3.3.3.3 Discrimination

On the other hand, the negative harmonisation1 of EU Member States’ inheritance and gift tax legislation has been remarkable concerning the discrimination problem of cross-border inheritances and donations. The Court has delivered several judgments on inheritance and gift taxation, an area of tax law that seemed to be terra incognita concerning its examination under EU law 20 years ago.

In 2011, the EC published its Working Paper laying down the principles drawn from the Court’s case law for non-discriminatory inheritance tax systems (the “2011 EC’s Working Paper”).2 In the EC’s view, “[i]t is of utmost importance in the Internal Market that Member States do not pose obstacles to the exercise of the fundamental freedoms by discriminating against cross-border inheritance cases compared to domestic situations. The principle of non-discrimination is a central element of the Treaty freedoms.”3 Moreover, the Court judgments “[h]ave brought a certain amount of clarity and certainty to this matter. However, in some instances, it may not be entirely clear what consequences a ruling involving legislation of one Member State should have on legislation of another Member State. Moreover, even where the Member States introduce new tax rules as a result of a ruling, they may do so in vastly differing ways.”4 Furthermore, under the 2011 EC’s Working Paper, the Court judgments in individual cases may not make clear to EU citizens what principles Member States must respect when taxing cross-border inheritances.5

Before the publication of the 2011 EC’s Working Paper, the EC’s Directorate-General for Taxation and Customs Union commissioned the Copenhagen Economics Institute to prepare a report on the problems of cross-border inheritances within the EU. This report was published in August 2010, and is called “Study on Inheritance Taxes in the EU Member States and Possible Mechanisms to Resolve Problems of Double Inheritance Taxation in the EU”. Although the report focused mainly on the double taxation problem of inheritances in the EU, it briefly covered the discrimination problem of cross-border inheritances as well as the relevant Court judgments delivered up to its publication. In my view, the addition to the research in this report is the overview of the potential discriminatory elements of the EU Member States’ inheritance and gift tax legislations. The overview is annexed to the report.

The Court’s case law on EU inheritance and gift taxation has already dealt with significant elements of inheritance and gift taxes, among others:

I believe that the Court’s case law on EU inheritance and gift taxation is a sui generis case law. Although this case law builds on the concepts that it developed in its case law on personal taxation, it correctly deviates from them due to the different nature of inheritance and gift taxes from that of income taxes. This is, for instance, the case of the Schumacker doctrine whose application was rejected by the Court in inheritance and gift tax cases while it continues to apply to income taxes (albeit with certain exemptions).

In the context of the EU fundamental freedoms, a cross-border inheritance denotes an inheritance involving a foreign-located estate, a foreign-located deceased, a foreign-located beneficiary or a combination of all the above elements. Furthermore, the free movement of capital, as protected by Article 63 TFEU, is the most commonly invoked freedom in the context of inheritance and gift taxation. The Court has consistently maintained that an inheritance comes within the scope of the TFEU provision of the free movement of capital, save where the constituent elements of inheritances are confined to a single EU Member State. The Court considers an inheritance a movement of capital based on heading XI of Annexe I to the Directive 88/361,6 entitled “Personal Capital Movements”. Hence, the mortis causa transfer of property is not regarded as an investment made by the deceased for his beneficiaries. In my view, the examination of national inheritance tax law provisions in light of the free movement of capital is critical. This freedom is unique in comparison to other EU fundamental freedoms as it covers third-country transactions, and thus inheritances whose cross-border elements are located in a third state. Likewise, the free movement of capital also applies to cross-border donations.7

Nevertheless, I observe that more research is required on certain aspects of the Court’s case law for the better understanding and application of the non-discrimination principle within the EU. Furthermore, it is not only the EU Member States’ inheritance and gift tax laws that should be interpreted in line with EU law but also the treaties that they have concluded (at least, the treaties concluded between EU Member States).