Child theme index:

With nautical recreation the order of the day in our Autonomous Community, the question of crew members’ registration and affiliation to the social security system is rarely clear-cut. Though a vessel may have its home port in Spanish territory, its flag is foreign and, in most cases, so is its owner.

To be specific, imagine an occupational accident involving a crew member of such a vessel, where the crew member was not registered in the Spanish social security system at the time of the accident. In such a scenario, would the employer be liable to pay, for instance, incapacity compensation payable to the employee?

In theory, the answer looks logical. If the vessel’s home port is in Spanish territory, the worker is a Spanish citizen and normally resides in Spain, Spanish social security legislation applies and international jurisdiction rests with the Spanish courts.

But such reasoning is refuted by a reasoned judgement handed down by the Labour Chamber of the Balearic Islands High Court on 4 November 2015 (Judge Rapporteur Alejandro Roa Nonide), which argues that, in a great many cases, the Spanish courts’ international jurisdiction must be declined and Spanish social security legislation disregarded.

To resolve the suggested hypothesis, the legislation to consider is Section 25.1 of the Judicial Power Act (“LOPJ”), on the competence of the Spanish courts; LOPJ Section 12, in relation to Section 7 of the Social Security Act (“LGSS”); and Section 1.5 of the Workers Statute (“ET”), on compulsory affiliation to the Spanish social security system.

In addition, according to Article 6.1 of the 1958 High Seas Convention, and Article 92.1 of the 1982 Convention on the Law of the Sea, privately-owned vessels constitute territory of their flag state and are therefore subject to its laws. Similarly, Section 6 of the Rome Convention of 19 June 1980, on the legislation applicable to contractual obligations, states that the first recourse is freedom of choice, except where this should result in the employee being deprived of the protection of mandatory provisions, in which case the law applicable would be that of the country in which the services are provided under contract, adding that the contractual circumstances of the employment may indicate closer ties with another country. This last emphasis demands an examination of the facts of the international elements involved in each case. For the scenario envisaged at the head of this article, it is the writer’s understanding that neither national elements which could attribute the protection of the eventual claim to the Spanish legal system nor the provisions of Section 126 of the LGSS can be considered applicable.

[roto lado=”right” texto=”The fact that the boat, as a workplace, has its home port in Spanish territory does not mean that the services have been provided in Spain, since the vessel has a specific territorial consideration under the cited international legislation”]

We would therefore need to consider, for example, whether the workplace was exclusively the boat, even when the employee was carrying out repair and maintenance work; whether work was being carried out on land; whether the vessel had navigated international waters; etc.

The fact that the boat, as a workplace, has its home port in Spanish territory does not mean that the services have been provided in Spain, since the vessel has a specific territorial consideration under the cited international legislation; and the term “home port” is clearly used in Spanish legislation and jurisprudence to situate a workplace, which for sea-based activity is the vessel itself, in cases in which a territorial dispute is a Spanish internal matter.

Beginning with the application of the legal precepts detailed above, it is worth pointing out that Section 25.1 of the LOPJ, on the obligations of the employment contract and the competence of the Spanish courts, requires that the services be carried out in Spain or the contract entered into in Spanish territory; that the respondent have either a domicile or an agency, branch, delegation or other type of representation in Spanish territory; that both employer and employee be Spanish citizens, irrespective of where the services were provided or the contract was entered into; and in addition, in the case of a seafarer’s employment contract, that the contract be preceded by an employment invitation received in Spain by a Spanish employee. The third article of the same section, on social security claims, states that the Spanish courts are competent in cases of claims brought against Spanish entities, or entities that have a domicile, delegation or other type of representation in Spain. These circumstances are not concurrent in our suggested hypothesis and therefore the competence of the Spanish courts must be declined.

