ERA Forum (2014) 15:409424

DOI 10.1007/s12027-014-0357-9
A RT I C L E

Domestic inheritance tax rules in EU Member States

regarding cross-border successions
Nathalie Weber-Frisch Radia Duquennois-Djoua

Published online: 24 September 2014

ERA 2014

Abstract This article gives an introduction to the differing tax mechanisms of the
European Member States impacting cross-border successions in the European Union
(hereafter EU). The variety of applicable domestic tax rules and connecting factors
gives rise to potential discrimination and multiple taxation issues based on nationality and has a potential impact on cross-border mobility of people and assets within
the EU. A study of the settled case-law of the Court of Justice of the European Union
(hereafter CJEU) in the field of direct taxation regarding national inheritance/gift
tax gives insights of the CJEUs analysis of the compliance of Member States tax
legislation in cross-border succession with the Treaty Freedoms.
Keywords Cross-border succession Inheritance taxation CJEU case law

1 Diversity of inheritance tax rules and tax rates in EU Member States

EU nationals are free to live and to work in other EU Member States. They can
own movable or immovable assets outside their home Member States and may have
relatives in other countries.

This article is based on a presentation given at the ERA conference Planning Cross-Border
Succession which took place on 2021 March 2014 in Trier.

N. Weber-Frisch, Avocat la Cour, Partner, Member of the Luxembourg Bar ( )

R. Duquennois-Djoua, Avocat, Member of the French Bar, Admitted to Luxembourg Bar (Liste IV)
A.S. Avocats, 1 Rue Jean-Pierre Brasseur, 1258 Luxembourg City, Luxembourg
e-mail: n.frisch@as-avocats.com
R. Duquennois-Djoua
e-mail: r.duquennois@as-avocats.com

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Table 1 Global overview of inheritance, estate and gift taxes in the 28 EU Member States1
N of Member
States

Member States

16

Bulgaria, Czech Republic, Denmark* , Finland,

Germany, Greece, Hungary, Ireland, Italy, Lithuania,
Luxembourg, the Netherlands, Poland, Slovenia,
Spain, Croatia.

Estate tax

Belgium, Denmark* , France** , United Kingdom***

No inheritance or estate tax

Austria, Cyprus, Estonia, Latvia, Malta, Portugal,

Romania**** , Slovakia, Sweden.

Inheritance tax

Gift tax

18

Belgium, Croatia, Czech Republic, Denmark, France,

Germany, Greece, Hungary, Ireland, Italy,
Luxembourg, Malta, the Netherlands, Norway, Poland,
Portugal, Slovenia, Spain.

Nota bene:
* Denmark is counted twice as the Danish tax is effectively both an estate and an inheritance tax
** France taxes all free transfers regardless of whether there is a transfer of assets resulting from death

or inter vivos. One may discuss the denomination of inheritance tax versus estate tax but de facto
France does levy an estate tax as the tax is only collected if the value exceeds the estate tax threshold after
applicable deductions are applied
*** The UK tax on inheritance is called inheritance tax, but is de facto an estate tax. The UK also taxes
gifts made in certain circumstances
**** In Romania no tax is owed but only if the succession is completed within a certain period of time from

the date of the death of de cuius.2 Thus it is more a penalty/fine for the non-completion of the procedure
in due time by heirs. If not, then regressive rates apply depending on the value of the inheritance from 3 %
to 0.5 %

Cross-border successions are directly impacted by domestic rules on inheritance

and gift taxes, which are not harmonised in the EU and do differ substantially between
different countries.
1.1 Main characteristics of inheritance taxes in the 28 EU Member States
1.1.1 Inheritance tax and estate tax
19 out of 28 Member States have an inheritance tax (tax levied on the recipient of the
estate i.e. on the heir) or an estate tax (tax levied on the transferor i.e. the deceaseds
estate as a whole). Out of these 19 Member States, 16 have only an inheritance tax.
In Denmark no distinction is made between inheritance tax and estate tax.
1 Copenhagen Economics based on Maisto (2010) and Global Property Guide as cited in the Study

on inheritance taxes in EU Member States and possible mechanisms to resolve problems of double taxation in the EU as corrected on 13 May 2011 (European Commission Taxation and Customs Union Directorate General Edition) freely available at: http://ec.europa.eu/taxation_customs/
resources/documents/common/consultations/tax/2010/08/inheritance_taxes_report_2010_08_26_en.pdf.
2 Article 28711 of the Fiscal Code of Romania, Law N 571/2003 as published in Part I of the Official

Gazette of Romania, N 927 of December 23, 2003.

