-law  on  inheritance  taxes  that  should  govern  the  design  of 
inheritance tax systems. Following the publication of these principles, EU citizens would be 
more  aware  of  the  rules  which  Member  States  must  respect  when  taxing  cross-border 
inheritances. The document could also assist Member States in bringing their inheritance tax 
provisions into line with EU law.  

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Policy Option A3 - Compulsory rules on abolishing of discriminatory features of Member 
States'  domestic  inheritance  tax  legislation  Under  this  option,  the  Commission  would 
propose the principles set out in the relevant European case law for adoption as compulsory 
rules at EU level.  

Policy Options B to address unrelieved double taxation of cross-border inheritances 

Policy Option B1 - Continuation of current situation 

Policy  Option  B2  –  Commission  recommendation  regarding  (unilateral)  national 
provisions  designed  to  relieve  double  taxation  of  inheritances  The  Commission  could 
identify the elements that would make national tax rules interact more coherently with each 
other so as to eliminate double taxation in a comprehensive way and invite Member States to 
make changes to their laws on that basis. 

Policy  Option  B3  –  Commission  recommendation  regarding  relief  for  double  taxation 
through bilateral agreements between Member States designed to relieve double taxation of 
inheritances The Commission could recommend that Member States complete a full network 
of  bilateral  double  taxation  treaties  on  inheritances,  based  either  on  the  OECD  model 
convention on inheritance taxes of 1982 (Policy Option B3.a) or an alternative model such as 
an EU model treaty (Policy Option B3.b) , or else include inheritance tax provisions within 
the  scope  of  existing  bilateral  income  tax  treaties  (Policy  Option  B3.c) The  first  sub  option 
(B3.a) was considered less appropriate from the start because the relevant OECD Model has 
not been amended to address shortcomings identified and therefore would not resolve all the 
problems  effectively.  Another  reason  why  the  current  Model  might  not  be  an  ideal  point  of 
departure is the fact that the  OECD is currently considering its update. 

Policy Option B4 – Binding rules governing bilateral arrangements: Adoption into EU law 
of  a)  a  single  basis  for  determining  the  tax  liability,  such  as  the  location  of  assets  or  the 
residence of the deceased, etc in bilateral relations, or b) minimum standard common rules 
for bilateral conventions. Although suggested by some stakeholders, drawing up these rules 
would take a disproportionate amount of effort given that they would have to be unanimously 
adopted and this option would not be likely to solve the problem as long as Member States are 
not prepared to enter into bilateral inheritance tax agreements in the first place. 

Policy  Option  B5–  EU-  wide  multilateral  double  tax  convention  As  suggested  by  some 
stakeholders and commentators, Member States could conclude a multilateral double taxation 
convention on estates and inheritances. However this option was considered less appropriate 
from the start as it is unlikely that Member States would agree on such a convention given a 
previous  failed  attempt  at  such  a  solution  for  income  tax.  Moreover,  such  a  convention  if 
proposed by the Commission could only be proposed in the form of a Directive which would 
fall within Policy Option B.6.  

Policy Option B6 – Binding EU legislation An EU-wide binding instrument, taking the form 
of  a  Directive,  could  provide  for  i)  a  single  harmonised  basis  for  taxation,  e.g.  taxing  only 
where  the  assets  or  the  deceased  were  located  (Policy  Option  B6.a);  ii)  a  combination  of 
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common  definitions  plus  a  single  harmonised  basis  (Policy  option  B6.b);  (iii)  the  relief  of 
double taxation alone, by way of a binding unilateral relief provision coupled with a binding 
dispute resolution mechanism without making any changes in Member States' inheritance tax 
rules (Policy Option B6.c); (iv) a combination of features of Policy Options B6.a, b and c i.e. 
single  harmonised  basis,  common  definitions  and  a  binding  dispute  settlement  mechanism 
(Policy Option B6.d). The first sub option (B6.a) was considered inappropriate as such, as it 
would  be  ineffective  unless  combined  with  common  definitions  such  as  of  assets  and  with 
rules to deal with dual residence/nexus, as proposed in another sub option (B.6.b). 

