CELEX: 62008CJ0440
Direct taxation
Article 43 EC
Non-resident taxable person
Business operator
Right to a self-employed person’s deduction
Hours test
Discrimination between resident and non-resident taxable persons
Option to be treated as a resident taxable person

This reference for a preliminary ruling concerns the interpretation of Article 43 EC.
The reference has been made in the context of a dispute between Mr Gielen and the Staatssecretaris van Financiën (State Secretary
for Finance) in relation to income tax for 2001.

National legislation
Article 2.1(b) of the Law on income tax of 2001 (Wet op de Inkomstenbelastingen 2001; ‘the Law of 2001’) provides that natural
persons who are not resident in the Netherlands but who receive income from that country are liable to income tax.
In accordance with Article 3.2 of the Law of 2001, taxable profit is the profit which the taxable person derives as a business
operator from one or more undertakings, minus the self‑employed person’s deduction.
Under Article 3.76(2) of the Law of 2001, the amount of that deduction depends on the amount of the profit, determined in
accordance with the table laid down in that provision, which operates degressively. The deduction amounts to EUR 6 084 for
profit of less than EUR 11 745 and falls in stages to a minimum amount of EUR 2 984 for profits in excess of EUR 50 065.
In accordance with Article 3.76(1) of the Law of 2001, the right to the self-employed person’s deduction is subject, inter
alia, to an ‘hours test’.
According to Article 3.6 of that law, the hours test corresponds to the provision during the calendar year of at least 1 225
hours of work for one or more undertakings from which the taxable person derives profit as a business operator.
In order to determine whether a non‑resident taxable person satisfies that test, account is taken only of hours worked for
the part of an undertaking operated in a permanent establishment in the Netherlands.
However, a non‑resident taxable person who is subject to the tax regime of another Member State in which he is resident may
opt, in accordance with Article 2.5(1) of the Law of 2001, to be made subject to the regime applicable to resident taxable
persons (‘the option to be treated as a resident taxable person’). That provision, which does not require that the income
of the non‑resident taxable person be realised entirely or almost entirely in the Netherlands, is worded as follows:
‘Domestic taxable persons who spend only part of the calendar year in the Netherlands and foreign taxable persons who are
resident in another Member State of the European Union or in the territory of a power determined by ministerial decision with
which the [Kingdom of the] Netherlands [has] concluded a convention for the avoidance of double taxation and the promotion
of the exchange of information, who are liable to taxation in that Member State or in the territory of that power may opt
to be made subject to the tax regime applicable to domestic taxable persons laid down in this Law…’
Under Articles 2 to 10 of the Decree implementing the Law of 2001 (Het Uitvoeringsbesluit Inkomstenbelasting 2001), an income
tax reduction is granted to persons who choose to be treated as if they were resident taxable persons for the purposes of
taxation of income elements which are not taxable in the Netherlands or which are taxable only at a limited rate.
According to Article 3 of that decree:
‘1. The reduction on account of income elements from work and home ownership which are not taxable … in the Netherlands shall
be equal to the amount of taxation which would have been owed, without application of Articles 2 to 10, under the Law on taxable
income from work and home ownership, and stand in the same relation as the sum total of non‑taxable elements of the denominator
income in the Netherlands stands vis-à-vis the denominator income.
…
5. “Denominator income” shall mean income from work and home ownership ...’
Article 9(1) of the Decree of 2001 for the prevention of double taxation (Besluit voorkoming dubbele belasting 2001) provides:
‘Revenue which is foreign in that it derives from work or home ownership in another State is constituted by the sum total
of income elements received by the taxable person as a result of work or home ownership in that State as:
(a) profit made in a foreign undertaking, that is to say, an undertaking or part of an undertaking which is managed with the
assistance of a permanent establishment or a permanent representative in the territory of the other State;
…’