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411

9 Member States charge neither an inheritance nor an estate tax.

1.1.2 Gift tax
A gift tax is chargeable when an individual gives away an asset and no compensation
is received in return i.e. not for money or moneys worth. In most jurisdictions the
donor is liable to gift tax.
Liability to gift tax will not apply to all gifts, as exemptions may exist, for example,
gifts to registered charities.
Inheritance taxes are generally designed with the heirs as the tax subject. In contrast, estates are in most cases designed with the estate as the tax subject. Some inheritance tax systems have both the heirs and the estate as tax subjects.
The taxable base is generally calculated in all Member States3 as net value of the
property transferred to the estate or the heirs.
The absence of inheritance and estate taxes does not imply that no tax is levied on
transfer upon death, as in practice other more general taxes may apply. For example,
in Portugal transmission of assets upon death of an individual is subject to a flat
rate stamp duty of 10 % since 2004.4 There is however an exemption applicable to
legitimate heirs in direct line, and thus no taxation applies provided certain criteria
are met.5
Moreover the large diversity between the Member States regarding the level of
inheritance tax rates is quite striking.
In several Member States transfers upon death to the spouse are exempt from taxation.
In addition, there is usually a tax free personal allowance, i.e. in Germany up to
500 000,6 but above this threshold the inheritance may be taxed up to 30 %.7
3 The EU Commission decided to refer Belgium to the CJEU over tax rules in the Walloon Region

(IP/13/871 26/09/2013). The Walloon Region legislation provided for a choice between several share
quotations to determine the taxable base for inheritance tax purpose. Heirs were entitled to choose
the most favourable. The choice was however only offered for shares listed on a Belgian stock exchange. Shares listed on stock exchanges of other EU member states or EEA could only be valuated
at the stock market price at the time of death without any possible choice between quotations. The
Commission considered that the absence of choice while valuating shares listed on stock markets outside Belgium was discriminatory and restricted the free movement of capital. Indeed in practice this
may have discouraged Belgian residents from investing in foreign shares as their succession might be
more heavily taxed. Since then Belgium has changed its legislation see European release data base at
http://europa.eu/rapid/press-release_MEMO-14-36_en.htm.
4 Reform effective from 1 January 2004. The inheritance and gift tax (Imposto sobre Sucessoes e

Doaoes) was revoked and became subject to stamp duty (Imposto do Selo) due on the estate, this
being represented by the head of the household and the legatees.
5 For instance see note above Table 1 concerning Romania: no tax is due but only if the succession is

completed in a certain period of time after the de cuius death.

6 Only for German nationals and German residents . . . at least until Germany changes its law according to

the CJEUs ruling in the Yvon Welte Case C-181/12 (see Sect. 2 3).
7 The rate of 30 % is a maximum depending on the tax class see: German Law on inheritance and gift tax,

in the version published on 27 February 1997, as amended by Article 1 of the Law reforming the rules on
inheritance tax and valuation of 24 December 2008.

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As the tax rate is progressive in most Member States there is a large contrast
between the average and the marginal tax rates.
The progression is typically linked to two factors:
1. Progression is related to the relationship/kinship link between the parties. The
lowest tax rate generally applies to the children and the spouse, but in some Member States the lowest rate is extended to legal cohabitants.8 As a rule, the closer
the family bond, the lower the tax for any given level of inheritance.
2. Progression is related to the value of the inheritance. The general trend is that the
higher the value of the inheritance, the higher the amount of inheritance tax due.
The effective tax rates are generally much lower than the marginal tax rates. It is
therefore difficult to produce a proper comparison with regard to the effective tax burden in the Member States. The progression makes the effective tax rate case-sensitive
and it would be deceptive simply to compare the different tax rates applied. A comparison should thus be based on the same assumptions about the relationship/kinship
links between the parties and the value of the inheritance.
A comparison is performed on a yearly basis in a study published by AGN International,9 based on the assumption that a married person dies on January 1st, and the
deceased leaves a spouse and two children. A number of other assumptions are made
about the value and character of the asset owned at the time of the death (a house
worth 600 000, 1 000 000 cash, quoted company shares valued at 300 000 and
unquoted company shares valued at 700 000).
The results for 2013 show substantial differences in the effective tax rate on inheritance. No country abolished inheritance or gift taxes in 2013 whilst approximately
half of the countries surveyed which operate inheritance tax regimes continued to
have an effective tax rate of 0 % in the particular scenario, these being Bulgaria
Czech Republic, Italy, Luxembourg, Poland, Portugal, Romania, Serbia, Slovenia
and Switzerland (which although not an EU Member States has concluded several
Bilateral Agreements with the EU).
According to this AGN study, the highest effective tax rate is 21.9 %, paid in
Belgium.10
It is clear that comparisons based on other assumptions will show a different picture.
In the 10 Member States with neither inheritance nor estate taxes the effective
rate will obviously always be nil. However, for the Member States with inheritance
or estate taxes, it can be expected that the effective rate will generally be higher if
the comparison is performed for siblings or recipients who are not as close to the
deceased as his spouse or a direct lineal (ascendants or descendants) (see Fig. 1).
8 The concept of cohabitants refers generally to non-married partners and to civil partnership. For in-