Assessment of the most significant impacts 

The following impacts have been analyzed: 

Fundamental freedoms 

Costs to taxpayers and tax administrations 

Social effects 

Economic effects 

As regards the social and economic effects, we focus on the individuals concerned, because at 
macro level it is unlikely that the impact of the adoption of solutions to address cross-border 
inheritance  tax  problems  would  be  significant,  given  the  low  share  that  inheritance  taxes 
represent of Member States' total revenues. 

In terms of possible solutions to the tax discrimination problem of cross-border inheritances 
(Policy  Options  A),  both  the  publication  of  a  set  of  principles    and  compulsory  rules  could 
promote the respect of fundamental freedoms to a greater extent; and, in case of compulsory 
rules, lead to a high degree of legal certainty which could reduce the need for court actions. 
For  the  reasons  given,  both  solutions  could  also  reduce  the  cost  for  taxpayers  and  tax 
administrations.  As  for  the  social  and  economic  effects,  both  options  should  bring  about 
increased confidence about the implications of cross-border movement and more trust in the 
Internal Market. 

As  regards  the  policy  options  to  address  unrelieved  double  taxation  of  inheritances  (Policy 
Options B), the 'Do nothing' option would mean that double taxation would continue, which 
makes  the  exercise  of  the  fundamental  freedoms  more  difficult.  The  lack  of  availability  of 
relief  can  be  costly  in  individual  cases.  Regarding  social  effects,  the  lack  of  comprehensive 
solutions is most likely to impact on the middle classes as the wealthy are likely to have tax 
advisers  to  help  with  tax  planning  and  poorer  individuals  are  not  as  likely  to  inherit  across 
borders.  The  economic  effects  of  such  double  taxation  do  not  at  present  appear  to  affect  an 
important percentage of citizens but can seriously affect those citizens who make use of their 
right to engage in cross-border activity.  

Both the option of a Commission recommendation on action  to be taken by  Member States 
regarding  national  relief  mechanisms  (Policy  Option  B.2)  and  relief  for  double  taxation 
through  bilateral  agreements  between  Member  States  (Policy  Option  B.3)  could  help  to 
reduce  the  number  of  instances  in  which  cross-border  inheritances  are  subjected  to  double 
taxation.  This  would  ease  the  exercise  of  fundamental  freedoms.  Extending  the  level  of 
double taxation relief available in cross-border inheritance tax cases could mean a reduction 
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of  costs  for  taxpayers  and  could  over  time  benefit  an  increasing  number  of  taxpayers  who 
make use of their right to engage in cross-border activity.  

Binding EU legislation which would compel Member States either to design their tax systems 
in such a way as to prevent the likelihood of double taxation, or to give double taxation relief, 
would be likely to lead to more certain effects than the previous options.  

Comparing the policy options 

In  order  to  assess  the  policy  options  to  eliminate  discrimination  (Policy  Options  A),  the 
following criteria were used: 

Incentive: Incentive for Member States to change their discriminatory rules  

Effectiveness:  in  terms  of  achieving  the  objective  of  enforcing  EU  law  and  increasing 

certainty regarding the types of provisions that are discriminatory 

Proportionality:  Going  no  further  in  terms  of  EU  measures  than  is  necessary  to  achieve  the 

objective 

Efficiency:  The  extent  to  which  the  objectives  can  be  achieved  for  a  given  level  of 

resources/at least cost 

Flexibility: Ease of adjustment to reflect changes in case law and domestic legislation 

The  following  tables  provide  a  comparison  of  the  ratings  of  the  policy  options  as  negative, 
neutral or positive. 

Comparison of policy options A  

Criteria 

Incentive to change law 

Effectiveness 

Proportionality 

Efficiency 

Flexibility 

A1 – status 
quo 

A3 - 
legislation 

A2 – 
publication 
of a set of 
principles 

0 

0 

+ 

- 

n/a 

+ 

+ 

+ 

+ 

+ 

+ 

+ 

0 

0 

0 

Conclusion:  The  preferred  option  is  Policy  Option  A.2  because,  by  supporting  the 
Commission's infringement actions, it would address the current tax discrimination problems 
efficiently, flexibly and in a cost-effective way. 

