The Spanish Directorate-General for Taxation (DGT), in its binding ruling V0781-16 of 25 February 2016, sets out a doctrine of core relevance to the estate planning of clients with Liechtenstein foundation vehicles. The figures of the Stiftung and the Anstalt —the foundation and the foundation-like institution, respectively, under Liechtenstein law— are recognised in the Spanish legal order as autonomous legal persons, with the immediate consequence that a contribution of assets to such an entity constitutes a transfer to a legal person distinct from the founder. Where the contributed assets are Spanish-situs real estate, the transaction is subject to inheritance and gift tax (ISD) by in rem obligation, at the rate scale applicable to non-resident legal persons.

It is helpful to begin with the legislative and conceptual framework, because the interaction between civil-law recognition and tax characterisation is the key to the ruling.

Article 9.11 of the Spanish Civil Code provides that the personal law of legal persons is determined by their nationality and governs all matters relating to capacity, incorporation, representation, operation, transformation, dissolution and extinction. The projection of this provision onto foreign foundations leads to a substantive principle: where a foundation enjoys legal personality under the law of the State of incorporation, that personality is recognised in Spain for the purposes of its legal and patrimonial relations.

This recognition draws a decisive distinction from the regime of the Anglo-Saxon trust. The DGT has articulated, in an extensive chain of doctrine (V1991-08 and following), a principle of fiscal transparency of the trust: for the purposes of Spanish law, the relations between the contributor of assets and the beneficiaries are treated as taking place directly between them, as if the trust did not exist. The reason is that the trust is not a legal person under Anglo-Saxon law but a fiduciary relationship; lacking a reference legal person, the Spanish legal order looks through it and attributes the tax consequences to the settlor and the beneficiaries.

With the Liechtenstein Stiftung, the position is the opposite. The foundation is, under its law of origin, an autonomous legal person with its own assets, endowed with personality and with its own governance organs. Article 9.11 of the Civil Code projects that recognition onto the Spanish legal order: the foundation is not looked through for tax purposes but is treated as any other foreign legal person. The trust doctrine is not transposable.

The doctrinal distinction is reinforced by academic commentary. Manuel José Rufas Vallés, in his study “Analysis of figures similar to the Anglo-Saxon trust: the Private Interest Foundations of Panama and the Liechtenstein Stiftung and Anstalt. Latin American fideicomisos”, published in the Cuadernos de Formación of the Spanish Institute for Fiscal Studies (Volume 21/2017, Contribution 19/17), develops with precision the dogmatic separation between the Anglo-Saxon figures and the civil-law foundations.

The case under review reflects a paradigmatic profile of private client succession planning. The founder, not a Spanish tax resident, had incorporated a Stiftung in Liechtenstein as a family wealth vehicle. Among the assets destined for the foundation endowment were properties situated in Spanish territory. The ruling concerned the Spanish tax treatment of that contribution: whether it was subject to ISD, in which modality, with what form of obligation —personal or in rem— and at what rate scale.

The DGT articulates its response on four pillars that warrant separate treatment.

First, the civil-law characterisation of the Stiftung. The ruling reasons expressly on the basis of article 9.11 of the Civil Code: the personal law of the foundation is that of Liechtenstein and, under that law, the Stiftung and the Anstalt have autonomous legal personality. The Spanish legal order recognises that personality and treats the foundation as an autonomous legal person for all relevant legal and patrimonial purposes.

Second, the nature of the contribution. The transfer of assets from the founder to the foundation’s patrimony is not an internal arrangement without transfer —as in the transparent trust— but a genuine patrimonial transfer to a distinct legal person. The contributed asset moves from the founder’s patrimony to the autonomous patrimony of the foundation.

Third, the ISD regime. The transaction is taxed as a gratuitous acquisition by a legal person. Where the acquirer is a legal person, inheritance and gift tax does not apply in its ordinary modality —which is reserved for acquisitions by individuals—; the system normally shifts the transaction towards corporate income tax in the hands of the receiving entity when it is resident. But where the receiving entity is a non-resident legal person and the contributed assets are situated in Spain, in rem obligation applies under the rules of the consolidated text of the Non-Resident Income Tax Act (TRLIRNR), at the rate scale applicable to non-resident legal persons.

Fourth, the principle of territoriality. Where the assets contributed to the Stiftung are not situated in Spain —financial assets held abroad, foreign real estate, non-Spanish shareholdings— the necessary connecting factor for Spanish tax does not arise. The contribution falls outside the scope of Spanish ISD. Planning, on this point, finds a cornerstone: only real-estate assets or assets with a Spanish territorial nexus trigger succession-tax exposure.

