Judgment — ECLI:EU:C:2013:822
Date: 2013-12-12
Language of the case: French
Court formation: Fifth Chamber
Subject matter: Free movement of workers
Procedure: Reference for a preliminary ruling
Origin: Belgium

Summary of observations 48. The applicants in the main proceedings claim, in essence, that the Belgian tax legislation puts them at a disadvantage in relation to couples who receive all their income in Belgium and therefore constitutes a restriction on freedom of establishment. Since the tax-free income allowance for dependent children is set against the couple’s higher income and since that income is received in another Member State and is exempt from tax in Belgium, they do not benefit, in practical terms, from that advantage. 49. The Belgian Government basically contests that approach. It points out that the 1992 ITC sets out ‘the principles according to which the earned income of spouses is taxed separately, even though the amount of tax payable is levied on them jointly’. On the basis of the premise that the applicants in the main proceedings were assessed for tax separately, it considers that it is only Mr Imfeld’s tax situation which must be examined in the light of freedom of establishment. It is therefore necessary, in order to determine the existence of an obstacle to freedom of establishment, to compare Mr Imfeld’s situation with what it would have been if he had not exercised his freedom and if he had received all his earned income in Belgium. 50. The Commission considers that the restrictive effect of the Belgian tax legislation lies not in the disadvantageous treatment of Mr Imfeld’s income, which is taxable in Germany and tax-exempt in Belgium, but in the disadvantageous treatment of his wife’s income, which is received in Belgium and wholly taxable in that Member State. (b) Analysis 51. It is clear from an examination of the main characteristics of the Belgian tax legislation that the ‘supplementary allowance for dependent children’ is granted to the couple as a whole. 52. As the Commission pointed out in its reply to the question which was put to it by the Court, the fact that that supplementary allowance is calculated by setting it against the higher taxable income of one of the two spouses only confirms that specific nature. The Belgian tax legislation thus intends to maximise the effect of the family tax advantage and, when it is examined in the light of freedom of establishment, that objective must be taken into account. 53. From the point of view of freedom of establishment, the question which arises is therefore whether the application of the Belgian tax legislation means, for the applicants in the main proceedings taken as a couple for tax purposes, a disadvantage stemming from the fact that Mr Imfeld receives all his income in another Member State and that the couple is therefore deprived of the actual benefit of the ‘supplementary allowance for dependent children’. C – Reformulation of the question referred for a preliminary ruling 54. The above account leads me to propose that the Court reformulate the question referred for a preliminary ruling by the national court in simpler terms, reducing it to its most basic elements from the point of view of EU law and therefore removing from its wording the various factual information it contains, concerning the structure of the income of the applicants in the main proceedings or the rules for attributing the advantage at issue in the cases in the main proceedings, which is the ‘supplementary allowance for dependent children’. 55. The Court is asked, in essence, whether Article 49 TFEU is to be interpreted as precluding the application of the tax legislation of a Member State, such as that at issue in the main proceedings, which has the effect of depriving a couple residing in that Member State and receiving income both in that Member State and in another Member State of entitlement to a specific tax advantage, owing to the rules for offsetting it, even though that couple would be entitled to it if the members of the couple received all or most of their incomes in the Member State of residence. V – The existence of a restriction on freedom of establishment 56. It should be pointed out, first of all, that, according to the settled case-law of the Court of Justice, as Community law stands at present, direct taxation is a matter within the competence of the Member States, but that they must nevertheless exercise that competence in a manner consistent with EU law. (15) 57. The Court has, in particular, repeatedly pointed out that, in the absence of unifying or harmonising measures adopted by the European Union, the Member States retain competence for determining the criteria for taxation on income and capital with a view to eliminating double taxation by means, inter alia, of international agreements. In that context, the Member States are free to determine the connecting factors for the allocation of fiscal jurisdiction in bilateral agreements for the avoidance of double taxation. (16) 58. Nevertheless, that allocation of fiscal jurisdiction does not mean that the Member States are entitled to impose measures that contravene the freedoms of movement guaranteed by the Treaty. The Member States are still required, when exercising the power of taxation so allocated by bilateral conventions to prevent double taxation, to comply with EU rules. (17) 59. It should also be pointed out that, according to the Court’s settled case-law, it is a matter for the Member State of residence, in principle, to grant the taxpayer all the tax allowances relating to his personal and family circumstances because that State is, with the occasional exception, best placed to assess the taxpayer’s personal ability to pay tax, since that is where his personal and financial interests are centred. (18) 60. The Member State of employment is required to take into account personal and family circumstances only where the taxpayer derives all or almost all of his taxable income from employment in that State and where he has no significant income in his State of residence, so that the latter is not in a position to grant him the advantages resulting from taking account of his personal and family circumstances. (19) 61. It is in the light of these principles that the compatibility with freedom of establishment of the application of the Belgian legislation to the situation at issue in the main proceedings must be examined. 