BGI Spain - Binding Resolution Directorate General for Taxation, V1495-16, dated on 8th April 2016

Regulation

Law 29/1987 articles. 1, 3, 6, 7 and 24

Question

If, upon the death of their parents, the assets managed by the "trust" were acquired by a US company (in its capacity of beneficiary of the "trust") wholly owned by the consultant, and considered as a tax resident in Spain, it would have to pay for the Tax on Inheritances and Donations.

Description

The consultant is a US citizen who has recently acquired the tax residence in Spain (with effects since 2015). However, all her family members (parents, uncles and siblings) have US nationality and are tax resident in the United States. Her parents have assets at the United States, which was organized, according to the legislation of the State of California, through the constitution of different "trusts", among which there are several irrevocable "trusts" created for the benefit of the consultant.

The parents of the consultant (in concept of "settlors") contributed to the "trusts" different real and personal property of their own. All goods contributed to the "trusts" are located in the United States. Simultaneously to the contribution of the goods to the "trusts" different managers were appointed ("trustees") of the "trusts". The consultant, along with her siblings, is a beneficiary of the different mentioned "trusts". In this respect, the consultant does not have any power over the "trusts" or the goods contributed to them, since the "trustees" are in charge of their management and maintenance. On the other hand, at some point in the future the consultant may be named "trustee" or "co-trustee" of said "trusts".

Reply

In relation to the question raised in the consultation document, this Management Center reports the following:

Firstly, it should be noted that the consultant states that, in accordance with the repeated doctrine of the Directorate-General of Taxes (in this regard, she cites the resolutions in response to binding consultations V0010-10, of January 14, 2010 and V1016-10, of May 14, 2010), the "trust" is a legal institution that has not been recognized in Spain, reason why, for the purposes of the Spanish legal system, the relationships between natural persons made through a "trust!" are considered to be carried out directly between the individuals involved. On this basis, and given they are currently tax resident in Spain, in the event of the death of their parents, she believes that she would be a taxable person due to the personal obligation of Tax on Inheritances and Donations  for the "mortis causa" acquisition of various movable and immovable property contributed to the "trusts" by her parents, including those who are part of irrevocable "trusts" that were constituted for her benefit and that were donated in her favor in accordance with US law .

In addition, she notes that her parents are currently considering the restructure of their assets under US law, through a change in the beneficiaries of the "trusts". After the asset restructuring, a company, possibly incorporated in the United States (under the legislation of California, a company can legitimately be a beneficiary of a "trust"), would be designated as beneficiary of some of the "trusts" (in which she is currently a beneficiary), and the consultant would cease to be a beneficiary of those. Said company would be wholly owned by the consultant, and in such condition as sole member she would have control over the activity and distributions of the same.

Well then, as the consultant points out, this Sub-directorate General has already commented on several occasions (to the resolutions cited by the consultant, one can add, among others, resolutions V1991-08, of October 30, V2703-13, of September 10, V1003-14, of April 8 and V1224-14, V1225-14 and V1226-14, all of them of May 7, 2014, -reported in response to binding consultations) -about the treatment of the "trust" in our tax system, on the basis that such figure is not recognized by the Spanish legal system and that, therefore, for the purposes of said legal system, the relationships between the contributors of goods and rights and their recipients or beneficiaries through the trust are considered to be carried out directly between each other, as if the "trust" did not exist (fiscal transparency of the "trust"). The considerations set out below are based on these postulates.

As stated in the above-mentioned resolution V-1991-08, "it should be noted that although in Anglo-American law the trust is a characteristic institution that has a close relationship not only with the Law of obligations and property, but also with family and inheritance law, which is the traditional field that belongs to it (in the countries of the so-called "Common Law", it is of such importance that it is regulated as one more area of Private Law), the figure of the trust is not recognized by the Spanish legal system. On this institution, there is even an international text such as the Agreement or Convention of The Hague, of July 1, 1985, on law applicable to the trust and its recognition, which aims to eliminate or, at least, simplify the problems arising from lack of knowledge of this institution in many legal systems.