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Separate and holistic solutions to the problems of cross-border death and gift taxation

The response of international organizations to the problems of cross-border death and gift taxation needs to be revisited, according to PhD candidate Vassilis Dafnomilis. PhD defence on 3 June 2021.

Vassilis Dafnomilis

Death taxation is an interesting yet quite uncharted field of law, says Dafnomilis, PhD candidate at Leiden Law School, lecturer at the University of Amsterdam and senior tax associate at PwC the Netherlands. ‘It is especially intriguing, for instance, due to the variety of taxes that states may seek to levy in the event of death, and due to the connection of death taxes with civil law. Albeit intriguing, death taxation remains a relatively neglected area of law as to date, limited progress has been made towards addressing the problems of cross-border death taxation, while the current academic literature lags behind in addressing this topic due to a lack of international developments.’

The lack of international developments – partly attributed to the modest interest of international organizations to address the problems of death taxation –, the impact of the problems at the micro-level as well as the unique nature of death taxes have triggered the researcher’s interest to prepare a doctoral thesis on this theme. ‘In my doctoral thesis, I focus on four problems of cross-border death and gift taxation and provide solutions to these problems under the current international and EU law mechanisms. These problems are double taxation or multiple taxation, double or multiple non-taxation, discrimination and administrative difficulties.’

Updated OECD model

The selection of the problems is justified by the two main points of reference selected by Dafnomilis in his doctoral thesis, the 1982 OECD Model Tax Convention for the avoidance of double taxation with respect to taxes on inheritances, estates and gifts (OECD IHTMTC), and the inheritance tax report of the European Commission's expert group. In his thesis, Dafnomilis explores how the 1982 OECD IHTMTC can be optimised, having regard to the objectives of the model and the principles reflected in its Commentary. Also, he explains how the EU law instruments and CJEU case law can be optimized or clarified to address the identified problems in a more effective manner.

The researcher concludes that the 1982 OECD IHTMTC needs to be revisited and puts forward suggestions for an updated version of the model. ‘For this purpose, I have developed a benchmark, the so-called “proposed inheritance and gift tax” to which the suggested provisions of the model are tested. In addition, I suggest a Multilateral Convention as a solution to the identified problems within the EU. The Convention takes into account not only the suggested improvements of the 1982 IHTMTC but also the innovative provisions of the Recommendation 2011/856/EU regarding relief for double taxation of inheritances. For instance, I suggest that such a Convention should not be limited to inheritance and estate taxes – two common types of death taxes – but also to any type of death tax irrespective of the name of the tax, of the manner in which it is levied and of the person to whom it is applied.’

Finally, Dafnomilis puts forward an EU Directive implementing the concept of “one inheritance – one inheritance tax” (as first proposed by the EC’s expert group in 2015). ‘Under this concept, the EU Member State of the deceased’s personal nexus has the right to tax the whole cross-border inheritance under its own rules, with all other EU Member States (including the EU Member State of the objective nexus, e.g. where the property is located) being, in principle, precluded to do so. In my view, the concept can provide a holistic solution to the problems of cross-border death and gift taxation. Several aspects of the concept, however, had to be clarified through my research.’

Source of inspiration

The outcomes of the research are addressed to tax professionals, policymakers, academics and students, as well as members of the general public who want to deepen their understanding on the problems of cross-border death and gift taxation and the response of the international community to them. ‘I hope that the research results will trigger the interest of international organizations such as the OECD and the EU to revisit the available international mechanisms that can be used to address the problems of cross-border inheritance and gift taxation. The suggestion of an updated OECD model and the proposed EU Directive implementing the “one inheritance – one inheritance tax” serve as a good source of inspiration in that regard.’

This research project is partially funded by the Foundation for Education and European Culture (IPEP). The commercial version of the doctoral thesis will be published in the series Fiscale Monografieën of Wolters Kluwer.

Supervisor Prof.dr. F. Sonneveldt about Dafnomilis' research:

In his thesis, the PhD candidate sets out the many problems that exist in the area of the taxation of cross-border inheritances and donations. He establishes four categories: 1. Double and multiple taxation; 2. Double or multiple non-taxation; 3. Discriminatory treatment of cross-border inheritances and donations; and 4. Administrative issues. It is high time that attention is paid to these issues.

In scientific research that focuses on international taxation, inheritance and gift taxation is often left out. The PhD candidate not only examines the issues, but also proposes solutions. Among other things, he puts forward specific proposals for changes or additions to existing international rules. For instance, he has come up with a text proposal for a European multilateral agreement aimed at avoiding double or multiple taxation on inheritances and donations. In addition, he has drawn up a modernised text of the 1982 OECD model convention on estates, inheritances and gifts in which he removes many of the bottlenecks identified. The defence ceremony will be held at a very fitting moment. On 11 May 2021, the OECD published its report on inheritance taxation in countries that are party to the OECD. It sees this taxation as an important tool in tackling wealth inequality. So this PhD thesis could not be more topical!

Text: Floris van den Driesche

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