EU Tackles Cross-Border IHT Issues

by Ulrika Lomas, Tax-News.com, Brussels

20 December 2011

The European Commission has recently adopted a comprehensive package on inheritance taxation, proposing measures designed to address the issue of cross-border inheritance tax problems, notably double or multiple taxation and discrimination.

According to the Commission, European Union (EU) citizens that inherit foreign property are frequently faced with a tax bill from more than one member state, and in extreme cases the total value of a cross-border inherited asset might even have to be paid in tax, because several member states may claim taxing rights on the same inheritance or tax foreign inheritances more heavily than local inheritances.

The Commission points out that citizens may then be forced to sell inherited assets, just to cover the taxes, and small businesses may face transfer difficulties on the death of their owners.

To tackle these problems, the Commission has adopted a comprehensive package on inheritance taxation, analysing the problems and presenting solutions related to cross-border inheritance tax in the EU.

Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit, commented: "The burden of cross-border inheritance tax can be crippling for citizens, due to discrimination and double taxation. Small changes in member states’ rules to make them more coherent with each other could deliver real benefits for hundreds of thousands of people across Europe. This is what we aim to achieve."

To address the issue of double or multiple taxation, where more than one member state claims the right to tax the same inheritance, the Commission is recommending a broader and more flexible application of national double taxation relief measures so as to provide “a pragmatic, speedy and cost-effective solution to the significant tax burdens facing many citizens”.

The Commission also sets out in its working paper the principles on non-discriminatory inheritance and gift tax, using case law, to help member states to bring their provisions into line with EU law, while also raising citizens' awareness of the rules which member states must respect.

As a next step, the Commission plans to launch discussions with member states to ensure appropriate follow up to the recommendations, and to assist in bringing inheritance laws into line with EU law.

In three years time, the Commission aims to present an evaluation report showing how the situation has evolved, and decide on this basis whether further measures are necessary at national or EU level.

The Commission will also continue to take the necessary steps to act against discriminatory features of member states taxation rules.

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