stance, in Belgium, the civil partnership under article 1476 of the Civil Code is called legal cohabitation
which gives the cohabitant the same exemption as a spouse or children. In some Member States the concept
is extended to all those who were living in the same household as the deceased, e.g. in Croatia.
9 AGN International, Gift and Inheritance Tax, A European Comparison, 2013.
10 However, the applicable tax rates vary according to the region, the heir/beneficiary and the taxable

amount.

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Fig. 1 Comparison of effective inheritance tax rates in the EU Member States (up-to-date January 1,
2014). Source: AGN International, Gift and Inheritance Tax, A European Comparison, 2013

1.1.3 Evolution
As a whole, effective taxation on inheritance seems to be declining. A number of
Member States have lowered their taxes on inheritance. Examples include Denmark
in 1995, Italy in 2002, Greece in 2008 and the Netherlands in 2010. On the contrary
Finland has increased its tax rates on inheritance and gifts after having significantly
reduced it a few years earlier.11 Indeed two more brackets were introduced to the
previous three since 2010, up to a tax rate of 19 % for Class I heirs (spouse, direct
lines of descent or ascent, etc.).12 Croatia, an EU Member State since 2013, levies a
flat tax rate of 5 % both on inheritance and gifts in direct line.13
Furthermore, most Member States have reduced the tax base or broadened the
scope of subjective exemptions, notably for the ascendants, descendants and for the
spouse if certain criteria are met.
Several Member States (Austria, Portugal and Sweden) have abolished their inheritance tax system.
1.2 Main differences in inheritance tax systems
Not only the level of taxation but also the concept of each national inheritance tax
rule varies between the EU Member States. The following differences may be relevant in inheritance cases with cross-border aspects.
11 Amending Bill 93/2012 entered into force on 1st of January 2013.
12 https://www.vero.fi/en-US/Individuals/Inheritance.
13 http://www.porezna-uprava.hr/en/EN_porezni_sustav/Stranice/inheritance_gifts.aspx.

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1.2.1 Notion of connecting factors

In a succession case, the heir/the estate is liable to tax in a particular jurisdiction as a
result of connecting factors, an element in a Member States domestic tax law that
links the taxpayer to a particular tax jurisdiction.
In the case of inheritance tax, the taxpayer could be the heir or the estate and the
connecting factors link the heir or the estate to a particular tax jurisdiction, typically
a Member States (an exception is Belgium where inheritance taxes are levied by local
governments of Regions).
The 19 Member States with inheritance/estate taxes use (mainly) two types of
connecting factors:
1. A personal nexus rule which establishes a link between an inheritance and the
Member State where the deceased/heir is resident14 and/or domiciled15 and/or of
which he/she is a national.
2. A source rule (situs rule) which establishes a link between an inheritance and
the Member State according to where this inheritance is located, in the absence
of personal nexus rule. The source rule may cover all assets that are part of an
inheritance or a category of assets, e.g. real estate.
The notion of habitual residence has emerged under the influence of The Hague
Convention on Private International Law (1902) and is now the term used in most of
the international conflict of law instruments. Since then, this connecting factor has
been taken over by numerous national laws and recently by EU law.16 In the EUs
recent Succession Regulation17 habitual residence is the key connecting factor for
determining both jurisdiction and applicable law to a transnational succession (see
Table 2).
It is noticeable that the concept of habitual residence is not defined either in the
Hague Conventions nor in the EU Succession Regulation which may lead to uncertainty, as it may be difficult to determine where a person has his/her habitual residence
if he/she is constantly on the move and has no real or continuing connection with any
of the countries through which he/she passes. But on the other hand in the EU context
habitual residence has some advantages over domicile because of its flexibility18
regarding the exercise of the free movements.
14 The concept of residency may alternatively refer to temporary residence, last residence or habitual

residence/habitual abode.
15 The concept of domicile may alternatively refer to domicile of origin, domicile of choice or domicile

of dependency.
16 Regulation on the law applicable to contractual obligations (Rome I), Regulation on the law applica-

ble to non-contractual obligations (Rome II), Regulation on the law applicable to divorce and separation
(Rome III), Regulation on the law applicable to jurisdiction and the recognition and enforcement of judgements in matrimonial matters and the matters of parental responsibility, Regulation on the law applicable
on jurisdiction, applicable law, recognition and enforcement of decisions and cooperation in matters relating to maintenance obligations.
17 EU Regulation 650/2012 on jurisdiction, applicable Law, recognition and enforcement of decisions and

acceptance and enforcement of authentic instruments in matter of succession and on the creation of an
European Certificate of Succession of 4 July 2012.
18 Recital 23 of the 650/2012 Regulation: (. . . ) the authority dealing with the succession should make

an overall assessment of the circumstances of the life of the deceased during the years preceding his death