62. In the present case, the applicants in the main proceedings were taxed jointly on their income in Belgium, where they live, since the income received in Germany was tax-exempt, and Mr Imfeld was taxed separately on the income he received in Germany, where he works, in accordance with the 1967 Bilateral Convention. 63. Both in Germany and in Belgium, account was taken, at least in part, of their personal and family circumstances. Mr Imfeld was entitled, under the German tax legislation, to an allowance for dependent children (‘Freibetrag für Kinder’), but was not able, however, to benefit under the ‘Ehegattensplitting’ regime. 64. The couple was also entitled, under the Belgian tax legislation, to the allowance for dependent children and to a deduction for childcare costs, but, on the other hand, did not benefit financially from a further allowance, the ‘supplementary allowance for dependent children’ provided for in Article 134 of the 1992 ITC. The supplementary income allowance which was liable to be tax-exempt was set against Mr Imfeld’s income received in Germany, since it was the couple’s higher income, but that income was then deducted from the taxable amount, because it was exempt under the 1967 Bilateral Convention, so that, in the end, no income allowance relating specifically to a supplementary allowance for dependent children was exempted. 65. Consequently, the Belgian tax legislation, and more particularly the combined effect of Article 23 of the 1967 Bilateral Convention, permitting the Kingdom of Belgium to take exempt income into account for calculating tax, and the rules for offsetting the ‘supplementary allowance for dependent children’ laid down in Article 134 of the 1992 ITC, places at a disadvantage couples in the situation of the applicants in the main proceedings, which is characterised by the fact that the larger part of their income is received in another Member State, in relation to couples who receive all or most of their income in Belgium. 66. The applicants in the main proceedings suffered, as a couple, a real disadvantage since they did not obtain the tax advantage resulting from application of the ‘supplementary allowance for dependent children’ to which they would have been entitled if they had received all of their income in Belgium or, at least, if the income earned by Ms Garcet in Belgium had been higher than that earned by Mr Imfeld in Germany. 67. The Belgian tax legislation thus establishes a difference in tax treatment between European Union citizen couples residing in the Kingdom of Belgium according to the origin and size of their incomes which is likely to discourage those citizens from exercising the freedoms guaranteed by the Treaty, inter alia the freedom of establishment. (20) 68. First of all, it is likely to discourage the nationals of that Member State from exercising their right both to freedom of movement and to freedom of establishment by pursuing their activity permanently in another Member State while continuing to live in the first Member State. (21) It is also likely to discourage the nationals of other Member States from exercising, as European Union citizens, their right to freedom of movement by establishing their residence in that Member State, inter alia for the purposes of family reunification, while continuing to carry on an activity permanently in the Member State of which they are nationals. (22) 69. More generally, the Belgian tax legislation creates an obstacle to the freedoms guaranteed to European Union citizens by the Treaty, in so far as it does not take into consideration cross-border situations such as that at issue in the main proceedings and therefore does not make it possible to compensate, when tax is payable, for the negative effects which it is likely to have on the exercise of those freedoms. 70. As the Commission pointed out in its written observations, the purpose of the rule for offsetting the ‘supplementary allowance for dependent children’ to the higher of the couple’s incomes is, in principle, to maximise the effect of the advantage for the couple as a whole. However, that rule, when applied in a cross-border situation such as that at issue in the main proceedings, may have exactly the opposite effect in certain circumstances, in the present case where the couple receives income in another Member State and that income represents the larger part of their income. 71. Contrary to what the Belgian Government claimed, the obstacle thus identified to freedom of establishment is by no means the inevitable consequence of the disparity of the national legislations at issue in the main proceedings. 