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What's New? > Unfair double taxation is under the EU spotlight

Unfair double taxation is under the EU spotlight

Published: 3rd September 2010

EU Commission launches consultation on ways to tackle cross border inheritance tax obstacles within the EU.

European property owners are amongst those now waiting to hear the outcome of a consultation by the European Commission that aims to tackle unfair cross-border inheritance taxes levied by member states which can leave families paying taxes twice. The review should be welcomed because an EU wide protocol should simplify matters and cut costs.

This problem will escalate as the EU expands and the review may finally pin down where the main inheritance liability arises, and then allow tax paid in other EU states to be set against this primary liability.  Even if the final outcome of the consultation is that no tax is saved, greater simplicity will reduce costs for the ordinary citizen.

The Commission has called for the review to tackle three main concerns, with a view to establishing an EU wide protocol to determine what tax is paid by whom in each state.

1.  The inheritance tax rules applied by member states often impose higher levels of tax on the estates of citizens who lived in other member states or who owned assets in other countries.  This runs counter to the EU rules on free movement of capital and a number of inheritance tax disputes have been successfully referred to the European Court of Justice since 2003 on these grounds.

2.  There can be instances of multiple taxation when a person dies, because some states tax the estate of the deceased, as happens in the UK, but other states tax the beneficiary.  Although double taxation can be avoided when there is an agreement between states, currently there are only 33 double taxation agreements between EU states out of a possible 351.

3.  The Commission is concerned that these problems are discouraging EU citizens from exercising fully their right to move, and own property, freely within the EU.

It will be very helpful to both individuals and advisers if there were an EU wide protocol to determine what tax is paid by whom in each state - and a very practical outcome from the European Commission.

For further advice on Tax Planning issues, please contact a member of our Tax Planning department on 01553 660033.

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