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Table 2 The three principles for determining the personal nexus of a deceased or an heir20
Principle

Condition

Residence principle

The estate or inheritance is taxed if the concerned was resident of the Member
State at the time of death. The number of days spent in a Member State is often
the main basis for determining tax liability. For example a person becomes a
Spanish tax resident if his/her presence exceeds more than 183 days in the 365
days calendar period preceding the date of the death.

Domicile principle

A person is generally domiciled where his or her permanent home is situated.

A domicile of origin is acquired at birth, normally from ones father.
A domicile of dependency follows that of the person on whom he or she is
legally dependent (e.g. minors, mentally disordered persons . . . ). A domicile of
choice is acquired by an independent person by residing in a country with the
intention of continuing to do so permanently or indefinitely. Living in another
Member State is not conclusive evidence of an intention to change domicile.

Nationality principle

Under the nationality principle a personal nexus is established if the deceased or

the heir is a citizen of the Member State. Nationality represents a persons
political status and depends essentially on the place of birth or the parentage.

This being said it must be emphasised above all that taxation is expressly excluded
from the EU Succession Regulation and Member States remain sovereign regarding
the choice of the relevant connecting factors.19
A survey of the 19 Member States with inheritance or estate taxes reveals that
the residence principle is the most commonly applied. Some Member States such as
Hungary, Germany, Greece, the Netherlands, use two criteria for the personal nexus
(see Table 3).
1.2.2 Regarding source tax rules
The survey of the 19 Member States with inheritance or estate taxes also reveals that
only one of the Member States, the Netherlands, does not have a source rule.
The scope of the source rule includes all domestically located assets, including
bank accounts, shares, stocks and real estate, in 10 Member States.
In the remaining Member States the source rule is limited to real estate or immovable assets (see Table 4).
Potential cross-border double taxation results from source taxation for all sorts of
assets, including real estate, stock ownership and savings in bank accounts.
and at the time of his death, tacking account of all relevant factual elements, in particular the duration
and regularity of the deceased presence in the State concerned and the conditions and reasons for that
presence. The habitual residence thus determined should reveal a close and stable connection with the
Sate concerned taking into account the specific aim of this Regulation (. . . ).
19 But this assertion can be discussed regarding the CJEUs ruling on the Yvon Welte (see Sect. 2, 3).
20 Copenhagen Economics based on Maisto (2010) and Global Property Guide as cited in the study

on inheritance taxes in EU Member States and possible mechanisms to resolve problems of double taxation in the EU as corrected on 13 May 2011 (European Commission Taxation and Customs
Union Directorate General Edition) freely available at: http://ec.europa.eu/taxation_customs/resources/
documents/common/consultations/tax/2010/08/inheritance_taxes_report_2010_08_26_en.pdf.

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Table 3 Overview of personal nexus rules in the national tax rules on inheritance
Principle

N of Member
States

Name of Member States

Residence principle

14

Belgium, Czech Republic* , Denmark, Finland,

Germany, Hungary, Ireland, Italy, Lithuania,
Luxembourg, the Netherlands, Poland, Slovenia, Spain

Domicile principle

France, Germany, Greece, UK**

Nationality principle

Bulgaria, Czech Republic, Greece, Hungary, the

Netherlands, Poland, Croatia

No inheritance or estate tax

Austria, Cyprus, Estonia, Malta, Latvia, Portugal,

Romania, Slovakia, Sweden

Nota bene:
* Czech Republic refers to permanent address
** In the UK the taxation of individuals is determined by their residence and domicile status. Inheri-

tance tax is levied on the worldwide estate of a deceased who was domiciled in the UK and on the
UK assets of a person who was not domiciled in the UK. For inheritance tax purpose, the concept of
domicile is extended to include persons who have been resident in the UK in at least 17 year out of
the last 20 tax years (deemed domicile). It is notable that since 6 April 2013 a Statutory Residence
Test is applied in the UK in order to determine whether a person is to be considered a UK resident:
http://www.hmrc.gov.uk/international/residence.htm
Table 4 Overview of the scope of taxation regarding source tax rule21
Scope of taxation

