Antonio Flores’ Blog

Spanish Governments are not celebrated for bringing clarity to the matter of inheritance taxes (IHT), whether on a domestic level –there are 17 different IHT tax regimes within the country- or internationally, in the very relevant cross-border investment context.   

Notably, Spain has only signed agreements to avoid IHT double taxation with Sweden (1963), France (1963) and Greece (1920), rather bizarrely. If you think about it, a country that is trying all sorts to lure foreign investment, yet fails to specifically address the IHT situation of an investor from Britain (by and large the largest exporter of property buyers to Spain!), is a country with massive inefficiencies.

Spain signed its latest Double Taxation Agreement with the United Kingdom on the 14^th of March 2013, entering into force in June of 2014.

As far as Spain is concerned, the treaty is meant to cover the following:

income tax on individuals; (ii) the corporation tax; (iii) the income tax on non-residents; (iv) the capital tax; and (v) local taxes on income and on capital;

Yep, no trace of inheritance taxes, as if the thousands of British investors in Spanish property were immortal or this was a point of (tax) law that nobody ever asks or worries about. Paradoxical and incomprehensible.

Still, however, national laws in each country provide the solution:

In Spain, a rather unknown binding resolution of the Spanish Directorate for Taxes, with number V0148-08, applies the 1987 Spanish Tax Act to address the a scenario of double taxation of a Spanish resident who inherits from a UK resident (where the estate is taxed). In this case, the resolution establishes that any taxes paid in the UK will be deducted off the taxes to be paid in Spain (if those UK assets are at all declared in Spain!).

What if it was the other way round i.e. a UK domicile inheriting a Spanish property? In this instance, as Spanish taxes will be paid on local assets, according to the site https://www.gov.uk/inheritance-tax-double-taxation-relief, HMRC gives credit against Inheritance Tax for the tax charged by another country on assets sited in that country. Interestingly, the web page cites an example of Spanish-based property and the “relevant double taxation convention”…when there isn’t one!

So whilst there is an understanding as to where and how will IHT be paid where assets of Spanish/UK residents are involved, surely it cannot be too difficult to sign up a treaty on the matter for complete clarity, just as the wholly superfluous 1920 Double Taxation Agreement with Greece does.

Antonio Flores Tax Law Double Taxation Agreement Spain UK, IHT Spain, Inheritance IHT Spain, Inheritance Tax England

Real Estate Agents (REA) in Spain have long thought that if they register a client with a property owner or developer (irrespective of whether they show them the property), they have an automatic right to receive a commission when the property sells; although it may come as a shock to many, this is not the case, according to specific case law on the matter. The following rulings explain this:

Appeal Court in Oviedo (22/2/1996):

Only the broker that has effectively concluded the contract between buyer and seller is entitled to retribution, rejecting “equitable remedies” to the broker who, having intervened in some capacity in the contract has nonetheless failed to close an agreement. 

Appeal Court in Oviedo (27/2/1998):

The elucidation of who is entitled to the commission where several REAs intervene is not an easy one for, although several REAs may have ostensibly taken part in the negotiations, it is only the REA whose actions were decisive to perform the instruction who will be entitled to a commission payment.

In a transaction where the principal has hired several REAs, it is not always easy to establish which are those specific actions, as carried out by each REA independently, which produce the desired result of successfully closing the deal. The Court is of the opinion that where this situation occurs, it is a question of fact whether a specific REA action was decisive in securing the closing of the deal, in other words, the causation of the exchange of contracts between buyer and seller even if, in practice, coexisting actions or other particular factors of other REAs could have helped achieve the result.

Supreme Court (23/2/1965):

Where several independent brokers concur with each other in a transaction, remuneration will have to be paid to the one whose action(s) was a cause, even if not exclusive, of the success of the intermediation, i.e. the exchange of contracts. Not upholding this view risks transmuting the very nature of a brokerage into a type of services contract where remuneration would be paid irrespective of the result of the conclusion of a sale, thus depriving brokerage agreements from the risk-of-failure element that is inherent to any aleatory contract.

This conclusion is even shared by international case law (Webranchek v LK Jacobs & co Ltd.):

Where a property is listed with several agents and they compete in trying to conclude a sale by the principal to a particular third party, it is not necessarily the agent who first introduces the purchaser who is entitled to remuneration but the agent who is the effective cause of the transaction being completed.

The most immediate consequence of the application of this case law is that the commonly known action of “registering a client”, on its own, does not entitle the agency to receive a commission. On the contrary, a REA needs to prove that its endeavours have materialized, specifically, in the exchange of a purchase sale agreement (of whichever description).

Antonio Flores Legal Practise buying property in Spain, Property Spain, real estate agency commission, real estate agent costa del sol, real estate agents spain