Opinion of the Advocate General — ECLI:EU:C:2021:749
Date: 2021-09-16
Language of the case: German
Subject matter: Free movement of capital
Procedure: Reference for a preliminary ruling
Origin: Germany

summary of the case-law of the Court in this area, van Vijfeijken, I., J.F.A., ‘One Inheritance, One Tax’, EC Tax Review – Kluwer Law International, Alphen-sur-le-Rhin, 2017, vol. 26, pp. 214 to 219, especially, p. 215. 25 See Paragraph 37(14) of the ErbStG. 26 In the case giving rise to the judgment in Welte, the referring court had stated in paragraph 16 of its request for a preliminary ruling that: ‘the limitation of the tax-free amount to only EUR 2 000 in accordance with Paragraph 16(2) of the ErbStG goes beyond what is necessary for equal treatment with residents. In the present case, it is only the value of the land in Düsseldorf, which is EUR 329 200, that has been taxed, but this does represent 62% of the total value of the estate, which is EUR 532 397.76. It is therefore questionable whether the fact that approximately 38% of the value of the estate has not been taxed can serve as a justification for granting an allowance of only EUR 2 000, rather than EUR 500 000.’ 27 See point 22 of this Opinion. 28 See judgment in Feilen (paragraph 19 and the case-law cited). 29 See judgment in Welte (paragraph 26). 30 See judgment in Welte (paragraph 25). 31 See judgment in Welte (paragraph 12) and footnote 26 to this Opinion. 32 See judgment in Welte (paragraph 24). 33 See judgment in Welte (paragraph 25). 34 See judgment in Eckelkamp and Others (paragraphs 45 and 46). In paragraph 8 of the judgment, Article 18 of the Wetboek Successierechten (Flemish Code of Succession Duties) is cited. This concerns non-residents and reads as follows: ‘Duty on the transfer of property mortis causa shall be payable on all immovable property situated in Belgium and owned by the deceased or absent person, without account being taken of debts and liabilities of the estate.’ 35 See judgment in Eckelkamp and Others (paragraph 17). The Court observed in paragraph 61 of the judgment that the calculation of the inheritance and transfer duties appeared to be directly linked to the value of the immovable property. 36 See judgment in Mattner (paragraphs 27 and 28, where reference is made, by analogy, to paragraphs 45 and 46 of the judgment in Eckelkamp and Others). See, in relation to the legislation at issue, footnote 24 to this Opinion. See also judgment of 4 September 2014, Commission v Germany (C‑211/13, not published, EU:C:2014:2148, paragraphs 40 and 43). 37 C‑25/10, EU:C:2011:65. 38 See judgment of 10 February 2011, Missionswerk Werner Heukelbach (C‑25/10, EU:C:2011:65, paragraph 23). 39 In that regard, it could nevertheless be inferred from the facts of the disputes which led to those references for preliminary rulings being made to the Court that, in making their decisions as to their estates, the persons whose estates were being administered had not been concerned with inheritance tax. 40 Judgment in Hünnebeck (paragraph 45). In paragraph 41 of that judgment, the Court observed that ‘the mechanism of taxation introduced by the adoption of Paragraph 2(3) of the ErbStG, allowing the beneficiary of a gift between non-residents to benefit from the higher tax-free allowance provided for in the case of gifts involving at least one resident, is of optional application and … the exercise of that option by the non-resident beneficiary involves the aggregation, for the purposes of calculating the tax payable in respect of the gift in question, of all the gifts received by that beneficiary from the same person over the course of the 10 years preceding and of the 10 years following that gift, whereas, for gifts involving at least one resident, only the gifts made within a period of 10 years are aggregated’. See also footnote 24 to this Opinion. 41 Judgment in Feilen (paragraph 21). 42 See judgments in Welte (paragraph 12) and Feilen (paragraph 21). 43 See footnote 24 to this Opinion. 44 See, to the same effect, Opinions of Advocate General Hogan in Autoridade Tributária e Aduaneira (Tax on capital gains on real property) (C‑388/19, EU:C:2020:940, pointss 31, 54 and 74), and in UBS Real Estate (C‑478/19 and C‑479/19, EU:C:2021:148, point 63), concerning transcription and land registry taxes. 45 For a summary of the way in which the development of taxation in the Member States has been favourable to intra-family transmission, see Weber-Frisch, N. and Duquennois-Djoua, R., op. cit., especially paragraph 1.1.3, p. 413. See also, on the justifications for the different perspectives of the Member States on intergenerational estate transfer, Navez, E.