Member States

All assets

Czech Republic, Germany* , Greece, Ireland, Italy, Lithuania,

Slovenia, Spain, United Kingdom** , Croatia

Real estate (immovable assets) only

Belgium, Bulgaria, Denmark*** , Finland, France, Hungary,

Luxembourg, Poland

No taxation source rule

The Netherlands

No inheritance or estate taxes

Austria, Cyprus, Estonia, Latvia, Malta, Portugal, Romania ,

Slovakia, Sweden

Nota bene:
* Bank accounts in German banks are not subject to taxation because of situs
** The UK taxes assets worldwide as long as one is domiciled or deemed to be domiciled in the UK
*** The Danish source rule also applies to movable assets pertaining to permanent establishments

For example, the Irish and UK inheritance tax rules have a set of connecting factors
that determine whether assets/liabilities are subject to taxation (see Table 5).
21 Copenhagen Economics based on Maisto (2010) and Global Property Guide as cited in the Study on

inheritance taxes in EU Member States and possible mechanisms to resolve problems of double taxa-

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Table 5 Summary of the connecting factors regarding the Irish and UK Inheritance tax rules22
Ireland
An asset will be liable to Irish inheritance tax:
a. If the asset is located in Ireland, or
b. If the asset is located abroad, and the deceased or beneficiary is resident or ordinarily resident in
Ireland.
UK
Generally, if domiciled, or deemed to be domiciled, in the UK, inheritance tax applies to the deceaseds
assets wherever they are situated.
If someone is domiciled abroad, inheritance tax applies only to his UK assets. However, there is no
charge on excluded assets and certain other types of UK assets may be exempted.

1.3 Tax exemptions and deductions23

Another source of complexity is the different exemptions and deductions granted by
Member States.
Most Member States grant subjective exemptions (full or partial) from the general
tax rules for the surviving spouse, under certain conditions.
The exemptions are sometimes subject to domicile, as was the case for UK until
2013.24
In addition, some Member States grant certain objective exemptions in case certain
conditions are fulfilled, for example for cultural assets.
Most Member States also allow deductions in calculating the taxable base, for
example deduction of the general liabilities of the deceased person, such as overdrafts
on a bank account, and specific liabilities directly attributable to assets falling under
the taxable estate, such as a mortgage on immovable property.
Furthermore, costs incurred after the death of the testator are often deductible
insofar as they are related to the taxable estate (funeral expenses, probate or notary
fees associated with the inheritance proceedings, etc.).
Several other deductions are allowed in specific Member States.
tion in the EU as corrected on 13 May 2011 (European Commission Taxation and Customs Union Directorate General Edition) freely available at: http://ec.europa.eu/taxation_customs/resources/documents/
common/consultations/tax/2010/08/inheritance_taxes_report_2010_08_26_en.pdf.
22 Irish rules: Revenue Irish Tax & Customs, Inheritance tax, www.revenue.ie/en/personal/circumstances/

bereavement/inheritance-tax.html and UK rules: HM Revenue & Customs, http://www.hmrc.gov.uk/CTO/

customerguide/page20.htm such as cited in Copenhagen Economics based on Maisto (2010) and Global
Property Guide as cited in the Study on inheritance taxes in EU Member States and possible mechanisms
to resolve problems of double taxation in the EU as corrected on 13 May 2011 (European Commission Taxation and Customs Union Directorate General Edition) freely available at: http://ec.europa.
eu/taxation_customs/resources/documents/common/consultations/tax/2010/08/inheritance_taxes_report_
2010_08_26_en.pdf.
23 Being said that a threshold (or nil rate band i.e. amount up to which an estate will have no inheritance

tax to pay) often apply and whose amount may increase depending on the relationship/kinship.
24 The European Commission criticised the limited inheritance tax (IHT) spouse exemption available for

such couples on the basis that it was discriminatory. In response to this, key changes to the IHT position
of mixed-domicile couples were included in the Finance Act 2013 and apply from 6 April 2013.

