3.1.4.2.1 Problems arising in the state of the objective nexus

Assuming that the beneficiaries are residing in the same state where the deceased has his personal nexus at the time of the death, they must deal in the state of the objective nexus with a foreign body and an administrative procedure with which they are not familiar. Furthermore, these procedures may vary significantly from state to state. For example, the administration of inheritance and gift taxes in some states has been decentralised; the beneficiaries file a declaration with the competent municipality and not with the tax authorities’ local office. They itemise the estate by type, location and value, and subsequently, the competent municipality computes the tax due based on the guidelines provided by the tax authorities. In addition, in federal states, the beneficiaries file the inheritance and gift tax declaration only in the district where the estate is located. Also, even in states where the tax authorities supervise the administration of inheritance and gift taxes, a court proceeding may be initiated. For instance, a copy of the estate’s final inventory signed by the beneficiaries is sent to the local tax authorities and the probate court.

One more problem with which the beneficiaries are confronted at the state of the objective nexus is the tax officials’ inability or limited experience in cross-border matters. As per the 2015 inheritance tax report, “[t]he complexity of the [inheritance taxes] has led to frequent complaints to the Commission by citizens that their national administrations do not understand the problems with which they are faced and are unable to answer their questions as what they should do.” However, the efficiency of the tax authorities (or any other competent body) in the state of the objective nexus is vital for the provision of the ordinary tax credit by the state of the personal nexus. In this respect, the valuation procedure of the situs property and the subsequent payment of the inheritance tax in the other state may take a considerable amount of time, not accounting for the possible disputes that may arise with the tax authorities of the state of the personal nexus or even a third state with respect to the situs of the inherited property. Thus, as per the 2015 inheritance tax, “[t]he inability of tax administrations to resolve problems reasonably promptly, whether acting alone or in the context of mutual consultations, results in delay in determining the nature and size of a liability and therefore taxpayers’ interest payments and penalties being higher in cross-border situations than in purely national ones.”1 Finally, the inability of the tax administration to deal with a cross-border inheritance must be considered in parallel with the applicable inheritance tax legislation, which often governs domestic and cross-border inheritances under the same rules (for instance, with respect to the payment deadlines).

Eventually, one must keep in mind that language barriers can pose more obstacles in the event of a cross-border inheritance. The communication with the competent bodies could become bothersome if the competent contact persons are not well versed in English. Furthermore, language barriers might arise if the tax returns/estate declaration forms are available only in the official language(s) of the state of the objective nexus. Undoubtedly, a non-resident beneficiary will usually have to request the support of a third party (for instance, a law firm or an accounting firm), to assist in the filing of the necessary forms and documentation, and the general handling of the case.