-J., ‘La fiscalité des successions face à l’évolution des systèmes fiscaux étatiques’, La fiscalité des successions et des donations internationales: Théorie générale et applications en droit comparé, op. cit., pp. 50 to 72, especially p. 59. 46 See point 43 of this Opinion, and especially, for a concrete illustration, judgment in Welte (paragraph 54). 47 See, by analogy, the findings of the Court in the judgment in Arens-Sikken (paragraphs 34 and 35). 48 See footnote 22 to this Opinion. 49 In that regard, the German Government observed at the hearing that the situations were not comparable and that, in the circumstances envisaged in paragraph 54 of the judgment in Welte, an equivalent allowance would be available under the legislation at issue. See point 65 of this Opinion. 50 This corresponds to 43% of the allowance of EUR 400 000. 51 The tax liability has been calculated on the basis of the value of all the assets comprised in the estate, as declared by the applicant and given in the order of the referring court … 52 If we were to take the entire estate of EUR 11 592 598 less the allowance of EUR 400 000, we would obtain, under the mandatory rounding rules, a taxable acquisition of EUR 11 192 500, and the tax rate applicable under Paragraph 19(1) of the ErbStG would then in fact be higher, at 23%. For the purposes of comparison, we have nonetheless applied the same tax rate of 19%. 53 See point 40 of this Opinion. 54 I think it is permissible to have regard to those paragraphs, on the basis that the comparison of the situations is a general condition of the determination as to whether there is a difference of treatment. See also, to that effect, Opinion of Advocate General Hogan in UBS Real Estate (C‑478/19 and C‑479/19, EU:C:2021:148, points 57 and 62). See also Navez, E.-J., ‘L’influence de la Cour de justice de l’UE’, La fiscalité des successions et des donations internationales: Théorie générale et applications en droit comparé, op. cit., pp. 197 to 230, especially p. 214. 55 C‑181/12, EU:C:2013:384 (points 83 and 84). 56 My italics. See judgment in Welte (paragraph 54) and footnote 49 to this Opinion. 57 At the hearing, the German Government presented a further example so as to illustrate of the consequences of making an allowance of the same amount available in cases of both limited and unlimited tax liability, and highlight the constitutional questions that would arise. This was as follows: an estate comprises two items of immovable property, one abroad and one in Germany, each of which is worth EUR 400 000, giving a total value of EUR 800 000. A child of the deceased is entitled, pursuant to Paragraph 16 of the ErbStG, to a personal allowance. In a case of full taxation, it is the entire estate, including both properties, that will be subject to German tax, being EUR 800 000 less the personal allowance of EUR 400 000, or 50% of the estate. In a case of limited tax liability, it is only the property situated in Germany, worth EUR 400 000, that is subject to German tax jurisdiction and German inheritance tax. If the entire allowance of EUR 400 000 was available, the tax base would be nil. 58 See point 108 of this Opinion. 59 See Billig, H., ‘Die neuen Freibetragsregelungen für beschränkt Steuerpflichtige im ErbStG, Keine Vereinbarkeit mit dem Unionsrecht in Sicht’, NWB-Erben und Vermögen, Herne, 2018, vol. 2, pp. 54 to 56, especially p. 55, which refers to the following articles: Stalleiken, J., and Holtz, M., ‘Anwendungserlasse zum neuen Erbschaftsteuerrecht und aktuelle Änderungen des ErbStG’, ErbR, Nomos, Baden-Baden, 2017, pp. 602 to 606; Halaczinsky, R., ‘Gestaltungen zur Steuerminderung bei der beschränkten Erbschaftsteuerpflicht unter Berücksichtigung des Steuerumgehungsbekämpfungsgesetzes’, UVR, Stotax Stollfuß Medien, Bonn, 2017, pp. 249 to 253; Bockhoff, B., and Flecke, L.-M., ‘Erhöhte Freibeträge für beschränkt steuerpflichtige Erwerbe durch das StUmgBG ?’, ZEV, Nomos, Baden-Baden, 2017, pp. 552 to 556, available at: https://beck-online.beck.de/Dokument?vpath=bibdata%2Fzeits%2Fzev%2F2017%2Fcont%2Fzev.2017.552.1.htm&pos= 1&hlwords=on&lasthit=True. The commentary in this last article contains worked examples. See, more specifically, paragraphs 4.1 and 4.2. The authors also draw attention, in paragraph 4.3 of the article, to the difficulties created by calculating the tax-exempt amount on the basis of worldwide assets. See, in that regard, in relation to Paragraph 21 of the ErbStG (which it cites): https://www.gesetze-im-internet.de/erbstg_1974/__21.html, commentary by Weiss, M., op. cit., especially paragraph 2.3, p. 446. See also judgment of 12 February 2009, Block (C‑67/08, EU:C:2009:92). I note however, first, that both Billig, H., op. cit., paragraph 2, p. 54, and Bockhoff, B., and Flecke, L.