The case in the main proceedings and the question referred
Mr Gielen is a German resident who, together with two other persons, operates a glasshouse horticulture business in Germany.
He set up a permanent establishment in the Netherlands where he cultivates ornamental plants on a contractual basis.
In 2001 he worked more than 1 225 hours for that business in Germany, whereas he worked less than 1 225 hours for the establishment
in the Netherlands.
The Netherlands tax authorities accordingly took the view that Mr Gielen did not satisfy the ‘hours test’. The Rechtbank Breda
(District Court, Breda) confirmed that interpretation.
By contrast, the Gerechtshof te ’s-Hertogenbosch (Court of Appeal, ’s‑Hertogenbosch) considered that such an application of
that test would lead to discrimination prohibited under Article 43 EC since it would draw a distinction between resident taxable
persons and non‑resident taxable persons. According to the Gerechtshof te ’s-Hertogenbosch, in the application of that test,
resident taxable persons may be taxed on the basis of their profits, irrespective of where in the world those profits arose.
The Gerechtshof te ’s-Hertogenbosch took the view that that distinction and that impediment were not justified by a difference
in objective situation between non‑resident and resident taxable persons, particularly since the sel­f‑employed person’s deduction
is directly related to the activity of taxable persons.
Mr Gielen appealed in cassation to the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) against the decision of
the Gerechtshof te ’s-Hertogenbosch. Mr Gielen considers that the fact of refusing him, as a non‑resident taxable person,
the right to the self‑employed person’s deduction constitutes discrimination which is prohibited under Article 43 EC.
The Hoge Raad der Nederlanden points out that discrimination for the purposes of Article 43 EC results from the fact that,
for non‑resident taxable persons, account is not taken of all of the hours which such persons spend working for their businesses,
including the hours worked for an undertaking or establishment situated in another Member State.
However, that court is uncertain whether such discrimination can be avoided by the option to be treated as a resident taxable
person. Under that option, the scale according to which non‑resident taxable persons are taxed in the Netherlands where they
opt to be taxed in the same way as resident taxable persons implies that a progressive tax rate is applied.
In those circumstances, the Hoge Raad der Nederlanden decided to stay the proceedings and to refer the following question
to the Court of Justice for a preliminary ruling:
‘Is Article 43 EC to be interpreted as meaning that it does not preclude the application of a provision in a Member State’s
tax legislation to profits which a national of another Member State (foreign taxable person) has derived from a part of his
undertaking operated in the first Member State, if that provision, when interpreted in a particular way, indeed makes a distinction
between domestic and foreign taxable persons which – in itself – is contrary to Article 43 EC, but the foreign taxable person
concerned has had an opportunity to opt for treatment as a domestic taxable person and has not done so for reasons of his
own?’

The question referred for a preliminary ruling

Admissibility
The German and Portuguese Governments express doubts as to whether it is possible for the Court to give a ruling on the question
referred by the Hoge Raad.
According to the German Government, the tax regime at issue in the main proceedings does not, in substance, contain any form
of discrimination which is prohibited under Article 43 EC, with the result that it is unnecessary to ask whether the discrimination
could be remedied by the option to be treated as a resident taxable person. Consequently, it argues, the Court’s answer to
the question referred would serve no use for the purpose of resolving the dispute in the main proceedings.
The Portuguese Government claims primarily that the question referred depends on a particular interpretation of the national
legislation at issue in the main proceedings.
It states that it is apparent from the decision to refer that Article 3.6 of the Law of 2001 could also be interpreted as
meaning that, for the purposes of the deduction at issue in the main proceedings, for non‑resident taxable persons, hours
worked for an establishment situated in the Netherlands and those worked for an establishment situated in another Member State
may be taken into account, which would make that provision compatible with Article 43 EC and render the answer to the question
referred redundant.
Since the referring court could interpret the tax regime at issue in the main proceedings as not containing any form of discrimination
which is contrary to Article 43 EC, the Portuguese Government takes the view that the question referred is hypothetical and
that, consequently, the Court’s answer would not be binding on the national court.
In that regard, according to settled case‑law, in proceedings under Article 267 TFEU, it is solely for the national court
before which the dispute has been brought, and which must assume responsibility for the subsequent judicial decision, to determine
in the light of the particular circumstances of the case both the need for a preliminary ruling in order to enable it to deliver
judgment and the relevance of the questions which it submits to the Court. Consequently, where the questions submitted concern
the interpretation of European Union law, the Court is in principle bound to give a ruling (see, inter alia, Case C‑544/07
Rüffler
[2009] ECR I‑0000, paragraph 36, and Case C‑314/08
Filipiak
[2009] ECR I‑0000, paragraph 40).
However, the Court has also held that, in exceptional circumstances, it can examine the conditions in which a case was referred
to it by the national court, in order to confirm its own jurisdiction (see, to that effect, Case 244/80
Foglia
[1981] ECR 3045, paragraph 21;
Rüffler
, paragraph 37; and
Filipiak
, paragraph 41).
The Court may refuse to rule on a question referred for a preliminary ruling by a national court only where it is quite clear
that the interpretation of European Union law that is sought bears no relation to the actual facts of the main action or its
purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary
to give a useful answer to the questions submitted to it (
Rüffler
, paragraph 38, and
Filipiak
, paragraph 42).
In that regard, it is apparent from the decision to refer that the dispute in the main proceedings and the question referred
essentially concern the interpretation of Article 49 TFEU in relation to national legislation which may potentially be discriminatory
towards non‑resident taxable persons in respect of a tax advantage, such as the deduction available to self‑employed persons,
even if non‑resident taxable persons may take advantage of the option to be treated as resident taxable persons provided for
in that legislation for the purposes of that tax advantage.
In addition, in order to answer that question, it is first necessary to assess whether the national legislation at issue in
the main proceedings amounts to discrimination for the purposes of Article 49 TFEU; this is a question of European Union law,
the interpretation of which is within the jurisdiction of the Court.
In the light of those findings, it does not appear obvious that the interpretation sought bears no relation to the actual
facts of the main action or its purpose, with the result that the objections of inadmissibility raised by the German and Portuguese
Governments must be dismissed.
The reference for a preliminary ruling is consequently admissible.

