Nothing Certain About Death and Taxes (and Inheritance): European Union Regulation of Cross-border Successions

• Jurisdiction: European Union
• Citation: Vol. 27 No. 2
• Publication year: 2013
• topic: Tax Law

Nothing Certain About Death and Taxes (and Inheritance): European Union Regulation of Cross-Border Successions

Jennifer Bost

NOTHING CERTAIN ABOUT DEATH AND TAXES (AND INHERITANCE): EUROPEAN UNION REGULATION OF CROSS-BORDER SUCCESSIONS

Introduction

On July 4, 2012, after almost fifteen years of preparatory work, the European Parliament and the Council of the European Union (Council) passed a regulation intended to simplify international inheritance cases.¹ The Regulation addresses issues regarding appropriate jurisdiction, applicable law, recognition and enforcement of decisions, and acceptance and enforcement of authentic instruments for international inheritance (Cross-Border Succession).² It also creates a European Certificate of Succession.³ However, the Regulation expressly does not apply to any tax issues related to inheritance.⁴

One of the objectives of the Cross-Border Succession Regulation was "[t]o allow citizens to efficiently plan and to organise their succession in advance in a cross border context."⁵ Barriers to free movement can arise from differences among laws governing international successions in EU member states.⁶ The free movement of persons is a fundamental right guaranteed to EU citizens under its Founding Treaties⁷ —realized by citizens through freedom, security, and justice without internal borders. This fundamental principle of free movement between member states is enshrined in Article 3(2) of the Treaty on

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European Union, Articles 21(1) and 45 of the Treaty on the Functioning of the European Union, and developed by EU secondary legislation and the case law of the Court of Justice of the European Union (CJEU).⁸ Since the establishment of the European Coal and Steel Community (ECSC),⁹ the Council has passed a number of regulations to foster free movement of persons, a major goal of European integration.¹⁰

Approximately eleven million EU citizens have exercised their right of free movement under the treaties.¹¹ This movement of people makes it more likely

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that a decedent's estate and heirs are spread out over several member states.¹² Additionally, marriages between nationals of different member states are increasing in frequency.¹³ These marriages often entail the acquisition of property in multiple member states,¹⁴ which has the potential to create inheritance complications at the death of a spouse.¹⁵

Substantial differences in substantive succession laws among many member states are another major source of complications in both testate and intestate cross-border successions.¹⁶ Additionally, member states have conflict of laws rules on cross-border succession that can make it difficult for heirs and testators to assert their rights.¹⁷ The uncertainty with how courts in different member states can hinder the free movement of people that is contrary to principles enshrined in the Founding Treaties.¹⁸

In July 2012, the European Parliament and the Council passed the Cross-Border Succession Regulation to minimize these complications and simplify the cross-border succession process for EU citizens.¹⁹ The regulation entered into force on August 16, 2012;²⁰ however, only three articles of the Cross-Border Succession Regulation took immediate effect,²¹ whereas a substantial portion of the Regulation will not apply until August 17, 2015.²² Before the Regulation takes full effect, member states will continue to apply "the rules of private international law . . . in force, at the time the disposition was made, in the State in which the deceased had his habitual residence or in any of the States whose nationality he possessed or in the Member State of the authority dealing with the succession."²³

The Cross-Border Succession Regulation leaves several issues unresolved and creates new succession planning challenges for EU citizens. The European Parliament and the Council need to address some of these shortcomings and

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new challenges to adequately promote the free movement of people under the Maastricht Treaty. The European Parliament and the Council must also focus their resources on tackling cross-border inheritance tax inequalities within the European Union.

Part I of this Comment describes the harmonization of international succession laws through private international laws. Part II discusses the Cross-Border Succession Regulation passed by European Parliament and the Council in July 2012. Part III analyzes the shortcomings of the new regulation and the objections to it made by the United Kingdom, Ireland, and Denmark. It also notes obstacles that member states may face once the Regulation goes into effect. Finally, Part IV suggests solutions to some of the shortcomings of the Cross-Border Succession Regulation.