-M., op. cit., paragraph 4.3, have pointed out that, in decision No II R 53/14 of 10 May 2017, which is available at: https://www.bundesfinanzhof.de/en/entscheidungen/entscheidungen-online/decision-detail/STRE201710186/, the Bundesfinanzhof (Federal Finance Court) held that the national legislature was obliged to provide for different allowances to be available to residents and non-residents. Furthermore, in decision No 3 K 163/19, of 22 July 2020, available at: https://www.rechtsprechung.niedersachsen.de/jportal/portal/page/bsndprod.psml?doc.id=STRE202075214&st=ent&doctyp=juris-r&showdoccase= 1&paramfromHL=true#focuspoint, the Niedersächsisches Finanzgericht (Finance Court, Land of Lower Saxony, Germany) referred in paragraph 44 to the divergent opinions of numerous other authors as to whether the amended Paragraph 16(2) of the ErbStG conformed to EU law. 60 In that regard, it is important to take account of the real nature of inheritance tax, which, in general, distinguishes it from income tax. This flows from the circumstances in which assets pass by way of inheritance and justifies an examination of the tax arrangements. See, to that effect, judgment in Eckelkamp and Others (paragraph 63). 61 See, to that effect, in relation to the application of the allowance where some of the constituent parts of the inheritance are exempt or where no tax is payable under a double tax treaty, judgment of the Bundesfinanzhof (Federal Finance Court) No II R 53/14 of 10 May 2017 (paragraphs 29, 32 and 33). 62 In other words, without regard to whether or not the tax liability would be greater. See, with regard to that consideration, points 43 and 46 of this Opinion. 63 See, especially for the comprehensive summary of the applicable principles, judgment of 26 May 2016, Commission v Greece (C‑244/15, EU:C:2016:359, paragraphs 33 to 35 and the case-law cited). 64 See judgment in Welte (paragraph 51). In paragraph 50 of that judgment, the Court observed that the class and rate of tax were determined by rules under which there was no difference of treatment based on residence. See also judgment of 26 May 2016 in Commission v Greece (C‑244/15, EU:C:2016:359, paragraph 36). 65 See judgment in Welte (paragraph 53). 66 See judgment in Welte (paragraph 53). It seems to me that this observation should be limited to non-residents as, in the case of an estate consisting only of foreign assets, it is only residents who are taxable. 67 See judgment in Welte (paragraph 53). It should be noted that, while the national legislation does not provide for the tax rate to vary according to whether the tax liability is limited or unlimited, an inheritance comprising worldwide assets with a smaller proportion of domestic assets would be taxed at a higher rate than would be applied to the domestic assets alone. See, by way of illustration, footnote 52 to this Opinion. 68 See judgment in Welte (paragraph 55). 69 Judgment in Welte (paragraph 55). 70 Judgment in Welte (paragraph 56). 71 See point 44 of this Opinion, and the judgment in Welte (paragraph 54). 72 See point 9 of this Opinion. I note, in that regard, that this system has the advantage, in conformity with EU law, of adapting the tax system to the diversity of the situations of non-residents, and especially to the situation in which the majority of the taxable assets are situated within the Member State concerned. 73 See judgment of 12 February 2009, Block (C‑67/08, EU:C:2009:92, paragraphs 30 and 31). See also, by way of comparison, as to the matters taken into account in calculating inheritance tax in a case where the same assets are inherited more than once within ten years, and pass to an heir who is resident in Germany, judgment in Feilen (paragraph 27), and footnote 79 to this Opinion. 74 See points 62, 63 and 68 of this Opinion. 