Case C‑303/12

Guido Imfeld, andNathalie Garcet

v

État belge

(Request for a preliminary ruling from the tribunal de première instance de Liège)

‛Freedom of establishment — Equal treatment — Income tax — Legislation for the avoidance of double taxation — Income earned in a State other than the State of residence — Method of exemption subject to progressivity in the State of residence — Account taken, in part, of personal and family circumstances — Loss of certain tax advantages linked to the personal and family circumstances of the worker’

Summary — Judgment of the Court (Fifth Chamber), 12 December 2013

Freedom of establishment — Restrictions — Tax legislation — Income tax — Method of exemption subject to progressivity and the offsetting of tax-free allowances for dependent children against the higher income — National legislation granting a tax advantage to couples earning all or the greater part of their income in that State — Personal and family circumstances of taxpayers not taken into account — Unlawful — Justification — Preservation of the allocation of the power to impose taxes between Member States — None

(Art. 49 TFEU)

Article 49 TFEU is to be interpreted as precluding the application of the tax legislation of a Member State which has the effect that a couple residing in that Member State and earning income both in that Member State and in another Member State does not in fact receive a specific tax advantage, owing to the rules for offsetting it, whereas that couple would receive that tax advantage if the member of the couple earning the higher income did not earn his entire income in another Member State.

Such national legislation is in particular liable to be contrary to the freedom of establishment where it establishes a tax advantage for couples in the form, in particular, of a supplementary tax-free income allowance for dependent children, which is set off against the income of the member of the couple who earns the greater part of their income, but fails to take any account whatsoever of the fact that, after exercising the freedoms guaranteed by the Treaty, he may be in a position of not earning income as an individual in the Member State of residence, with the direct and automatic consequence that the couple then loses the entire benefit of that advantage. Irrespective of the tax treatment accorded to the taxpayer in the Member State of employment, it is the automatic nature of that loss which is contrary to freedom of establishment.

Such legislation cannot be justified by the need to preserve the allocation of the power to impose taxes between Member States. First, such a justification cannot be invoked by a taxpayer’s State of residence in order to evade its responsibility in principle to grant to the taxpayer the personal and family allowances to which he is entitled, unless that State is released by way of an international agreement from its obligation to take full account of the personal and family circumstances of taxpayers residing in its territory who work partially in another Member State or it finds that, even in the absence of such an agreement, one or more of the States of employment, with respect to the income taxed by them, grant advantages based on the personal and family circumstances of taxpayers who do not reside in the territory of those States but earn taxable income there. Legislation which does not establish any correlation between the tax advantages which it grants to the residents of the Member State concerned and the tax advantages for which they may qualify in another Member State, while the convention for the prevention of double taxation linking those Member States does not impose on the Member State of employment any obligation to take into account the personal and family circumstances of taxpayers living in the other Member State, does not fulfil those conditions.

Secondly, a justification connected with the need to safeguard the balanced allocation between the Member States of the power to tax may be accepted, in particular, where the system in question is designed to prevent conduct capable of jeopardising the right of a Member State to exercise its powers of taxation in relation to activities carried on in its territory. That presupposes that the elimination of the restrictive measure would have the consequence of the Member State of residence surrendering part of its fiscal jurisdiction to other Member States.

(see paras 62, 69, 72, 73, 75, 76, 80, operative part)