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In  order  to  assess  the  policy  options  to  reduce  double  taxation  (Policy  Options  B),  the 
following criteria were used: 

Effectiveness:  in  terms  of  achieving  the  objective  of  reducing  double  taxation  and  ensuring 

certainty in this regard 

Proportionality:  Going  no  further  in  terms  of  EU  measures/EU  harmonisation  than  is 

necessary to achieve the objective 

Efficiency,  in  particular  ease  of  implementation:  The  extent  to  which  the  objectives  can  be 
achieved  for  a  given  level  of  resources/at  least  cost,  in  particular  regarding  ease  of 
implementation 

Flexibility: in terms of scope, ease of adjustability to reflect changes in laws and practices 

Comparison of policy options B  

Criteria 

B1 

B2 

B3.b  

B3.c 

B6.b 

B6.c 

B6.d 

no 
change 

improved 
unilateral 
relief 

Inheritance 
tax treaties 
based on EU 
Model 

Income tax 
treaties with 
inheritance 
provisions 

Binding 
common 
definitions 
and basis 

Binding 
relief plus 
dispute 
settlement 

Effectiveness 

Proportionality 

Efficiency/ease 
implementation 

- 

0 

0 

Flexibility 

n/a 

+ 

+ 

++ 

++ 

+ 

+ 

-- 

- 

+ 

+ 

-- 

- 

++ 

- - 

- - 

- - 

++ 

- 

- 

- 

B6.b 

+ 

B6.c 

++ 

- - 

- - 

- - 

Conclusion:  The  preferred  option  is  Policy  Option  B.2,  as  an  effective  and  certainly 
proportionate  way  to  tackle  double  taxation.  Other  options  would  be  significantly  less  cost-
effective  and  more  time-consuming  and  there  is  a  question  mark  over  their  political 
feasibility. Option B.6.c is one that may be considered at a later date if necessary in the light 
of  the  review  of  the  implementation  of  Option  B.2.    The  preference  for  Option  B.2  over 
Options  B3.b  and  B3.c,  both  of  which  concern  solutions  via  bilateral  actions  by  Member 
States, is also based on the fact that Member States do not seem to prioritise the conclusion or 
revision of double taxation treaties on inheritances. 

The preferred option 

The preferred option, which is a combination of policy options A.2 and B.2, is, in brief:  

The principles flowing from the case-law on inheritance taxes that should govern the design 
of  inheritance  tax  systems  could  be  assembled  in  a  single,  published  document.  The  idea 

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would  be  to  make  EU  citizens  more  aware  of  the  rules  which  Member  States  must  respect 
when  taxing  cross-border  inheritances.  The  document  could  also  assist  Member  States  in 
bringing their inheritance tax rules into line with EU law.It would, for example, describe the 
types of rules which the Court has identified as breaches of the fundamental freedoms.  

In addition, the Commission could adopt a Recommendation (under Article 292 of the TFEU) 
identifying the elements that would eliminate double taxation in a comprehensive way while 
not  requiring  Member  States  to  change  their  substantive  inheritance  tax  rules.  It  would 
suggest that Member States make changes to their domestic mechanisms for double taxation 
relief on that basis. The ultimate aim could be to ensure that the overall tax burden on a cross-
border  inheritance  would  not  be  higher  than  in  an  internal  situation  by  making  already-
existing unilateral reliefs work better.  

Monitoring and evaluation 

The  Commission  could  prepare  regular  evaluation  reports  focusing  on  data  on  cross-border 
migration;  ownership  of  cross-border  assets  (including  financial  assets  and  immovable 
property);  domestic  inheritance  tax  rates  as  well  as  on  amendments  to  Member  States' 
domestic law to remove discrimination and reduce double taxation; the evolution of bilateral 
agreements; and the relevant Court cases. 

The Commission's right to present a legislative proposal in the future if deemed appropriate 
would of course remain unaffected. 

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