72. The couple formed by the applicants in the main proceedings was deprived of some of the allowances envisaged for resident couples owing to the exercise, by one of them, of his freedom of establishment and solely because of the rules for offsetting the ‘supplementary allowance for dependent children’ provided for by the Belgian tax legislation. (23) 73. The Belgian Government cannot claim, moreover, that its tax legislation does not constitute an obstacle to the freedom of establishment because Mr Imfeld’s exercise of his freedom of establishment did not make his tax situation worse, in so far as he did not have to pay, in Germany, higher taxes than he would have paid in Belgium and his personal and family circumstances were taken into account in Germany, so that the Kingdom of Belgium was completely free from any obligation in that regard. 74. Admittedly, as is apparent from the statement of the facts which gave rise to the disputes in the main proceedings, in the present case Mr Imfeld was entitled to have his personal and family circumstances partially taken into account in Germany, by means of the grant of the ‘Freibetrag für Kinder’. 75. However, it cannot be considered that the grant of that tax advantage in Germany may, in some way, compensate for the loss of the tax advantage registered by the applicants in the main proceedings in Belgium. The grant of the ‘Freibetrag für Kinder’ is, in fact, a purely short-term circumstance which may change at any time, since the Federal Republic of Germany may inter alia withdraw or reduce the amount of that advantage without that having any effect on the conditions for granting the ‘supplementary allowance for dependent children’ in Belgium. The compatibility of the Belgian tax legislation with EU law cannot depend on such circumstances. 76. As the Court has repeatedly held, detrimental tax treatment by a Member State contrary to a fundamental freedom cannot be justified by the existence of other tax advantages. (24) More specifically, a Member State cannot rely on the existence of an advantage granted unilaterally by another Member State, in this case the Member State in which Mr Imfeld works and receives all his income, to escape its obligations under the Treaty, in particular under the Treaty provisions on freedom of establishment. (25) 77. The Belgian tax legislation establishes a tax advantage for couples in the form, in particular, of a ‘supplementary allowance for dependent children’, which is offset against the income of the member of the couple who earns the larger part of their income, without taking any account of the fact that, after exercising the freedoms guaranteed by the Treaty, he may not receive income separately in Belgium, with the immediate and automatic consequence that the couple then loses all the benefit of that advantage. It is the automatic nature of that loss which, irrespective of the tax treatment accorded to Mr Imfeld in Germany, undermines freedom of establishment. 78. In so far as a Member State taxes resident taxpayers on their income taking into account the fact that they are part of a couple, it must, in principle, take into consideration all their personal and family circumstances. 79. Therefore, the fact that, in the present case, Mr Imfeld’s personal and family circumstances were partially taken into account in Germany in respect of his separate taxation and he was consequently entitled to obtain a tax advantage there cannot exempt the Kingdom of Belgium from its obligation to guarantee the same treatment to all its residents who are in the same situation and not to maintain tax restrictions on their exercise of the freedoms guaranteed by the Treaty, unless those restrictions are justified by wholly proportionate overriding reasons of public interest, a matter which must now be examined. VI – Justifications for the restriction on freedom of establishment A – Summary of observations 80. In its reply to the question put by the Court, the Belgian Government claimed that its tax legislation was, in any event, justified by the need to safeguard the balanced distribution of the power of taxation between the Member States. 81. The Estonian government considers that the aim of the Belgian tax legislation is to avoid the taxpayer’s personal and family circumstances being taken into account simultaneously in two Member States and consequently leading to the unjustified grant of a double advantage. It points out, from this perspective, that the Court has accepted that the Member States must be able to prevent the double deduction of losses. (26) B – Analysis 82. Even if it may be accepted that the different tax advantages granted respectively by the two Member States are comparable and that, following a comparative quantitative evaluation of the facts in the case, it may be concluded that the applicants in the main proceedings did actually receive a double advantage, that fact is, in any event, only the result of the parallel application of the Belgian and German tax legislations, as agreed between the two Member States in the terms set out by the 1967 Bilateral Convention. (27) 83. Those States exercise their specific powers in the area of direct taxation, pursuing similar objectives of protection of the family. 84. Moreover, the 1967 Bilateral Convention does not impose on the Member State of employment any obligation to take into account the personal and family circumstances of taxpayers living in another Member State, either one way or the other. (28) 85. In those circumstances, it cannot be a matter for the Court of Justice to ensure the coordination of the national tax legislations in order to prevent a taxpaying couple, both of whom are taxed jointly in one Member State and one of whom is also taxed separately in another Member State, receiving a double tax advantage as a result of the partial taking into account, by both Member States, of their personal and family circumstances. 