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1.4 Asset valuation methods

Tax rules vary considerably between Member States with regard to the applied valuation method. Most Member States apply a principle of market value, but the definition
of the latter varies and exceptions exist.
In some Member States, for example Germany, Italy and Greece, the cadastral
value is used to value immovable property, determined by the government, and often
much lower than the market value.
The listed shares tax value is normally based on listing values. There are, however, differences in the domestic rules as to the reference date: date of death or average
computed over a certain period of time.
Non-listed companies shares are commonly valuated at the fair market value, but
valuation rules may differ considerably. In some Member States, fair value is the net
asset value resulting from the last approved balance sheet of the company so that no
goodwill is included.
1.5 Anti-avoidance provisions
It would be tempting and easy to minimise the payment of estate and inheritance
taxes if gifts were not taxed.
To avoid such a tax optimisation, most Member States levy a gift tax in addition
to the estate or inheritance tax, at a comparable rate. A case by case analysis would
be necessary in order to assess if a donation would be more advantageous than an
inheritance.
In addition to gift taxes, a number of Member States use broader and more general
anti-avoidance provisions to prevent tax avoidance. A widely used method is to add
up gifts made by the same donor to the same recipient during a certain period of time
to the amount of the inheritance. However, the aggregating period varies between the
Member States from some months to several years prior to death.
Other special anti-avoidance rules provide that certain assets, not actually belonging to the deceased at the time of death, are however deemed to be part of the estate,
thus making such assets subject to tax.
Some Member States, for example Germany and the UK, have also introduced an
extended concept of residence or domicile in case of emigration.
Finally, tax avoidance on an international level, e.g. by emigrating from the Member States, is countered by introducing nationality as a criterion to levy a world-wide
inheritance and gift tax.
1.6 Transfers of family-owned and closely held businesses
Considerable challenges arise for family businesses from inheritance and gift taxation, which may counteract the transfers successful completion, if the financial burden related to it becomes unbearable for the companys and familys budget.
Therefore some Member States have enacted special relief or completely abolished inheritance tax regarding family business transfer.

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Currently, 13 of the 19 Member States concerned provide exemptions or special

relief for transfer of family owned and closely held businesses upon death. The three
Member States without such exemptions are Bulgaria, Denmark and Lithuania.
In some Member States, the exemption is limited to the transfer of a business
conducted directly by the deceased as a sole entrepreneur. In other Member States,
the scope of the exemption is extended to majority stakes in a company conducting an
active business. Lower thresholds are laid down by internal laws of Finland, France
and Germany.
The rules express the clear legislative intent that taxes should not be adverse to
the continuity of the business across generations.
Within the EU, this policy statement is well reflected in the EC Commissions Recommendations and Communications of 1994 and 2006, which suggest that Member
States should amend internal laws so as to eliminate tax obstacles to mortis causa
transfers of a business within the same family.
It is generally desirable for the exemptions or other relief not to require the estate
to comprise a majority shareholding, as such a restriction might impair the continuity
of the business.
Provided that the right to such tax free transfers are not conditional upon the
heir being resident in the Member States, internal market principles are preserved.
However, certain Member States have rules of ring fencing whereby a change of
residency of an owner of a company leads to forced taxation of non-realised gains,
in order to prevent owners from moving out of a Member State with high taxation of
capital gains/deferred profits and reaping the benefits in another Member States.
Nevertheless, this is more about taxation of capital gains and deferred profits than
inheritance taxes per se. Thus, the only real connection between inheritance taxes,
Small and Medium sized Enterprises and economic double taxation is that both discrimination and double taxation in the case of persons inheriting business from other
Member States can create barriers to continuity precisely as capital gains taxes can.
The widespread use of source taxation of shares and stocks forming part of an
estate may create financial problems for family owned and closely held businesses if
such taxation effectively leads to double taxation as discussed supra. Problems may
arise if a significant shareowner dies and heavy taxation of the value of the share
forces the heirs to sell. Such liquidation may negatively influence the stock price and
thus jeopardise the market value of a business.
Even though inheritance and gift tax legislation has not been harmonised on an
EU level, and thus diversity reigns, Member States are not completely free in their
legislative power, as the CJEU has made clear in its rulings.

2 CJEU case law: conflicts between domestic inheritance tax rules and treaty
freedoms
2.1 Issues: discrimination and restrictions
EU Member States are not obliged to harmonise or even coordinate their policies on
direct taxes (such as income taxes, property or inheritance taxes). Inheritance and gift
tax systems are even less harmonised than other tax laws.