I. Background

The European Union's Cross-Border Succession Regulation passed in July 2012 is the product of decades of development.²⁴ From the emergence of private international laws on cross-border succession through the recent efforts of the European Parliament and the Council to harmonize cross-border succession laws with the European Union, there is a long history of progress in this area of law.²⁵ Despite these developments, the European Parliament and the Council still need to address several potential complications that can arise in cross-border successions. Private international law treaties that address cross-border succession are inadequate to resolve the uncertainties within the European Union, because few member states have ratified those treaties.²⁶ In 1998, the European Council and the European Commission adopted the Vienna Action Plan,²⁷ which would become the genesis of the Cross-Border Succession Regulation passed by the European Parliament and the Council in July 2012.²⁸

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A. The Need for a Solution to Complications Involved in Cross-Border Successions in the European Union

The differences among member states' private international law rules on cross-border succession create complications that conflict with the fundamental human right to own and transfer property.²⁹ In 2009, the Commission estimated that every year in the European Union "around 9-10% of the total number of successions (ca. 450,000) involves an 'international' dimension,"³⁰ each with an average value of €274,000, which is "around double the value of an average estate."³¹ Based on these numbers, cross-border successions in the European Union involve around €123 billion each year.³² Cross-border successions present unique difficulties and problems for testators, beneficiaries, and administers.³³

These problems include: (1) determining which member state's judicial system has legal competency to handle a particular cross-border succession; (2) resolving conflict of laws issues; (3) limited freedom of choice of law for testators; (4) restricted recognition and enforcement of judgments, non-contentious decisions, and notarial deeds; and (5) being recognized as an heir or administrator of an estate with assets and heirs located in multiple countries.³⁴ These problems arise out of divergence among national substantive laws, procedural rules, and conflict of laws rules on succession among member states.³⁵ The consequences of these problems include: (1) intended heirs failing to inherit estate assets; (2) unintended persons inheriting estate assets; (3) heirs receiving shares of estate assets differing from what was intended; (4) heirs facing long delays in obtaining their inheritances; (5) added costs in

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international estate administration; and (5) difficulty in international succession planning.³⁶

The first problem driving the development of the Cross-Border Succession Regulation was the difficulty heirs faced when determining which country's judicial system was competent to administer a cross-border succession.³⁷ Before the Cross-Border Succession Regulation, it was possible that the laws of two or more member states could apply to a succession and the authorities of those member states would both attempt to administer it.³⁸ Eveline Raemakers proposes the example in which an intestate Polish decedent, whose last habitual residence was in France, would have his habitual residence determine the applicable law of succession, under French law.³⁹ Polish law, on the other hand, focuses on the decedent's nationality, which would make Polish law applicable to the decedent's succession.⁴⁰ This is known as a positive conflict of jurisdiction.⁴¹

Alternatively, another potential conflict is a negative conflict of jurisdiction.⁴² In this situation, both countries' law does not seem to apply to a succession, and the authorities of both member states may decline to handle the succession.⁴³ For example, a French decedent's last habitual residence was in Poland. According to French law, the decedent's last habitual residence determines the applicable law.⁴⁴ That would indicate that Polish law applies. However, according to Polish law,⁴⁵ the decedent's nationality determines which law is applicable,⁴⁶ which would indicate that French law applies to the succession. Here, neither county's laws seem to apply.

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These positive and negative conflicts that give rise to problems in cross-border successions occur primarily, because member states have adopted widely varying and conflicting connecting factors to determine the competence of their courts in international succession cases.⁴⁷ Connecting factors determine which member state's succession law applies.⁴⁸ Among the different connecting factors member states use are: the last habitual residence of the decedent; in cases of contentious litigation, the nationality of the decedent and the habitual residence of the parties; and the location of the property.⁴⁹ Additionally, some countries apply different state succession laws based on dividing property based on the nature of the asset; for example, the law of the decedent's last habitual residence applies to movable assets, and the law of the location of...