Tax advisor: Is the ISD kinship reduction applicable in the consolidation of the domain if the self-assessment for the inheritance that gave rise to the dismemberment was not filed and the debt is time-barred?

The liquidation office issued a complementary liquidation due to the fact that the self-assessment for the consolidation of the domain was made applying a reduction that was not appropriate. According to them, no reduction should have been applied at the time of acquisition of the bare ownership, since it would have been consumed in the acquisition by death that occurred in 2004. Therefore, they argued that no reduction should be applied in the consolidation of the domain. However, the appealed judgment ruled in favor of the appellant, stating that article 31 of the Inheritance and Gift Tax (ISD) Regulations does not allow inferring an additional condition such as the one that the Tax Administration was applying. According to this additional condition, the tax debt related to the bare ownership should not have prescribed in order to apply the reductions for kinship. However, article 31 of the aforementioned regulation does not assess whether the reasons for not applying the reduction are of a legal or factual nature, nor does it specify what type of causes. Furthermore, it has not been demonstrated that the reductions in previous self-assessments or liquidations made by the Administration have been exhausted. The claimant argues that no self-assessment was filed for his mother’s estate and alleges that the right to the debt is time-barred, therefore, the Administration should have applied the corresponding reduction. Consequently, the appeal was upheld.

The question that is of interest for appeal lies in determining whether the reductions for kinship of the Inheritance Tax are applicable in full or in part in cases of consolidation of the domain in which the taxpayer has not filed a self-assessment of the tax for the inheritance that gave rise to the dismemberment of the domain, and in addition, the right to determine the tax debt of the inheritance has lapsed. It is important to note that this issue has been resolved in a contradictory manner by different High Courts of Justice.

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