Case C-244/09: Action brought on 3 July 2009 — Commission of the European Communities v Federal Republic of Germany
Date: 2009-07-03
Institutions: Court of Justice
Subjects: Germany, action for failure to fulfil an obligation, amortisation, free movement of capital, investment, real property, tax on income, tax system








C_2009233EN.01000402.xml










26.9.2009   


EN


Official Journal of the European Union


C 233/4





Action brought on 3 July 2009 — Commission of the European Communities v Federal Republic of Germany
(Case C-244/09)
2009/C 233/07
Language of the case: German

Parties


Applicant: Commission of the European Communities (represented by: R. Lyal and W. Mölls, acting as Agents)

Defendant: Federal Republic of Germany

Form of order sought







—


Declare that, by restricting decreasing balance depreciation for wear and tear under Paragraph 7(5) of the Law on Income Tax (Einkommensteuergesetz) to buildings located in Germany, the Federal Republic of Germany has failed to fulfil its obligations under Article 56 EC;










—


order the Federal Republic of Germany to pay the costs.





Pleas in law and main arguments

The present action concerns the provisions of the German Law on Income Tax (Einkommensteuergesetz) whereby the ‘decreasing balance depreciation for wear and tear’ — that is, the use of depreciation rates higher than those used for straight line depreciation during the early stages of the depreciation period — which is provided for in the fiscal treatment of immovable property is restricted to buildings located in Germany.
This difference in the treatment of immovable property located in and outside Germany is, it is claimed, contrary to the free movement of capital guaranteed under Article 56 EC. According to settled case-law, Article 56 EC prohibits all measures which treat cross-border capital movements less favourably than wholly internal capital movements, thereby deterring residents from engaging in the former.
In consequence of the provision at issue, the cash-flow situation of an investor who is liable to tax is less favourable in the case of a foreign property than in the case of a property in Germany. The effect of this is that investment in property abroad is less appealing than investment in property in Germany, and investors might be deterred from constructing or buying a building in another Member State. According to the case-law, the improved cash-flow in the case of an investment in property in Germany amounts to a tax advantage which must be taken into account when comparing the treatment of wholly internal and cross-border situations.
Although the operation of the discriminatory provision being challenged in this case has been limited to buildings in respect of which an application for a building permit was made or a purchase contract concluded before 1 January 2006, this does not eliminate the restriction on the free movement of capital, since decreasing balance depreciation for wear and tear is ongoing.
According to the Federal Government, the aforementioned restriction is justified by overriding reasons in the public interest, since the purpose of the provision at issue is to promote the construction of apartments for rent in Germany.
It must be noted in this regard that, according to settled case-law, support for the domestic economy is not an objective that can justify a restriction of the fundamental freedoms. Even if the objective — promotion of the construction of apartments for rent — were to be recognised as a non-economic objective, the strict limitation of decreasing balance depreciation to buildings situated in Germany would be neither necessary nor proportionate. The promotion of the construction of apartments for rent in Germany would not be adversely affected if it were possible to apply the decreasing balance method of depreciation to immovable property in other Member States also.
The Federal Government has not, therefore, put forward any grounds that might justify the interference in the free movement of capital that has been established.