[roto lado=”left” texto=”Section 1.5 of the Workers Statute sets forth the workplace as the vessel, situating the vessel in its home port in a Spanish province, but the legal provision is for the purposes of Spanish vessels in order to establish a point of reference, which logically has to be where a vessel conducts the majority of its maritime activity, deemed by High Court jurisprudence to be its primary actual activity centre”]

With regard to substantive and national regulations, Section 1.5 of the Workers Statute sets forth the workplace as the vessel, situating the vessel in its home port in a Spanish province, but the legal provision is for the purposes of Spanish vessels in order to establish a point of reference, which logically has to be where a vessel conducts the majority of its maritime activity, deemed by High Court jurisprudence to be its primary actual activity centre. Furthermore, the location of the vessel, despite being moored in a Spanish port on a regular basis, is not to be regarded as a determining factor when – and these are the truly decisive elements – the vessel’s flag state is foreign, and the employee’s services are provided on the vessel. Neither are we dealing with a case such as that of the Balearic Islands High Court judgment we referred to earlier, given that Spanish labour legislation would be applicable to work carried out by Spanish workers under contract in Spain to Spanish companies abroad.

Likewise, Section 7 of the LGSS sets forth the obligation of Spanish citizens and foreign nationals resident in Spain to be included in the social security system whenever they are engaged as employees in activities in Spanish territory. Given that the services are provided on a foreign vessel, the principle of territoriality cannot be extended solely on the grounds of the location of the vessel, since in that case all crew members of foreign ships would be obliged to affiliate to the social security system for the mere fact of mooring in Spanish territory. The fact that the craft may have been outside the territory of Spanish ports must also be taken into account.

Neither does the claim that the above international conventions are not applicable hold any water, since, as we have seen, said conventions state that privately-owned and merchant vessels are the territory of their flag state and subject to its laws. Certainly the competence of the Spanish courts to hear social claims is determined by the judicial power legislation examined earlier in this article, and it is the principal legal configuration on competent jurisdiction. It is equally true, however, that the international conventions point to the flag state as an essential element in deciding to which country the craft belongs, in international waters as well as elsewhere. And for the purposes of the Spanish social security system, Spanish regulations determine the international forum, as we have seen.

Article 6 of the 1980 Rome Convention on the legislation applicable to contractual obligations states that, in cases involving foreign elements, freedom of choice is the first recourse. That said, we should consider the caveat therein which states that “unless it appears from the circumstances as a whole that the contract is more closely connected with another country, in which case the contract shall be governed by the law of that country.” Those circumstances must therefore be taken into consideration in an investigation to determine whether the international elements are successive and substantial. Among the elements to consider are the employer or respondent company’s nationality; the vessel’s flag state; the provision of services on board; the terms of the employment contract; time spent away from the home port; whether the whole crew, as well as the captain himself, had prior knowledge of the situation and received the appropriate annual remuneration for not being affiliated to the Spanish social security system; and whether the company had private medical insurance covering employees’ health care needs.

These circumstances will inevitably prevail and impede any consideration of the existence of closer legal ties with the Spanish state: personal family ties, such as the employee’s family’s domicile and nationality, are insufficient for the purpose. To clear the obstacle of the application of the flag state’s nationality, the doctrine of the flag of convenience could be brought to the table, citing a number of exceptional High Court of Justice judgments which have examined Article 6 of the Convention of Rome in order to maintain the link with the legal system most connected with the contract. For instance, a Canary Islands Court judgement of 17 October, 2013, examined the case of a Spanish citizen who took up employment in mixed nationality companies, but in order to do so most of the elements of the seafarer’s employment contract had to link that employment relationship to the foreign state in question. Another example is the Galicia High Court of Justice judgement of April, 2004, which ruled that the first factor to be taken into consideration is the choice of law made by the parties, and that flag state law may be rendered ineffective if in fact closer ties exist with another country. The judgement concurred that the employee was Spanish, had previously worked for a Spanish company, where the Spanish employment invitations were received, and all that remained was the respondent company’s domicile, which failed to constitute sufficient grounds in this case.

Certainly, we are dealing with a specific provision of service, in a sea-going craft, whereby the singularity of the location of the provision of services is a key factor that lends concrete characteristics to the controversy. Notwithstanding, and in the writer’s opinion, taking into account all of the above, one must conclude an absence of obligation to affiliate and to register, due to the absence of Spanish jurisdiction to hear cases like the one hypothesised here, as a result of which  companies cannot be decreed directly liable, nor can agent entities be held secondarily liable.