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Nevertheless EU Member States still have to respect the basic Treaty freedoms.
The main priority for the tax policy of the EU is to ensure that the differences
in the domestic rules do not create significant obstacles to all forms of cross-border
activity.
Indeed, the wide diversity of inheritance tax rules among the Member States may
cause specific problems in cross-border inheritance cases, irrespective of whether
the cross-border aspect is due to the fact that the asset of the deceased is located in
another Member State or that the heirs have another nationality, domicile or residence
than the deceased.
National rules may contain discriminatory provisions or restricting measures, that
may result in difference in taxation based on location or nationality, and thus in
conflict with the Treaty on the Functioning of the EU (hereafter TFEU).
National tax rules may furthermore result in situations where an inheritance is
taxed by more than one Member State. For example, double or multiple taxation may
be the consequence of the source rule that most Member States apply to tax assets
within their jurisdiction although the deceased is not within that jurisdiction.
2.2 EU scope
The key priority of the EU is to reduce impediments to the Treaty freedoms, mainly
the free movement of capital, enshrined in Articles 63 to 6525 TFEU.
Article 63 TFEU provides that:
[. . . ] all restrictions on the movement of capital [. . . ] between Member States
and third countries shall be prohibited [. . . ].
For many years, the consistency of domestic inheritance tax rules with EC law was
not questioned, as a relatively small number of EU citizens established themselves in
other EU Member State for longer periods of time or purchased assets in other EU
Member States, and thus the number of cross-border succession cases remained at a
relatively low level.
During recent years, the attention to cross-border aspects of inheritance taxes has
increased with an increase in instances of migration (retirement abroad, commuter
workers etc.) and inconsistencies between domestic inheritance tax rules and the EC
Treaty (now TFEU) could no longer be ignored.
In 2003, the CJEU made its first decision in the field of inheritance taxes. In the
following years, the CJEU has on several occasions investigated whether specific
provisions of Member States inheritance tax provisions are compatible with the EU
provisions.
In many cases, the CJEU has ruled that specific national inheritance tax rules are
covered by the CJEU rules on free movement of capital, once they contain crossborder elements.
Moreover, the CJEU has ruled that it is appropriate to investigate whether national
provisions may entail a restriction on this freedom.
25 Previously articles 56 to 58 of the EC Treaty.

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To summarise, the CJEUs ruling on inheritance and gift tax is based predominantly on the violation of the freedom to transfer capital, and eventually the other
freedoms, notably free movement of persons and the freedom of establishment.
As in the classical tax cases, the CJEU always verifies a violation of EU law in
four steps:
(1) Was free movement at stake and if so, which type?
(2) Was there a restriction placed on the said freedom?
(3) Is there a justification for a restriction imposed by the relevant Member State
law?
(4) Is the justification proportional to the aim? Does the restriction go beyond what
is necessary in order to attain the objective of the legislation in question?
The CJEU considers inheritances, legacies, gifts and foundations as personal capital movements26 and so as a capital transfer in this respect. The only cases excluded
are those where a transaction does not have a cross-border connection.
A restriction occurs when a non-resident/citizen is treated less favourably than a
resident/national in an objective comparable situation or treated equally in different
situations.
However, the CJEU has also emphasised that negative tax effects of activities
abroad do not necessarily result in a restriction of Treaty rights. Member States may
have a right to apply restricting measures, notably to ensure the Consistency of tax
systems, Measures against fraud and tax evasion or the Efficiency of tax collection
[art. 65 (1) of the TFEU]. The Principle of balanced allocation of power to tax between Member States has appeared in some recent rulings.
But the restricting measures must meet certain criteria set by the CJEU, and are in
practice seldom met by Member States.
2.3 Overview of the CJEU settled case law in the field of inheritance taxes27

Case

Key point

Case C-364/01 Barbier [2003]

ECR I-15013

Free movement of capital and persons also apply to the field of

inheritance tax.

Case C-513/03 Van Hilten-Van

Der Heijden [2006]
ECR I-01957

The TFEU provisions do not prevent a Member State from taxing

the estate of a national of that Member State (Germany) who lives
abroad (Switzerland) at the time of death, on the basis that she died
within 10 years of ceasing to resident in that Member State,
particularly if the legislation in question allowed relief for
inheritance taxes levied by other States.

26 The capital movements listed in Annex I to Directive 88/361 include under heading I, Direct Invest-

ments, under heading II, Investments in real estate (not included in heading I) and, under heading XI
Personal capital movements which include inheritances and legacies.
27 Source: EUR-LEX at http://eur-lexeuropa.eu/en/index.htm.

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N. Weber-Frisch, R. Duquennois-Djoua

Case

Key point

Case C-464/05 Maria Geurts and

Dennis Vogten [2007]
ECR I-09325

Under Article 43 TFEU, Member States cannot deny an exemption

to inheritances of family undertakings which employed at least five
workers in another Member State when it would allow such an
exemption from inheritance tax if the five workers had been
employed in the same Member State.

Case C-256/06 Jger [2008]

ECR I-00123

Free movement of capital provisions of the Treaty prohibits Member

States from applying for inheritance tax purposes a special
favourable valuation system and partial exemption for assets
located in that Member State while calculating the value of assets
situated in other Member States according to normal fair market
value rules.

Case C-11/07 Eckelkamp [2008]

ECR I-06845

The CJEU held that Belgian inheritance tax provisions on

non-deductibility of charges on immovable property situated in
Belgium by non-resident taxpayer was incompatible with EC law.

Case C-43/07Arens-Sikken [2008]

ECR I-06887

It is not in line with EC law if the Netherlands do not allow a

deduction of compensation payments to other heirs as estate debt if
the deduction is disallowed only for non-residents.