75 See, for arguments concerning the difference in the tax bases applicable to residents and non-residents, or in other words the fact that the tax base is comprised of the entire inheritance in the case of a resident but limited to domestic assets in the case of a non-resident, with particular reference to equal treatment, the preparatory work relating to the Entwurf eines Gesetzes zur Bekämpfung der Steuerumgehung und zur Änderung weiterer steuerlicher Vorschriften (Draft law concerning measures to combat tax evasion and amending other tax provisions), Bundestag document 18/11132, available at: https://dserver.bundestag.de/btd/18/111/1811132.pdf (p. 35), which the Commission cited in its written observations. See, for the citations relevant to the 2017 reforms, point 6 of this Opinion. See also, for the background to the legislature’s intervention, Billig, H., op. cit., especially pp. 54 and 55. I note however that the Commission changed its stance at the hearing, submitting by reference to the judgment in Welte (paragraph 53) that the allowance must always be the same, regardless of the value of the inheritance and the proportion of the estate which is taxed in Germany. It emphasised that the family relationship on the basis of which the allowance is granted does not change depending on whether the taxpayer is resident or non-resident. Furthermore, given that, for a non-resident heir, Germany’s tax jurisdiction does not extend to worldwide assets, the Commission submits that those assets cannot be taken into account in calculating the reduced allowance. 76 In that regard, the Court pointed out in the judgment in Feilen (paragraph 30), first, that it had already recognised that the need to maintain the coherence of a tax system may justify a restriction on the exercise of the freedoms of movement guaranteed by the Treaty, and second, that for an argument based on such a justification to succeed, a direct link must be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question. 77 Judgment in Welte (paragraph 60 and the case-law cited in relation to gifts). On the lack of a justification for such an offsetting mechanism, in relation to the taking into account, for the application of a higher allowance, of a period of 10 years preceding the gift in respect of which at least one resident in Germany is a party, see also judgment in Hünnebeck (paragraph 63). 78 The German Government referred more specifically to the judgment in Feilen (paragraphs 30 and 37). 79 See judgment in Feilen (paragraph 27). The Court pointed out that the situation in question was one in which the legislation ‘places on the same footing persons [in a particular tax class] and resident in the national territory who acquire by inheritance an estate involving assets that had already been acquired by persons in that tax class during the ten years preceding the acquisition, irrespective of where the assets are located or where the beneficiaries thereof were resident at the time of that previous inheritance’. As to the facts of that case, it is stated at paragraph 17 of the judgment that the estate at issue included an asset previously inherited by Mr Feilen’s mother from his sister, in Austria, where that asset was then located and where his sister and mother were resident at the time of the sister’s death. It was because inheritance tax on that asset had been collected in Austria, and not in Germany, that the inheritance tax reduction provided for by the national legislation was not granted to Mr Feilen. 80 See judgment in Feilen (paragraph 33). 81 See judgment in Hünnebeck (paragraph 65 and the case-law cited). 82 See judgment in Hünnebeck (paragraph 66). In relation to the legislation at issue, see footnote 24 to this Opinion. 83 The German Government refers to the model convention on estates and inheritances and on gifts published by the Organisation for Economic Co-operation and Development (OECD). See, in that regard, judgment of 23 February 2006, van Hilten-van der Heijden (C‑513/03, EU:C:2006:131, paragraph 48). 84 The German Government observes, by way of example, that foreign assets are not taxed in a case of limited tax liability. 85 The German Government observes, by way of example, that foreign inheritance tax can be imputed under Paragraph 21 of the ErbStG, or can be deducted as a debt under the succession. 86 See point 27 of this Opinion. 87 See point 28 of this Opinion. 88 See point 70 of this Opinion. 