Luis Huerta, lawyer at Bufete Buades.

The new year (and the one just over) has brought an important change to the taxing of lots of sources of income that are highly important to the economy of the Balearic Islands. The new measures have been agreed in Law 12/2015 of 2015, of 29 December, regarding general budgets for the autonomous community of the Balearic Islands for the year 2016.

Firstly, we are faced with an increase to the autonomous region tax scale for Personal Income Tax (IRPF).

The autonomous community tax scale for personal income tax applicable to the general taxable base will be as follows (taking effect from 31 December 2015):

This modification will increase the tax burden on residents in the Balearic Islands that obtain revenue higher than €70,000, as the minimum rate will remain at 9.5%, and the maximum rate will increase from the taxable base of €70,000 upwards. Also, the number of tax brackets will increase from 6 to 9.

Secondly, the beneficial reduction to Inheritance Tax that was enjoyed by taxable persons included in groups I and II -namely, ascendants, descendants and spouses- will be modified from €700,000 upwards, with the applicable tax rate rising progressively up to 20%.

The total amount of tax to be paid will be obtained by applying the tax base to the following scale:

We continue with the Property Transfer Tax, where the scale for the transfer of property has been modified, with a new bracket established from €1,000,000 upwards, with a rate of 11%

The table will look as follows:

Lastly, and also coming into effect on 31 December 2015, the minimum amount exempt from the Wealth Tax has been reduced from €800,000 to €700,000 and the tax rate has been increased in ALL of the brackets.

The difference is substantial, with the tax burden for this tax having risen by around 40%:

Although the Central Government brought forward tax improvements scheduled for 2016 and 2017, and applied them to 2015, the new regional government of the autonomous community of the Balearic Islands has decided to increase the tax burden for tax payers with a higher level of economic rent.

By Gabriel Buades Castella, attorney at Bufete Buades.

On the date of 18 April 2015, going into effect the following day, the Decree 20/2015, of 17 April, was published, on general principles and coordination directives on tourism subjects; on the regulation of advisory bodies, of coordination and of cooperation of the Government of the Balearic Islands, and on the regulation and classification of companies and tourist establishments, in the implementation of the Law 8/2012, of 19 July, on Tourism of the Balearic Islands.

This Decree implements the Tourism Law, clarifying concepts and completing the previously existing regulations on, among other subjects, the renting of houses for tourist stays.

On the one hand, it clarifies and completes the definition of the type of houses in which the tourist stay is permitted.

The Tourism Law of the Balearic Islands allows the marketing of tourist stays in isolated single-family house. That is, one single house on the plot. The regulation clarifies that in this concept adjoining housing units are not included.

On the other hand, it establishes the procedure and necessary documentation, a procedure called by analogous application, to assess whether it is possible to accept that two or more houses may exist on the same plot. The Law only established this possibility with no further mention.

For this case, the regulation indicates that a process should be initiated before the insular tourism administration competent in subjects of tourism organisation, and the following documentation must be presented:

• Copy of the certificate of habitability.
• Copy of the deed of ownership.
• Cadastral plan of the set of houses.

Furthermore, within this procedure by analogy, in the case that horizontal property exists on the plot, it should include in the documentation an affidavit of commencement of business declaring that the bylaws that regulate the horizontal property do not impede the tourist rental.

If in the future the bylaws are modified and impede tourist rentals, the procedure of cancellation of the registration of the tourist registers and the suspension of the business will be initiated.

This bylaw modification does not seem very feasible insofar as it would require unanimity. With one person who markets his house voting against it, this unanimity is avoided.

What is more, they do not include what criteria must be taken into account for the authorisation.

Within the isolated single-family type, in spite of seeming contradictory, it expressly includes that the marketing of tourist stays in single-family dwellings with party walls is permitted, as long as it is the only one on the plot.

It follows that, for example, the typical houses within a town forming a row of houses could be rented for tourist stays.

The wording of the law was confusing in this regard and its inclusion was not clear.

The definition of single-family semi-detached houses has not been modified. They are the ones on the same plot, subject to horizontal ownership regime or when on different plots there are single-family houses joined to the party walls that separate them.