Case C-67/08 Block [2009]

ECR I-00883

Article 56 EC does not impose on Member States a legal obligation

to avoid double taxation on inheritance which arises from the
exercise in parallel by Member States of fiscal sovereignty: double
taxation is in line with EC law if Spain taxes an estate because cash
funds and bonds are deposited at a Spanish bank and Germany
taxes the same estate because the descendant was resident in
Germany at the time of death. Germany was not obliged to credit
the Spanish tax against the German tax. Double taxation as a result
of non-harmonised national laws does not violate the EC Treaty.

Case C-510/08 Mattner [2010]

ECR I-03553

German gift tax provision according to which the tax allowance for
non-residents is smaller than that for residents is in breach of the
free movement of capital.

Case C-31/11 Scheumann [2012]

Not yet published

Legislation of a Member State, for the purposes of calculating

inheritance tax, excludes the application of certain tax advantages
to an estate in the form of a shareholding in a capital company
established in a third country, while conferring those advantages in
the event of the inheritance of such a shareholding when the
registered office of the company is in a Member State. This
primarily affects the exercise of the freedom of establishment for the
purposes of Article 49 TFEU et seq., since that holding enables the
shareholder to exert a definite influence over the decisions of that
company and to determine its activities. Those Treaty provisions
are not intended to apply to a situation concerning a shareholding
held in a company which has its registered office in a third country.

Case C-181/12 Yvon Welte v.

Finanzamt Velbert [2013]
Not yet published

Art. 63 and 65 of TFEU preclude legislation of a Member State

relating to the calculation of inheritance tax which provides that, in
the event of inheritance of immovable property in that State, in a
case where, as in the main proceedings, the deceased and the heir
had a permanent residence in a third country, such as the Swiss
confederation, at the time of the death, the tax-free allowance is
less than the allowance which would have been applied if at least
one of them had been resident in that Member State at that time.

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Basically, the freedom to transfer capital is not restricted to the EU and citizens or
residents of non-Member States are protected by Article 63 TFEU.
It is notable that the last rulings of the CJEU have clarified that the protection of
EU law applies in cases with connection to third parties i.e. non-Member States.
In the Yvon Welte28 case the CJEU has held that Swiss citizens can claim the same
rights as EU citizens based on the non-discrimination clause of the Agreement of free
movement and settlement between Switzerland and the EU.

3 Conclusion
Based on the information developed in the European Commission Taxation and Customs Union Directorate General study as cited,29 two main conclusions can be drawn
concerning the domestic rules on inheritance taxation in the EU.
1. The level of taxation on inheritance still varies substantially both between cases
and Member States. In 2013, 19 out the 28 Member States levy a tax on inheritance
or estates, and the level of taxation is generally progressive. However, the recent
development shows a decrease in the general level of taxation on inheritance, or
even the abolition.
2. The domestic rules on inheritance and estate taxes may still have an impact on
the Treaty Freedoms.
Indeed the design of the national rules varies between Member States in several
ways relevant in inheritance cases with cross-border aspects, as Member States employ different connecting factors, and there are several differences with respect to
issues such as valuation of assets, thresholds, relief and tax exemptions.
The EU has taken the initiative to try to reduce problems in cross-border inheritance issues, by adopting the aforementioned Succession Regulation.
Even though taxation is expressly excluded from the Regulations scope and thus
remains a matter of national sovereignty, the CJEU will probably push its analysis
of national legislations compatibility with EU law even further than today and will
oblige Member States in an indirect way, by respecting the Treaty Freedoms, to make
their national tax law comply with EU law.

Bibliography
1. Eurostat (European Commission Directorate, General Taxation and Customs Union): Taxation Trends
in the European Union, Data for the EU Member States, Iceland and Norway (2013)
2. AGN International Surveys: A European Comparison that can be consulted at http://www.agn-europe.
org/tax/ (2012 & 2013)

28 Case C-181/12 cited above.

29 Study on inheritance taxes in EU Member States and possible mechanisms to resolve problems of double

taxation in the EU (European Commission Taxation and Customs Union Directorate General Edition) as
corrected on 13 May 2011, freely available at the web link cited supra.

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N. Weber-Frisch, R. Duquennois-Djoua

3. Naess-Schmidt, H.S., Pedersen, T.T., Harhoff, F., Winiarczyk, M., Jervelund, C.: Study on inheritance taxes in EU Member States and possible mechanisms to resolve problems of double taxation
in the EU (European Commission Taxation and Customs Union Directorate General) as corrected on
13 May 2011 which is freely available at http://ec.europa.eutaxation_customs/resources/documents/
common/consultations/tax/2010/08/inheritance_taxes_report_2010_08_26_en.pdf