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The EU Succession Regulation and Foreign Law Applied by Tax Authorities

On few occasions Polish tax authorities made references to the EU Succession Regulation and applied foreign law designated by its provisions, even though revenue and other administrative matters are explicitly excluded from its scope. This post presents shortly the inheritance taxation rules in Poland, explains why tax authorities felt the need to look into foreign succession laws for tax purposes and how the content of foreign law was ascertained.

Exclusion of Taxes from the scope of the EU Succession Regulation

The EU Succession Regulations states in its Article 1(1) that it does not apply to revenue, customs or administrative matters. Recital 10 makes reference to taxes in particular. It explains that it is for national law to determine how taxes are calculated and paid. The question is how to proceed if national tax law makes a direct reference to succession law concepts.

It might be reminded that inheritance taxes in Member States were once subject to an EU-sponsored study (which might be consulted here).

Inheritance Taxation in Poland

Inheritance taxation in Poland is regulated by a separate statute (available here – in Polish only). It provides that the acquisition of goods located in Poland and rights exercised in Poland by an individual as a result of inter alia succession is subject to taxation. Acquisition of goods located abroad or rights exercised abroad is subject to taxation, provided that at the moment of opening of the succession the beneficiary was a Polish national or had habitual residence in Poland. The acquisition of ownership of movable property located in Poland or rights exercised in Poland is not subject to taxation, provided that neither the beneficiary, nor deceased were Polish nationals and had habitual residence in Poland.

There are numerous exemptions from inheritance tax, including the one for the closest family members. The beneficiary is the taxpayer. The tax point arises at the moment of the acceptance of the succession. If the acquisition was not reported to tax authorities the tax point (re)arises at the moment when a document in writing is produced. If it is a court decision the tax point arises at the moment the decision becomes final. The tax base is the net worth of the estate calculated in the prescribed manner. The tax due depends on the degree of affinity or kinship between the deceased and beneficiary and varies between 3% to 20% of the tax base exceeding certain thresholds. Taxpayers are obliged to file a tax return, based on which tax authorities issue a decision indicating tax to be paid.

Tax Point Linked to the Acceptance of the Succession

As mentioned above, the tax point with respect to succession arises at the moment of its acceptance. This clearly refers to the acceptance of the succession, an institution known in the substantive succession law regulated by the Polish Civil Code (here). It states that an heir acquires the estate at the moment of the opening of the succession. Nevertheless, the heir may accept the estate without limitation of liability for debts, with limitation of that liability or may renounce the succession. The time limit for such statement is six months counting from the moment when an hair have learned about his/her title of acquisition.

It is simple to indicate a tax point for inheritance taxation in a purely domestic case. However, inheritance taxation comes into play also in cases which are less intensively connected to Poland. For example, acquisition of an immovable property located in Poland is taxed, even if both the deceased and the beneficiary are foreign nationals with habitual residence abroad. In those cases, in accordance with the EU Succession Regulation, succession is governed by foreign law. The doubt as to the tax point might occur in instances when lex successionis does not know the concept of an acceptance of succession.

Acceptance of Succession when Foreign Law is Applicable

While assessing the tax point tax authorities stated that the concept of an acceptance of succession used for tax purposes must take into account the law applicable to civil law aspects of the particular case. This law should be designated in accordance with the EU Succession Regulation.

In the recent tax ruling of 27 August 2020 (signature: 0111-KDIB2-3.4015.112.2020.1.AD) the tax authority analysed English law (as the deceased was habitually resident in the UK). It was explained that in the UK succession case is dealt with differently than in Poland. It is an appointed executor, who is responsible for assessing the value of the estate, payment of debts and payment of inheritance taxes in the UK. The executor is responsible also for sending documents to the probate court. Once the decision of the probate court is delivered, the estate might be transferred to heirs. As a result a final decision of the probate court may be perceived as an equivalent to the acceptance of succession. In an earlier tax ruling of 31 December 2019 (signature: 0111-KDIB4.4015.114.2019.2.MD) the tax authority analysed US succession procedure and also stated that the decision of the court is conclusive for tax purposes in Poland.

Please note that the above are not decisions in particular tax proceedings, but tax rulings, which only interpret the law on the taxpayer’s application and are issued based on information and explanations provided by the taxpayer. Hence, while issuing a tax rulings tax authorities are not establishing the content of foreign law. Tax rulings may be found by their signatures in the public database (accessible here – in Polish only).

Ascertainment of the Content of Foreign Law

In the tax proceeding concerning succession governed by Australian law tax authorities went even further and lined the tax point to the actual transfer of funds from Australia to Poland. The taxpayer was arguing that the tax point have arisen earlier, at the moment of the opening of succession (as the foreign exchange rate used for calculating tax due was more favourable at that time). The decision resulted in a dispute and the tax decision was appealed to the administrative court. The court in its judgement of 26 June 2018 (signature: I SA/Wr 164/18; it may be found by its signature in the public database here – in Polish) set aside the tax decision due to procedural faults, in particular when it comes to ascertainment of the content of foreign law.

The court stated that it is not enough that the tax authorities have asked Polish Consulate in Sidney for information on Australian law and that the decision has indicated provisions of the South Australia Administration and Probate Act 1919 as the basis for conclusions. The court suggested that indeed the tax point arose earlier than at the moment of the bank transfer, but in order to indicate this moment a careful analysis of Australian succession law must be made. For this purpose tax authorities should ask Ministry of Finance for guidance, which might in turn, within the framework of legal aid procedure, contact Australian tax authorities. Australian succession law should be applied as it would be applied by Australian tax authorities in similar cases. Also an expert witness may be appointed.

The above shows the relevance of private international law for the work of administrative authorities, influence of lex successions designated by the EU Succession Regulation on tax matters, but also reveals that tax authorities are not necessarily competent to proceed with the ascertainment of the content of foreign law.

2 comments on “The EU Succession Regulation and Foreign Law Applied by Tax Authorities

  1. Martin Margonski

    True… true… But I guess not only, when the national tax law makes reference to succession law concepts, is the SR applicable in tax cases. Art. 1(1) SR excludes i.a. tax aspects of the succession case. So the taxation itself remains autonomous competence of the member states. Despite that, tax authorities, such as other administrative authorities, still do have to apply for instance chapter IV, chapter V and chapter VI of the regulation. In fact, it my daily routine to send heirs with German ESCs or national German certificates to polish tax offices to obtain a certificate of non-objection prior the inherited Polish property can be disposed with me as notary. And I do believe that the Polish tax office is obliged to accept and is bound by the German ECS or the German Erbschein under the SR also in tax cases. So the PIL part of the SR comes in, when the national tax law refers to substantive succession law. The rest of the SR is applicable at any rate.

    • Anna Wysocka-Bar

      Thank you Martin for your comment!
      Yes, it should be made clear that the act on inheritance tax mentions European Certificate of Succession as a document confirming the status of an heir just as it mentions (Polish) “domestic” certificate to that purpose. The same should be truth with respect to foreign “domestic” certificates which might circulate in the EU based on Chapter IV or Chapter V EU Succession Regulation.

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