In which Spanish autonomous region should a tax on donation apply to a non-resident?
A recent binding consultation of the General Directorate for Taxation has clarified, where a donation - made in form of cash from a parent to a child who is not resident in Spain - should become effective. This liability is regulated by the donations and inheritance tax system.
Nowadays this kind of situations are quite common. Spanish citizens who have moved abroad to work, the parents donate a property, the money is obtained from sale, or inherited by succession. This scenario uses to raise doubts as far as receivers are working abroad, either being residents of the UE or not… tax liabilities are not clear.
The case of a donation to a non-resident
A married couple living in Madrid in 2014 sold a property they owned in the autonomous community of Castilla-la Mancha. Within a year of sale, the couple wished to donate the money obtained from that sale to their daughter. The daughter does not live in Spain and she further does not have her tax residence in Spain, but in Denmark.
What does the legislation say?
The Corporative Income Tax Law states, in accordance with the provisions of the European Community Court of Justice 3-9-14, case c-127/12: movable properties located in Spain, acquired by donation or other legal transactions free of charge and “intervivo”, assigned to taxpayers who are not resident in Spanish territory, but who are based in another state of the European Union or within the European Economic area, do have the right to apply to regulations of the autonomous community where the bespoke assets have been located for a greater number of days in the period of five years immediately preceding. Period counts from date to date, ending on the day before the tax accrued (Corporative Income Tax add. disp. 2. one. e).
What should be taken into account?
Donation is made by Madrid residents.
Donation is in favour of a donor with tax residence in Denmark.
Object of the donation is money from the sale of a property located in Castilla-la Mancha.
The sale was executed less than a year ago.
However, is it compulsory for the money to be in the hands of the donors for a number of days within the aforementioned period of foregoing five years? Moreover, is the lapse of period unnecessary. It is considered that the money was generated at the time of the sale of the property and, therefore, the regional regulations of Madrid apply from that moment onwards?
What does the Ministry of Finance say?
The Authority dictates that the calculation achievable to determine where a certain movable property (the money) has been over a period of five years prior to accrual, should only be taken into account when the movable property has been owned for a period of five years or more, but not when it has been owned for a period of less than five years.
In fact, the Corporate Income Tax does not require possession for a certain minimum period on purpose of applying the above additional provision, moreover not every transaction of movable property must have, as its sole claim, a mere tax advantage.
Illustrative example
If you live in Spain by the year 2016 and you want to sell and donate the money to your child living in England, you will need to consider the following:
If it is a property. You will be taxed in the autonomous community where the property is located.
If it is money. You have to clarify where such cash was generated - or the taxable event that generated such income - and you will be taxed in that autonomous community.
Knowing in advance that there are autonomous communities where the taxation is lower than others is crucial.
In Murcia currently there is a 99% tax credit for donations from parents to children and/or wives or descendants, which represents advantages on these donative transactions to-date.
Conclusion
In those cases when the movable property being the object of the donation has been owned by the donor for a period of less than five years, the calculation to be made in order to know where the movable property has been for a greater number of days within bespoke period is compulsory. Therefore, determining the regulations of the autonomous community applicable, in relation to the period referred to in Corporative Income Tax Laws, disp. 2, must be understood as referring to the period in which the donor was the owner of said property (and not the five-year period).
Subsequently, knowing the autonomous community regulations that do apply to the donation of money, and determining the period in which the said property has been in the possession of the donor, is crucial.
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