How a French–Spanish estate is taxed in France

Where a succession has links with both France and Spain, taxation in France depends on several criteria:

• the tax residence of the deceased,
• the tax residence of the heirs,
• the nature and location of the transferred assets.

The applicable tax rules result from the interaction between French tax law and the Franco-Spanish tax treaty of 8 January 1963, which is intended to prevent double taxation.

The role of the Franco-Spanish tax treaty

The Franco-Spanish tax treaty allocates taxing powers between the two States according to:

• the nature of the assets,
• their location,
• the tax residence of the deceased.

Articles 30, 34 and 36 are decisive for inheritance taxation.

Estate of a deceased person domiciled in Spain

Immovable property

Pursuant to Article 30 of the treaty, immovable property is taxed in the State in which it is located. Property situated in Spain is therefore not taxed in France.

Financial assets

Under Article 34, financial assets are taxed in the State of the deceased's last tax residence. They therefore fall within Spanish taxation and are not subject to French tax, subject to correct application of the treaty.

Estate of a deceased person domiciled for tax purposes in France

Principle under Article 36 of the treaty

Each State may calculate tax on assets falling within its taxing powers while taking into account the worldwide estate in order to determine the applicable rate. This mechanism is reflected in French law by Article 750 ter, 1° of the French General Tax Code.

Exclusion of immovable property situated in Spain

Immovable property situated in Spain is not taxed in France. However, its value may be taken into account to determine the tax rate applicable to assets taxable in France, through the mechanism of the effective rate.
This solution has been confirmed by case law, in particular by a decision of the Pau Court of Appeal dated 17 June 2015.

The effective rate mechanism in France

Principle

The effective rate mechanism makes it possible to determine a tax rate taking into account the entire estate, while effectively taxing only the assets falling within French taxing powers.

Method of calculation

The calculation is carried out in several stages:

• determination of the worldwide net estate,
• determination of each heir's share before allowances,
• calculation of the theoretical French tax after allowances,
• determination of the effective rate in relation to the heir's gross share,
• application of this rate solely to the assets taxable in France.

Practical effects

This mechanism may result in higher taxation on French assets, without constituting double taxation in the legal sense.

Heir domiciled for tax purposes in France receiving assets situated in Spain

Principle under French domestic law

Under Article 750 ter, 3° of the French General Tax Code, an heir domiciled for tax purposes in France may be taxed on assets situated abroad that they receive, provided they have been domiciled in France for at least six years during the ten years preceding the transfer.

Limitation by the tax treaty

Where an international tax treaty applies, it prevails over French domestic law. Between France and Spain, Articles 30 and 34 of the treaty of 8 January 1963 apply, excluding French taxation of certain assets situated in Spain.

Points requiring particular attention

Taxation in France of a French–Spanish estate requires a precise analysis taking into account:

• the tax residence of the deceased,
• the tax residence of the heirs,
• the nature and location of the assets,
• the interaction between domestic law and the tax treaty.

An isolated reading of the French General Tax Code may lead to errors of analysis.

For further information

For a coordinated approach to civil and tax issues, you may consult:

• Inheritance in Spain
• Inheritance tax in Spain
• Wills in Spain