The doctrine is completed by a fifth relevant block, regarding distributions from the foundation to its beneficiaries. Where the Stiftung distributes income or assets to a beneficiary resident in Spain, the applicable regime depends on the nature of the distribution and on the foundation’s own internal regime. The DGT, in later rulings —V1901-16 on the German Familienstiftung, V2834-11 on the Austrian Privatstiftung— has characterised these distributions as income from movable capital in the hands of the resident beneficiary, under article 25.2 of the Personal Income Tax Act, subject to the bilateral tax treaty where applicable.

In our view, the DGT’s doctrine properly articulates the civil-law dogmatics and respects the substantive distinction between foundation vehicles with autonomous legal personality and fiduciary structures without a reference legal person. The difference is not theoretical: it has materially distinct consequences for the wealth and succession taxation of clients.

Subject to the above, the doctrine signals three operative caveats.

First, recognition of legal personality requires that the foundation be effectively incorporated under Liechtenstein law and meet the substantive requirements of that legislation. Mere formal appearance does not suffice. A Spanish inspection may examine whether the Stiftung carries out its own activity, has material and human resources, whether its governance functions effectively and whether its assets are managed independently of the founder. A Stiftung devoid of economic substance could be recharacterised, in extreme cases, as a sham structure or as a segregated patrimony without effective personality.

Second, the doctrine operates on ISD but does not exempt, where applicable, the taxation that may be due from the founder for the income or latent capital gain that the contribution may crystallise. If the contributed assets include real estate with accrued gains, the transfer may trigger capital-gains taxation in the hands of the founder under the rules of personal income tax —where resident— or non-resident income tax —where not resident.

Third, distributions from the Stiftung to beneficiaries resident in Spain are autonomous pieces in the planning. Recognition of the foundation’s legal personality does not convert distributions into tax-free transactions. What characterises them is their qualification as income from movable capital or, where appropriate, as gratuitous transfers attributable to the resident beneficiary.

The practical consequence is highly relevant for cross-border wealth structuring.

It is advisable, in the first place, to distinguish clearly between vehicles with and without legal personality before designing the structure. A Florida or Jersey trust operates under the transparency doctrine: the Spanish legal order looks through it. A Liechtenstein Stiftung operates under recognised personality: the Spanish legal order treats it as an autonomous legal person. The consequences for ISD, for wealth tax, for the Modelo 720 informational return and for the imputation of income are materially different.

It is advisable, in the second place, to calibrate the composition of the assets contributed to the foundation. In rem obligation under ISD operates on assets situated in Spain, particularly real estate. The structure may be designed, where appropriate, by avoiding the direct contribution of Spanish real estate and substituting shareholdings in Spanish companies, subject to the anti-avoidance rules of article 314 of the Securities Market Act and the TRLIRNR rules on indirect transfers of real-estate-holding entities.

It is advisable, in the third place, to document the economic substance of the foundation. Incorporation deed, articles of association, designation of governance organs, initial endowment, annual accounts, governance decisions and distribution minutes constitute the defensive evidential file against a possible recharacterisation by the Spanish tax authority.

In conclusion, what this binding ruling of the Directorate-General for Taxation makes clear is that the Liechtenstein Stiftung and Anstalt, unlike the Anglo-Saxon trust, have autonomous legal personality recognised in the Spanish legal order by article 9.11 of the Civil Code. The contribution of Spanish real estate to such entities is taxed, accordingly, as a gratuitous acquisition by a non-resident legal person under ISD by in rem obligation, while assets not situated in Spain remain outside the scope of Spanish succession taxation.

Sources

  • Directorate-General for Taxation, binding ruling V0781-16 of 25 February 2016, Sub-Directorate-General for Wealth Taxes, Fees and Public Prices: petete.tributos.hacienda.gob.es.
  • Directorate-General for Taxation, binding ruling V1901-16 of 28 April 2016 — German Familienstiftung and resident beneficiary without dispositive powers.
  • Directorate-General for Taxation, binding ruling V2834-11 of 21 November 2011 — Austrian Privatstiftung and income from movable capital on distributions to resident beneficiaries.
  • Manuel José Rufas Vallés, “Analysis of figures similar to the Anglo-Saxon trust: the Private Interest Foundations of Panama and the Liechtenstein Stiftung and Anstalt. Latin American fideicomisos”, Cuadernos de Formación, Volume 21/2017, Contribution 19/17, Spanish Institute for Fiscal Studies.
  • Article 9.11 of the Spanish Civil Code — personal law of legal persons.