3.1.4.2.2 Problems arising in the state of the personal nexus

The most significant problem arising in the state of the personal nexus relates to the availability of the credit for the foreign inheritance and gift tax paid in the state of the objective nexus. The beneficiaries have to demonstrate that they have actually paid the inheritance or gift tax in the other state in order to obtain this credit. While it appears rational for the tax authorities to require evidence regarding the foreign inheritance tax, the application of the same payment deadline for domestic and cross-border inheritances does, in my view, seem to be irrational. The time taken to assess and then subsequently pay the inheritance tax in the other state often exceeds the deadline for the payment of the inheritance tax in the state granting the credit. In this respect, the 2015 inheritance tax report states that “[d]elays by one State, sometimes in providing proof of payment of taxes, may also make it impossible for an individual to make claims for reliefs, allowances, exemptions or refunds within the time limits applicable in another State.”1 Moreover, even if the state of the personal nexus does grant a deferral of the payment of the inheritance tax, it may request a guarantee, which may not be required in the case of a domestic inheritance.

Only when the inheritance tax has actually been paid in the state of the objective nexus, do the beneficiaries become entitled to obtain a credit. If they have already paid the tax in the state of the personal nexus, the tax authorities will refund part of the tax paid. Nevertheless, penalties and fines may be imposed, as the refund request may have been filed after the expiration of the statutory time limit for refund requests. Those penalties and fines reduce the amount of the inheritance tax credit considerably, even though the beneficiaries cannot be held accountable for the delay in the state of the objective nexus.

Moreover, the valuation rules of the state of the personal nexus may give rise to additional administrative problems. More specifically, this state may apply valuation rules that depend on the determination of the value of the estate in the state of the objective nexus. For example, the legislation of the state of the personal nexus may require that the value attributed to the foreign immovable property declared there should not be lower than the value on which the foreign inheritance tax was levied.

Furthermore, language barriers may also be a problem. It seems reasonable for the competent body overseeing the administration of the taxes to request a sworn translation of the relevant certificates granted by the other state. However, in a situation where the beneficiaries do not reside in the state of the deceased’s personal nexus, unobstructed and comprehensible communication with the tax authorities of this state is necessary.