However, it concludes that when it deals with semi-detached houses that are on the same plot subject to horizontal ownership, a declaration must be presented with the affidavit of commencement of business, with respect to the fact that the bylaws that regulate the horizontal property do not impede tourist rentals.

In case that the bylaws are modified and impede tourist rentals, the cancellation procedure of the registration in the tourist registers and the suspension of the activity will commence.

Apart from this, the regulation modifies the calculation of minimum bathrooms due to the difficulty of numerous houses to comply with this parameter. While in the law it was established that the minimum allocation of bathrooms must be one for every three occupants, currently it would be the following:

• Between 1 and 5 occupants: 1 bathroom
• Between 6 and 8 occupants: 2 bathrooms
• Between 9 and 11 occupants: 3 bathrooms
• 12 occupants: 4 bathrooms

With respect to calculating the occupants, the regulation adds that for the effects of the maximum number of occupants, children up to 12 years of age are not counted, neither are the surveillance, cleaning or domestic personnel that may spend the night in the dwelling.

No distinction is made in the law in this regard for which reason it should be considered that all persons are considered occupants.

Another novelty included in the regulation on which nothing had been indicated in the Law is that the insular tourist administration competent in subject of tourism organisation shall have published in its website an updated list of the channels that are considered for tourist marketing, without it being considered a closed list, in the sense that it will not imply that a channel that is not included in this list cannot be considered, for justified reasons, also a tourism marketing channel.

This list will be a guide, a sensu contrario, for those that rent their houses through the Urban Rental Law with seasonal rentals since they will know in which websites they cannot offer the rental of their houses.

Lastly, it establishes a series of requirements that must be fulfilled by houses subject of tourist stay marketing that plan to be registered in the tourism registries with the aim of exercising their activity. These requirements are included in Annex 6 of the regulation.

Annex 6 contains two lists of requirements: some essential and, therefore, of mandatory compliance, and others for evaluation.

The essential requirements include, in addition to the legal ones and that the house has electricity and hot water, that is, that it is habitable, the need for the house to have a washing machine, iron and ironing board, first aid kit, user’s manual, candles and/or lanterns, etc.

With respect to the list for evaluation, the interested person has to grant the score that he considers appropriate to each of the aspects, with the maximum points indicated. The total of points obtained cannot be less than 70.

The evaluable aspects are in terms of whether the house has a swimming pool, garden, barbeque, Internet, music player, etc.

In conclusion, a further step has been taken in the regulation of the vacation houses, giving greater legal security to this type of activities.

By Daniel Olabarria, lawyer of Bufete Buades.

Law 20/2015 on management, supervision and solvency of insurance companies has modified Additional Provision I of the Construction Law and repealed Law 57/68 on receipt of quantities in the cited construction sales.

The new regulation develops and completes the former, based on the following fundamental pillars:

• The developer is required to:

o Ensure the return of the quantities delivered to the sales account in construction through a security deposit or surety contract. This includes the principal, taxes and the legal interest on the money.

o These quantities must enter a special account for the purpose of construction. Banking institutions will require a guarantee or security deposit for this account. These amounts can only be used for construction.

• It establishes the requirements for the bank guarantee and security deposit. These include validity and requirements to request payment (upon request to the developer 30 days in advance). The developer cannot sell the house if the insurance company has paid and the developer has not been compensated.

• Contractual information: obligation to certify compliance with the obligation to refund amounts, insurance or guarantee and the special account.

• Publication: the existence of the guarantee and special account will be published, mentioning the insurance and banking entities.

• Penalty system: this refers to consumers’ and users’ regulations of the autonomous communities, but establishes a penalty of 25% of the uninsured amounts.

• Entry into force: January 1, 2016; starting July 1, 2016, insurance companies must adapt contracts that were in effect at the time the new regulation took effect.

By Miguel Reus, lawyer of Bufete Buades.

This Friday, September 25, an interesting seminar on asset management in uncertain times took place in the hotel Gran Meliá Victoria. This Conference was organized by Mallorca 2030 and had speakers on various topics and of great interest.