Substance
By its question, which it is appropriate to examine in two parts, the Hoge Raad asks, in essence, whether Article 49 TFEU
precludes national legislation which, in relation to the granting of a tax advantage, such as the self‑employed person’s deduction,
is potentially discriminatory towards non‑resident taxable persons, even though the latter may take advantage of the option
to be treated as resident taxable persons provided for in that legislation in order to benefit from that tax advantage.
The discriminatory effects of the national legislation at issue in the main proceedings for the purposes of Article 49 TFEU
In order to answer the question referred, it is necessary to determine at the outset, as is also apparent from paragraph 31
above, whether the national legislation at issue in the main proceedings actually involves discrimination contrary to Article
49 TFEU.
It should be noted that, although direct taxation falls within their competence, the Member States must none the less exercise
that competence consistently with European Union law (see, inter alia, Case C‑319/02
Manninen
[2004] ECR I‑7477, paragraph 19 and the case‑law cited).
It must also be noted that the rules regarding equal treatment forbid not only overt discrimination by reason of nationality
but also all covert forms of discrimination which, by the application of other criteria of differentiation, lead in fact to
the same result (see, inter alia, Case C‑279/93
Schumacker
[1995] ECR I‑225, paragraph 26 and the case‑law cited).
Furthermore, discrimination can arise only through the application of different rules to comparable situations or the application
of the same rule to different situations (see, inter alia,
Schumacker
, paragraph 30, and Case C‑391/97
Gschwind
[1999] ECR I‑5451, paragraph 21).
In the present case, it is apparent from the documents in the file, first of all, that during 2001 Mr Gielen, who is resident
in Germany, worked less than 1 225 hours for his establishment in the Netherlands, whereas he worked more than 1 225 hours
for his establishment in Germany.
The Hoge Raad points out that, under the national legislation at issue in the main proceedings, a resident taxable business
operator may include, for the purposes of calculation under the hours test which gives rise to the right to the self‑employed
person’s deduction, both hours worked in another Member State and those worked in the Netherlands, whereas a non‑resident
taxable business operator can include only hours worked in the Netherlands in that calculation.
In addition, the Netherlands Government recognises in its written observations that this amounts to discrimination based on
place of residence.
It must therefore be held that, with regard to satisfaction of the ‘hours test’ for the purposes of the self‑employed person’s
deduction, the national legislation at issue in the main proceedings treats taxable persons differently depending on whether
or not they are resident in the Netherlands. Such a difference in treatment risks operating primarily to the detriment of
nationals of other Member States, since non‑residents are most often non‑nationals.
More specifically, the Court has indeed accepted, in cases relating to taxation of the income of natural persons, that the
situation of residents and the situation of non-residents in a given Member State are not generally comparable, since there
are objective differences between them, both from the point of view of the source of the income and from the point of view
of their ability to pay tax or the possibility of taking account of their personal and family circumstances (see, inter alia,
Case C‑383/05
Talotta
[2007] ECR I‑2555, paragraph 19 and the case-law cited, and Case C‑527/06
Renneberg
[2008] ECR I‑7735, paragraph 59).
However, the Court has made it clear that, in the case of a tax advantage which is not available to a non-resident, a difference
in treatment as between the two categories of taxpayer may constitute discrimination for the purposes of the FEU Treaty where
there is no objective difference between those categories such as to justify different treatment in that regard (
Talotta
