3.1.4.2.0 Inleiding

Mr D died in January 2015 while a resident of State A. His beneficiaries were also residents of State A. Mr D’s estate included, amongst others, a summer house in state B. Both states’ death tax laws include a worldwide tax liability (based on a personal nexus rule) and a limited tax liability (based on an objective nexus rule). It becomes apparent that State A taxes in its capacity as the state of the personal nexus and State B in its capacity as the state of the objective nexus. Furthermore, both states levy the same type of death tax, i.e. an inheritance tax.

Under the inheritance tax laws of State A, the entirety of the deceased’s property is subject to tax there, including the summer house in state B. On the other hand, State B will also seek to tax the summer house since it is located in its territory.

Under state B’s inheritance tax laws, the beneficiaries must itemise the estate by type, location, and value. Then, within two months from the deceased’s death, file a declaration to the municipality, where the estate was registered, in one of state B’s official languages. Subsequently, the municipality will determine the inheritance tax due – based on the guidelines of state B’s tax authorities and then send a notification of payment to the beneficiaries. The inheritance tax due in State B must be paid within two months from the receipt of this notification.

Before travelling to state B, Mr D’s beneficiaries unsuccessfully attempted to contact state B’s tax authorities and the municipality. Consequently, they consulted a local accounting agency, which filed the declaration to the municipality on their behalf. In particular, they considered the two-month payment deadline very short. A few months later, the municipality informed Mr D’s beneficiaries that the declared value of the summerhouse was too low. The process for the correct determination of this value took nearly a year and, hence, the inheritance tax due in State B was ultimately paid 14 months after the initial filing of the estate declaration.

Under State A’s inheritance tax legislation, resident and non-resident beneficiaries must file a tax declaration within six months from the deceased’s death. Moreover, a lump-sum payment of the tax due is, in principle, requested at the time of the filing. The payment of the tax may be deferred or divided into instalments under certain conditions, including the provision of a guarantee which, however, applies only to non-resident beneficiaries. Because State A’s tax authorities were not certain whether there was property which is accessory to the summerhouse in state B, they sent a request for information to the tax authorities of state B. State B’s tax authorities replied to this request six months later.

Under the inheritance tax laws of State A, double taxation is relieved by means of an ordinary tax credit for the taxes paid by the state of the objective nexus. Nevertheless, Mr D’s beneficiaries could not obtain a credit in State A for the inheritance tax due in State B pending the assessment of the tax in the latter state. Moreover, State A’s tax authorities were not eager to suspend the payment of the inheritance tax on Mr D’s entire inherited property until the moment of the taxation of the summer house in state B, as requested. Such a suspension would, however, have allowed Mr D’s beneficiaries to prove that the summerhouse has been taxed in state B.

Almost a year following the payment of the taxes in both states, Mr D’s beneficiaries filed a refund request with State A’s tax authorities, along with a certificate of the payment of the inheritance tax in state B. The application was accepted by the tax authorities who, however, imposed a fine and an interest payment because the deadline for the filing of the refund request had already expired. Thus, the credit for the foreign inheritance tax was effectively reduced to 75% of the total tax amount because of the delayed refund request.

The above example illustrates that a cross-border inheritance and donation is exposed to several and different administrative obstacles. I classify these problems in two categories based on the state in which they arise.