My statement, on behalf of the International Desk of Bufete Buades, focused on an explanation of inheritance law in Spain and its main issues. Issues such as (i) the degree of kinship, (ii) the types of possible Testament, (iii) “intestate” succession or (iv) the right of self-defense. I also shared the podium with a German colleague who commented on the same subject from the point of view of German law. Upon completion of our remarks, many questions were raised about which law was more convenient, and why.

Before embarking on the difficult mission of responding to the issues raised, we must briefly mention of the previously addressed issue of the new European Regulation 650 2012 legislation in this matter, applicable law, recognition and enforcement of judgments, the acceptance and execution of public documents in the field of successions mortis causa and the creation of a European certificate of inheritance.

That regulation was released in 2012, but its major themes came into force on August 17, 2015. From that date, in the event of death, the inheritance law of the deceased European will be that of his or her customary residence at the time of death. However, out of respect for the principle of autonomy of the will, it is admits that that law may be of the nationality of the deceased at the time of the election or death. This choice must be necessarily available “mortis causa,” either expressly by Testament, or being clearly deduced from it. And, of course, this can be modified or revoked at any time, using the same type of instrument.

Inheritance without succession or Pact; i.e., the inheritance without Testament ‘intestate’, always govern the general rule known as the customary residence of the deceased.

Notwithstanding the difficulties that may arise in interpreting the location of habitual residence when the deceased spends time in two or more European countries (a theme we will discuss in a future article), raises the question of what is more convenient, to choose according to the Spanish rules of inheritance law or the law of inheritance according to German laws.

When making this decision, German residents in Mallorca should know the basic differences between the two inheritance systems.

First, we need to distinguish between types of wills existing in Spain and Testaments that we can find in Germany. In both countries, testators can establish their last wills in a Holographic Will (Eigenhändiges Testament) and in a public Testament (offentiches Testament) made before a notary. However, in Spain it is not possible to ratify a joint will between spouses, a mode that is viable in Germany, called “Berliner Testament.” Spain does NOT allow inheritance contracts (Erbvertrage), which are possible in Germany.

Once informed of the types of wills existing, we must know the limitations to the free disposal of the assets of the testator. In Spain, there is the figure of the legitimate heir, which should be a part of the hereditary property (Erbmasse) earmarked for the “legitimario” (mandatory inheritance system). In Germany, there is also the (Pflichtteil) legitimate heir; the uniqueness in Spain lies in the difference between the regions that make up the Spanish territory. In Mallorca, the reserved portion is different from that established in other regions–such as Madrid or Barcelona – and even other islands, Ibiza and Formentera. For that reason, we must know exactly the peculiarities of civil inheritance law in our place of residence before opting for this.

It is pertinent to mention that the differences between the regions also affect the different succession pacts that can be carried out if certain conditions are met.

Finally, “intestate” succession does not have much importance in choosing which inheritance law is most convenient, since, in such a case, the law of the habitual residence of the deceased is applicable (there is no choice of law in particular, but it is applicable at the place of residence). However, it is interesting to know that in Spain – without prejudice to the mandatory succession noted above – the order of heirs is as follows: (i) children and descendants, (ii) parents, on the assumption that there are no descendants; spouse (iii), (iv) siblings, nieces and nephews, (v) uncles and aunts, (vi) collateral relatives of the 4th degree and last (vii) the Spanish State, when none of the above exist. In Germany it is similar, although siblings would enter the second priority group and the spouse would receive a higher or lower percentage depending on the existence of descendants or not.

Once the different peculiarities are known, choosing the law that is more beneficial to the testator must take into consideration aspects such as (i) marital status, (ii) number of ancestors and descendants, (iii) the existence or not of inheritance pacts in the country of origin, (iv) the place of usual residence, (v) the limitations imposed by civil or statutory law and many more.

Therefore, we can conclude that there is no law objectively better than another, but that we will have to choose the law that best suits the personal circumstances of the testator. This choice will not be the same as that of your neighbor, since each one will have a different scenario that requires different solutions for its resolution.

By Gabriel Buades Castella, attorney at Bufete Buades.

The documentation necessary for a real estate property is the same at both the Balearic and national levels.

Depending on whether it is a newly constructed residence or “previously-owned,” the necessary documentation may vary.

