The European Commission has launched a public consultation on "tackling cross-border inheritance tax (IHT) obstacles within the EU."
Prior to 2003, the European Commission did not think it was necessary to examine whether member states' IHT laws were compatible with the EU Treaty. However, it has now revised its opinion because, since that date, (1) a number of IHT cases have been referred from national courts to the European Court of Justice, and (2) it has received a growing number of complaints from EU citizens about problems arising from cross-border inheritance.
The consultation paper identifies two main areas in which individuals and businesses may face obstacles:
- Discriminatory application of IHT rules. Member states' IHT laws tend to be less favourable to citizens whose assets or beneficiaries are in another country. This fact is particularly evident when you consider that in the eight IHT disputes that have been referred to the European Court of Justice since 2003, the Court ruled in six of them that the IHT laws of the member state in question were incompatible with EU rules on the free movement of capital; and
- Double or multiple taxation of an estate. Most EU Member States levy IHT upon the death of a person; however, problems can occur because some member states (such as the UK) tax the deceased's estate, while other member states tax the deceased's heirs, who may be living in another member state to the deceased. This problem is further highlighted by the fact that there are only 33 bilateral IHT treaties between member states (out of a possible 351.)
Aside from the financial impact that these issues can have on EU citizens, the European Commission has also identified a social problem: that is to say, the way member states' IHT rules apply in cross-border situations may be hindering EU citizens from fully exercising and benefiting from their right to move, as well as operate, freely within the EU.
The consultation closes on 22 September 2010; the European Commission will then study its findings to try and find a solution to these problems (and any others that are identified during the course of the consultation.)
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