SPAIN Law and Practice Contributed by: Álvaro Checa, Miguel Checa, José María Vargas-Machuca Reyes and Andrea Fernández Grymierski, KINSHIP
There are material differences depending on the applicable regional legislation, as described in 6.1 Common Planning Techniques . The Spanish regions that have introduced tax relief under GT have also provided similar tax reliefs under IHT for next-of-kin transfers (including transfers between ascendants and descendants and among spouses). Therefore, the determination of the competent author- ity and the applicable regional tax law for testamen- tary dispositions is relevant, and follows the rules described below: • Where both the deceased and the heir are Span- ish tax residents, the regional administration of the deceased’s place of residence has competence, and the applicable tax law is that of the same region. • Where the deceased is resident, but the heir is non-resident, the state administration has compe- tence, and the taxpayer has a right to opt between the application of the central state law or the regional law of the deceased’s residence. • Where the deceased is non-resident and the heir is resident, the state administration generally has competence, with the applicable tax law being either central state law or, where assets of the estate are located in Spain, either the tax law of the region where the most value of the Spanish estate is located or, if no assets are situated in Spain, the law of the region where the heir is resident. • Where both the deceased and the heir are non- residents, competence lies with the state admin- istration, and the applicable tax law may be either the central state law or, where assets are located in Spain, the law of the region where the most value of the Spanish estate is located.
Some common planning techniques are described below. The most common planning techniques for cross-border estates are described in 12. Cross-Bor- der Succession Planning . The determination of the competent authority and the applicable regional tax law under inheritance tax depends on the habitual residence of the deceased, as described in 5.2 Testamentary Dispositions . Where a business owner or entrepreneur relocates to Spain while maintaining assets across multiple juris- dictions or with heirs residing in a common law juris- diction, the co-ordinated use of a common law trust structure may be advisable. Although the trust is not a recognised domestic institution under Spanish law and Spain has not ratified the 1985 Hague Convention on the Law Applicable to Trusts and on their Recog- nition, this does not prevent a trust from producing effects outside Spain where permitted by the appli- cable lex situs and the law governing the succession. From a Spanish perspective, the key issue is not the domestic validity of the trust, but proper tax planning, as Spanish authorities apply the principle of tax trans- parency of the trusts. This aspect is examined in detail in 9. Trusts, Foundations and Related Entities . Domestic lifetime or anticipated succession planning generally relies on private law institutions such as inter vivos gifts, usufruct arrangements, matrimonial property planning, corporate holding structures (par- ticularly in the context of family owned and managed businesses, including differentiated classes of shares) and insurance contracts. The application of regional tax law plays a decisive role, as it will determine the application of next-of-kin tax reliefs under IHT and GT. In addition, the access to the family owned and man- aged business exemption is a primary factor in estate planning, and most of the domestic estate planning strategies are designed to benefit from this regime. Lifetime gifts can be governed by the law freely cho- sen by the donor and donee under Regulation (EC) No 593/2008 (Rome I). Within Spanish law, gifts may take various forms. Conditional gifts are particularly frequent in family contexts. A common form imposes an obligation on
6. Lifetime Succession Planning Mechanisms 6.1 Common Planning Techniques
Estate planning involving Spain requires a careful analysis of the international and intra-regional con- necting factors for taxation, in particular, the place of habitual residence of the testator and the heirs, as well as the place of location of the assets within Spain.
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