The property title is a common document for real estate property. The property title determines the ownership of the person exercising the rights as owner.

Normally will be writs of purchase and sale, of acceptance of inheritance, etc.

Recording ownership in the corresponding property registry. This record will allow defending the ownership of the property with regard to third parties.

In case of newly constructed residences is necessary being in disposition of the Certificate of habitability. This document guarantees to the holder that the residence meets the minimum habitability conditions.

Related with the certificate of habitability is a document required prior to its concession, the first occupancy license or municipal construction certificate with which the corresponding City hall certifies the execution of the work according to the project under the license.

On purchasing a newly constructed residence, it is essential for the real estate developer to have filed decennial insurance. For ten years, decennial insurance guarantees against material damages caused by flaws or defects that affect the structural elements of the residence or building.

It is not necessary to obtain decennial insurance if the owner acts as his or her own real estate developer; that is, building the property for his or her own use. If the owner decides to transfer the property within ten years, this decennial insurance must be obtained, or the purchaser must waive this insurance in the public writ.

In the assumption of newly constructed residences, the real estate developer must also deliver to the purchaser, who must give to later purchasers, the building book. This document included the agents involved during the building process, as well as the instructions for use and maintenance of the building and its installations.

In newly constructed residences, Installer Reports are needed to be able to release the supply in the residence.

From a tax perspective, the properties will have a land registry reference used for the payment of the Property taxes levied on the ownership of this property and that are paid annually.

In case of sale of the property, in addition to the documents indicated above, a Certificate of energy efficiency must be obtained. This certificate reports the energy efficiency of the residence, and it is only necessary to obtain it in the case of sale or rental of the property.

Likewise, if you live in a community of owners, it is necessary to obtain certification that payments are up to date.

Daniel Olabarria Vaquero, LL. M.

On 31 December Fundamente Haus & Grundbesitz Mallorca was presented to the public. This is the new community of interest for German-speaking property owners and buyers resident on the island, of which our firm’s International Desk is the legal partner.

The event, which took place in the Auditorium of the Club Mallorca Zeitung, was attended by numerous personalities of the German community residing in Majorca, as well as members of the public interested in gaining first-hand information relating to legal, tax or economic aspects to be taken into account when purchasing or building real estate property in our community.

The Foreign Investments Area of Bufete Buades was represented by Daniel Olabarria Vaquero, LL.M., whose presentation focused on aspects to be taken into account for the “Property Register and Cadastre: differences and use”.

The Supreme Court, in the Judgment of May 21, 2014, established a legal precedent that the broker entrusted with the sale of a home has the right to full compensation of the agreed commission when his or her management is decisive or determinant for the “positive outcome” or “success” of the transaction, independently of whether the sale is made by the seller without his or her knowledge and the final price is the same.

This Judgment is, in reality, the continuation of a previous and recent one of the Supreme Court of March 8, 2013 that defined the “success of the brokerage” as the assumptions in which the activity of the broker determines the existence of the framework or business relationship that makes possible the goal of attainment desired by the seller, independent of his or her own consummation of the sale.

It established, for example, that with the signing of a contract for option to purchase, it must be understood that this framework of business relationship occurs in favor of the seller, allowing the goal of attainment (completion of the sale), independently of whether said option is or is not exercised by the grantee. That is, unless the seller and the real estate agent agree that earning and paying the commission shall take place only when the operation has been concluded.

It must be recalled that at times the Courts, including the Provincial Court of Baleares, have interpreted that only “placing in contact” a seller and interested buyer does not necessarily mean that the brokerage has earned the right to commission- if, for example, the home in question simply was “shown” or visited with a possible buyer- even with a sale brokerage contract. It would be necessary- among other actions by the brokering agent- to inform the owner of the result of the visit, offer the visitor as a possible buyer, detail their personal circumstances for the seller’s knowledge, the possible amount that above the initial offering price of the property he or she is willing to pay and in what conditions.

This specific case addresses the right of the broker to the compensation agreed to in the contract for sale of an apartment that, although coordinated between the parties placed in contact by the agent for the real estate property, was carried out without him or her, and for a price lower than that cited in the initial contract; considering whether the compensation of the broker is excluded or, if applicable, is liable to a discount proportional to the reduction of the final sales price. The agreed commission was established for a fixed amount and the sale price initially offered was higher than the price at which the sale finally took place.