86. It should be pointed out, moreover, that the Belgian tax legislation does not establish any correlation between the tax advantages which it grants to its residents and the tax advantages which they may receive in connection with their taxation in another Member State. The applicants in the main proceedings failed to qualify for the ‘supplementary allowance for dependent children’ not because they received an equivalent advantage in Germany, but only because the benefit of it was neutralised by the rules for offsetting it. 87. The Kingdom of Belgium also pointed out in that regard that the Circular of 2008, which constitutes a mechanism establishing such a correlation, is not applicable to Mr Imfeld’s situation, because he did not receive taxable income in Belgium. 88. It follows that Article 49 TFEU is to be interpreted as precluding the application of the tax legislation of a Member State, such as that at issue in the main proceedings, which has the effect of depriving a couple residing in that State and receiving income both in that State and in another Member State of entitlement to a specific tax advantage, owing to the rules for offsetting it, whereas that couple would be entitled to the tax advantage if the members of that couple received all or most of their income in their Member State of residence. VII – Conclusion 89. I therefore propose that the Court reply to the question referred by the Tribunal de première instance de Liège as follows: Article 49 TFEU is to be interpreted as precluding the application of the tax legislation of a Member State, such as that at issue in the main proceedings, which has the effect of depriving a couple residing in that State and receiving income both in that State and in another Member State of entitlement to a specific tax advantage, owing to the rules for offsetting it, whereas that couple would be entitled to the tax advantage if the members of that couple received all or most of their income in their Member State of residence. 1 – Original language: French. 2 – Moniteur belge, 30 July 1969, ‘the 1967 Bilateral Convention’. 3 – Moniteur belge, 30 July 1992, ‘the 1992 ITC’. 4 – What the national court defines as the ‘system of exemption subject to progressivity’. 5 – Case C‑385/00 de Groot [2002] ECR I‑11819. 6 – ‘The Circular of 2008’. 7 – The ‘Ehegattensplitting’ regime. 8 – Az. 4 K 4725/05 9 – Az. 1 B 96/07 10 – Case C‑391/97 Gschwind [1999] ECR I‑5451. 11 – That advantage was, for the years 2002 and 2003, EUR 5 808 per child, an amount reduced prorata temporis for the child born during the tax period. 12– For a case concerning a lawyer in Germany, see Case C‑340/89 Vlassopoulou [1991] ECR I‑2357. 13 – See, inter alia, Case C‑9/02 De Lasteyrie du Saillant [2004] ECR I‑2409, paragraph 40, and Case C‑152/03 Ritter-Coulais [2006] ECR I‑1711, paragraph 19. 14 – As the Court has repeatedly held, even though the national court has directed its reference for a preliminary ruling solely to the interpretation of the free movement of workers, the Court is not thereby precluded from providing the national court with all those elements for the interpretation of Community law which may be of assistance in adjudicating on the case pending before it, whether or not that court has specifically referred to them in its question. See, inter alia, Ritter-Coulais, paragraph 29, and Case C‑544/07 Rüffler [2009] ECR I‑3389, paragraph 57. 15 – See, inter alia, Case C‑279/93 Schumacker [1995] ECR I‑225, paragraph 21, and Case C‑123/11 A [2013] ECR, paragraph 29. 16 – See, inter alia, Case C‑336/96 Gilly [1998] ECR I‑2793, paragraph 24; de Groot, paragraph 93; Case C‑527/06 Renneberg [2008] ECR I‑7735, paragraph 48, and Case C‑168/11 Beker [2013] ECR, paragraph 32. 17 – de Groot, paragraph 94; Renneberg, paragraphs 50 and 51, and Beker, paragraphs 33 and 34. 18 – See, inter alia, Schumacker, paragraph 36; Beker, paragraph 43, and Case C‑87/99 Zurstrassen [2000] ECR I‑3337, paragraph 21. 19 – See, inter alia, Schumacker, paragraph 36; Gschwind, paragraph 27; Zurstrassen, paragraphs 21 to 23, and de Groot, paragraph 89. 20 – See, to the same effect, Beker, paragraph 52. 21 – See, inter alia, Case C‑107/94 Asscher [1996] ECR I‑3089, paragraphs 32 to 35. 22 – See Renneberg, paragraphs 35 and 36. See also Case C‑520/04 Turpeinen [2006] ECR I‑10685, paragraphs 18 to 39, and Rüffler, paragraphs 55 and 56. 23 – To the same effect, de Groot, paragraph 87. 24 – See, inter alia, de Groot, paragraph 97 and Case C‑182/06 Lakebrink and Peters-Lakebrink [2007] ECR I‑6705, paragraph 24. 25 – See, inter alia, Case C‑379/05 Amurta [2007] ECR I‑9569, paragraph 78; Case C‑11/07 Eckelkamp and Others [2008] ECR I‑6845, paragraph 69; Case C‑43/07 Arens-Sikken [2008] ECR I‑6887, paragraph 66, and Case C‑510/08 Mattner [2010] ECR I‑3553, paragraph 43. 26 – See, inter alia, Case C‑446/03 Marks & Spencer [2005] ECR I‑10837, paragraph 47. 27 – Regarding the consequences, in the light of EU law, of the parallel exercise by the Member States, of their fiscal jurisdiction, see, inter alia, Case C‑513/04 Kerckhaert and Morres [2006] ECR I‑10967, paragraph 20; Case C‑298/05 Columbus Container Services [2007] ECR I‑10451, paragraph 43; Case C‑194/06 Orange European Smallcap Fund [2008] ECR I‑3747, paragraphs 37 to 42 and 47; Case C‑67/08 Block [2009] ECR I‑883, paragraph 28; Case C‑128/08 Damseaux [2009] ECR I‑6823, paragraph 27, and Case C‑96/08 CIBA [2010] ECR I‑2911, paragraphs 25 to 29. 28 – See, in that regard, de Groot, paragraph 88.