89 See judgment in Arens-Sikken (paragraph 34). In paragraph 16 of that judgment, it is stated that Ms Arens‑Sikken received, as a result of a testamentary parental partition inter vivos, assets and liabilities to a value exceeding the value of her legal share of the estate. In other words, she received an overendowment. Her children, on the other hand, incurred a deficit, as they did not receive any of the assets included in the estate. According to the partition, Ms Arens‑Sikken was obliged to pay her children the value of their shares of the inheritance in cash. She therefore assumed an overendowment debt in respect of each of her children, and they had claims against her as a result of their underendowment. Under the Dutch system of transfer duties, if the deceased had been residing in the Member State of taxation at the time of his death, Ms Arens-Sikken would have been able to have the overendowment debts (and all debts attaching to the estate) taken into account in the determination of the basis of assessment for the inheritance duties which would have been payable in that situation (paragraph 23 of the judgment). 90 C‑234/01, EU:C:2003:340. This judgment relates to national rules which, in matters of taxation, refuse to allow non-residents to deduct business expenses which are directly linked to the activity that generated the taxable income in the Member State concerned. 91 C‑364/01, EU:C:2003:665. In that case, the national legislation at issue, which related to the calculation of the tax due on the inheritance of immovable property situated in the Member State concerned, provided that, for the purposes of valuing the property, the fact that the deceased was under an unconditional obligation to transfer legal title to another person who had financial ownership of that property could be taken into account if, at the time of death, the deceased resided in that Member State, but not if he or she resided in another Member State. 92 See judgment in Arens-Sikken (paragraph 42). In the circumstances of that case, as the Court stated in paragraphs 35 and 39 of the judgment, if the deceased had been resident in the Netherlands at the time of his death, the tax burden would have been shared by the heirs. Simply because he had not been resident in that Member State, the tax burden was borne by one heir alone. 93 See judgment in Arens-Sikken (paragraph 45). 94 See judgment in Eckelkamp and Others (paragraph 53). 95 I note, in that regard, that the Commission stated the following in its written observations: ‘while the German finance courts do not regard the reserved portion as economically connected to the inherited assets [see order for reference (paragraph 36)], a notice issued by the German tax authorities states the opposite: “In the case of claims to a reserved portion, these is an economic connection with the individual inherited assets, regardless of the extent to which those assets are taxable or tax-exempt, and this charge is therefore covered by the limitation on deduction. In the case of other general liabilities attaching to the inheritance, however, there is no such economic connection with the individual inherited assets.”’ Decisions to that effect of the superior tax offices of the Länder of 25 June 2009, Bundessteuerblatt (official tax journal) 2009 I, p. 713, ‘Zu § 10 ErbStG’, section 1 ‘Limitation on the deduction of debts and charges’, paragraph 2, available at: https://datenbank.nwb.de/Dokument/Anzeigen/347085/. 96 See point 56 of this Opinion. 97 See paragraph 57 of that judgment, where the Court referred by analogy to the judgment in Eckelkamp and Others. In paragraph 56 of the judgment in Arens-Sikken, the Court observed that under the legislation at issue ‘it is only in respect of the deduction of overendowment debts resulting from a testamentary parental partition inter vivos that the inheritances of residents and non-residents are treated differently’. 98 See point 79 of this Opinion. 99 See points 82 to 83 of this Opinion. 100 See point 80 of this Opinion. 101 See judgment in Eckelkamp and Others (paragraph 70). 102 It should be noted that, in certain cases, the deduction may be in proportion to the tax-exempt amount. In its written observations, the German Government stated that, under the third sentence of Paragraph 10(6) of the ErbStG, if the asset is only partly tax-exempt, the debts and charges attaching to it must be allocated proportionately. See also Weiss, M., op. cit., especially paragraph 2.1.1, p. 445. 103 See judgment in Eckelkamp and Others (paragraph 66 and the case-law cited there). 104 For a summary of the Court’s case-law in that area, and of the Commission’s recommendation of 15 December 2011 (C(2011) 8819 final) regarding relief for double taxation of inheritances, as well as considerations relevant to the economic analysis of cross-border inheritances, see van Vijfeijken, I., J.F.A., op. cit., especially pp. 214 to 217. 105 See point 18 of this Opinion. 106 See, by analogy, judgment in Arens-Sikken (paragraph 65 and the case-law cited).