It was verified that the broker, through his or her efforts, showed the home to a third party, who was interested in it and requested a discount, which was approved by the seller. However, on communication of said discount, the interested party indicated not being interested. Two months afterward, the interested party purchased the home by public writ, skirting the professional action of the broker.

The Judgment established that the result of the brokerage- that is, the sale of the apartment as a “success or positive outcome of the brokerage”- was accomplished through the decisive management by the broker, who not only contacted the future purchaser, but also showed the property several times. This established the framework for negotiation that made possible the goal of sale desired by the seller that, without a doubt, took advantage of this brokerage activity to complete the sale.

With regard to determining compensation, it must be pointed out that the seller and the real estate agent agreed to a fixed amount independent of the final sales price, not a percentage of the sale price. In consequence, the Court ordered the payment of the full commission agreed despite the sale price being lower than that the sale brokerage contract indicated.

As predicted in the February 6, 2014 edition of RECHT & STEUERN, on September 3, 2014 the Court of Justice of the European Communities finally pronounced the decree that stops the tax inequities existing in the Tax on Inheritances and Gifts between Residents and Non-residents; inequities that in some cases led to greater than 80% taxation.

The differences in taxation alleged before the Court of Justice of the European Communities originate in the tax regulation allowing each Autonomous Community to establish the reductions, deductions and allowances considered appropriate, applying these only to the residents of this Autonomous Community. In contrast, the state standard is applied to the Non-residents, this being the highest by far.

For this reason, the judgment of the Court of Justice of the European Communities was clear with regard to creating barriers against free circulation of people and capital in the European Territory, one of the basic principles of the European Union, and indicated that: “The regulations of a member state that makes the application of a reduction of the taxable base of the inheritance or gift dependent on the place of residence of the predecessor and of the inheritor at the time of the death, or of the place of residence of the donor and of the recipient at the time of the gift, or also of the place in which is located a real estate property subject to inheritance or gift, when it gives rise to inheritances or gifts between non-residents, or concerning properties located in another member state, bear a greater tax burden than the inheritances or gifts in which only residents are involved or that only concern properties located in the member state of imposition, constitutes a restriction of the free circulation of capital.”

In summary, it is NOT permissible in the countries of the European Union for regulations to exist that threaten the freedom of circulation. The Spanish regulation regarding the Tax on Inheritances and Gifts creates clear differences between residents and Non-residents; therefore, it must be modified.

In conclusion, the consequences of the judgment of September 3 are summarized below:

• The Government must speed up the tax reform regarding the Tax on Inheritances and Gifts provided for 2016, with the objective of complying with the judgment of the Court of Justice of the European Communities.

• This opens the door for those European citizens affected by the alleged inequities. These [citizens] may request (i) the return of undue taxes paid, as long as four years have NOT passed since the tax payment or (ii) the initiation of procedures to claim damages against the nation of Spain.

We believe, although it will be a complicated process, that now is the time to take the pertinent actions to equalize the treatment between the Residents and Non-residents, whose only difference is whether or not they live 183 days in one country or another.

In later articles, we will address the upcoming tax reform on which the government is working, which would apply from January 2015, and should bring discounts in both Personal Income and Corporate Taxes. This reform will also involve lowering the tax burden on Non-resident Income for European citizens.

In the area of taxation, in 2014 we hope to discover the Court of Justice of the European Union’s judgement in Case C-127/12 regarding the difference in tax treatment arising from Spanish inheritance regulations which could lead to European citizens having the same treatment in matters of succession as well as the return of inheritance tax paid with the applicable interest accrued.

In planning matters, approval of the Balearic Law of Land Regulation and Use, which is currently passing through parliament is awaited. This will be especially relevant if it upholds the extraordinary procedures for legalizing buildings which have been built without a permit on rural land and the requirements for this legalisation, as in the bill.

In commercial matters, it will be interesting to discover how the new Law of Entrepreneurs will be applied and how this will affect the reactivation of investment in Spain.