, paragraph 19 and the case‑law cited, and
Renneberg
, paragraph 60).
The Hoge Raad points out that the self‑employed person’s deduction is not related to the personal capacity of taxable persons
but rather to the nature of their activity. That deduction is granted to business operators whose main activity is running
their business, which is demonstrated, inter alia, by satisfying the ‘hours test’.
In so far as that deduction is granted to all taxable business operators who have satisfied that test, inter alia, it must
be held that it is not relevant in that regard to make a distinction according to whether those business operators performed
their work in the Netherlands or in another Member State.
Consequently, as was stated by the Advocate General in point 39 of his Opinion, for the purposes of the self‑employed person’s
deduction, the situation of non-resident taxable persons is comparable to that of resident taxable persons (see, to that effect,
Case C‑234/01
Gerritse
[2003] ECR I‑5933, paragraph 27, and Case C‑346/04
Conijn
[2006] ECR I‑6137, paragraph 20).
In those circumstances, it must be concluded that national legislation which, for the purposes of a tax advantage, such as
the self‑employed person’s deduction at issue in the main proceedings, uses an ‘hours test’ in such a way as to prevent non‑resident
taxable persons from including hours worked in another Member State risks operating primarily to the detriment of those taxable
persons. Consequently, such legislation constitutes indirect discrimination on grounds of nationality for the purposes of
Article 49 TFEU.
The option to be treated as a resident taxable person
That conclusion is not called into question by the argument that the option to be treated as a resident taxable person is
capable of remedying the discrimination at issue.
It should be noted, at the outset, that the option to be treated as a resident taxable person provides non‑resident taxable
persons, such as Mr Gielen, with a choice between a discriminatory tax regime and one which is ostensibly not discriminatory.
It has, however, to be pointed out in that regard that such a choice is not, in the present case, capable of remedying the
discriminatory effects of the first of those two tax regimes.
As the Advocate General stated, in essence, in point 52 of his Opinion, if such a choice were to be recognised as having the
effect described, the consequence would be to validate a tax regime which, in itself, remains contrary to Article 49 TFEU
by reason of its discriminatory nature.
In addition, as the Court has already had the opportunity to clarify, the fact that a national scheme which restricts the
freedom of establishment is optional does not mean that it is not incompatible with European Union law (see, to that effect,
Case C‑446/04
Test Claimants in the FII Group Litigation
[2006] ECR I‑11753, paragraph 162).
Consequently, the choice offered, in the dispute in the main proceedings, to non‑resident taxable persons by means of the
option to be treated as resident taxable persons does not serve to neutralise the discrimination established in paragraph
48 above.
It follows from all of the foregoing that Article 49 TFEU precludes national legislation which, in relation to the granting
of a tax advantage, such as the self‑employed person’s deduction at issue in the main proceedings, is discriminatory towards
non‑resident taxable persons, even though those taxable persons may opt for the regime applicable to resident taxable persons
in order to benefit from that tax advantage.

Costs
Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court,
the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs
of those parties, are not recoverable.
On those grounds, the Court (First Chamber) hereby rules:
Article 49 TFEU precludes national legislation which, in relation to the granting of a tax advantage, such as the self‑employed
person’s deduction at issue in the main proceedings, is discriminatory towards non‑resident taxable persons, even though those
taxable persons may opt for the regime applicable to resident taxable persons in order to benefit from that tax advantage.
[Signatures]
*
Language of the case: Dutch.