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Fiscal residency on inheritance and donations: Tax problems and consequences

One of our previous posts mirrored on the different scenarios related to tax residence and how it affects the taxation of income from a country where the taxpayer is not resident. In the end, the double taxation agreement "breaks the tie" when there are discrepancies between the legislation of two different countries regarding tax residence, (here all the agreements signed by Spain). The established rules can then be followed to see in which territory an income is taxed and under which modality (Personal Income Tax, Non Resident Income Tax, Corporate Tax...). Today we would like to focus on tax residence on inheritance and donations.

What happens with tax residence in cases of inheritance and donations?

In most double taxation treaties, tax on inheritance and donation is NOT included. Therefore, in principle, it does not apply.

Going over the Inheritance and Gift Tax Act (ISD), specifically Articles 6 and 7, Article 6. reads:

"Article 6. Personal obligation.

1. Taxpayers who have their usual residence in Spain shall be liable for the tax by personal obligation, regardless of where the assets or rights comprising the taxable increase in wealth are located.

2. The determination of usual residence shall be governed by the norms of the Personal Income Tax regulations.


"Article 7. Real obligation.

Those taxpayers who are not included in the immediately preceding Article shall be liable to tax, by real obligation, for the acquisition of assets and rights, whatever their nature, which are located, which may be exercised or which must be fulfilled in Spanish territory, as well as for the receipt of amounts deriving from life insurance contracts, when the contract has been made with Spanish insurance companies, or when it has been concluded in Spain with foreign companies operating in Spain".

Identifying the place of usual residence

Therefore, establishing the place of habitual residence is essential in order to correctly pay this tax and avoid problems. Here the law refers to the IRPF (Personal Income Tax) rules.

However, a dilemma arises if the double taxation treaties do not include ISD (Inheritance and Gift tax) in their scope of application. How about taxpayers who are considered tax resident in Spain under Spanish criteria, but also considered tax resident in another country based on its domestic legislation?

Let us recall the Spanish criteria, which are:

  • Spending more than 183 days a year in Spain.

  • Having the base of activities or economic interests in Spain, (taking this for granted if the family lives in Spain).

Actual case of tax residency on inheritance and donations

The recent binding consultation of July 2021 provides a clear answer to this question. It is related to a controversy raised between Spain and Mexico. It literally states:

"In order to determine the usual residence in Spain of ISD taxpayers, governing tax liability due to personal obligation, Article 6(2) of the LISD (Inheritance and Gift tax law) refers to the IRPF (Personal Income Tax) rules. This reference must be understood as applicable to all rules about personal income tax and, therefore, not only to the internal rules, i.e. Law 35/2006 of 28 November on Personal Income Tax (BOE of 29 November) and its implementing regulations, but to all the rules affecting personal income tax. Therefore, if for personal income tax purposes it is determined that the applicant is not a tax resident in Spain during the years 2020 and 2021 as a result of the application of the Agreement between Spain and Mexico to avoid international double taxation and that, therefore, he is not a taxpayer for personal income tax, the applicant will not be resident in Spain for the purposes of ISD, and, therefore, he will not be subject to personal obligation to pay this tax, but rather by real obligation, according to the terms provided in Article 7 of the LISD.”

Double taxation agreement and tax residence

As a matter of facts, although a double taxation agreement does not include Inheritance and Gift tax law in its direct scope of application, it is considered to determine the tiebreaker in the event of a taxpayer being classified as tax resident in more than one state.

In other words, tax residence and particularly, how to establish it correctly, will be compulsory in case there are doubts about the scenarios to be considered between two different states.

Our Tax Consultancy Department, as well as our International Tax Department can help you in these cases. Do not hesitate to contact us. Our team at Carrillo Asesores will be more than pleased to support you.

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