CELEX: 62007CC0043
Language: en
Date: 2008-03-13
Title: Opinion of Mr Advocate General Mazák delivered on 13 March 2008. # D. M. M. A. Arens-Sikken v Staatssecretaris van Financiën. # Reference for a preliminary ruling: Hoge Raad der Nederlanden - Netherlands. # Free movement of capital - Articles 73b and 73d of the EC Treaty (now Articles 56 EC and 58 EC respectively) - National rules concerning inheritance duties and transfer duties which do not provide for the deduction, in the assessment of those duties, of overendowment debts resulting from a testamentary parental partition inter vivos where the person whose estate is being administered was not residing, at the time of death, in the Member State in which the immovable property included in the estate is situated - Restriction - Justification - None - No bilateral agreement for the prevention of double taxation - Consequences for the restriction of the free movement of capital of a lower level of compensation to prevent double taxation in that person’s Member State of residence. # Case C-43/07.

OPINION OF ADVOCATE GENERAL
      MAZÁK
      delivered on 13 March 2008 (1)
      
      Case C-43/07
      D.M.M.A. Arens-Sikken
      v
      Staatssecretaris van Financiën
      (Reference for a preliminary ruling from the Hoge Raad der Nederlanden (Netherlands))
      (Free movement of capital – Articles 56 EC and 58 EC – Restrictions – Inheritance tax – Deductibility of overendowment debts – Refusal on the ground that the deceased was not resident in the Member State of taxation at the time of death)I –  Introduction
      1.        By three questions referred for a preliminary ruling by order of 12 January 2007, the Hoge Raad der Nederlanden (Netherlands)
         essentially wishes to ascertain whether the Dutch legislation relating to the taxation of inheritance is compatible with Articles
         56 EC and 58 EC on the free movement of capital. Specifically, the referring court wishes to know whether those Treaty provisions
         preclude national legislation, under which – for the purposes of determining the basis of assessment of the tax due on the
         inheritance of an immovable property situated in the territory of the Member State concerned – account may be taken of certain
         debts arising upon inheritance if the deceased was resident, at the time of death, in that Member State, but not if that person
         was resident in another Member State.
      
      2.        The issues raised in the present case are very similar to those in Case C‑11/07 (2) – on which I am also delivering my Opinion today – which also concerns national legislation under which, for the purposes
         of assessing to tax the acquisition of immovable property through inheritance, certain charges are not deductible if, at the
         time of his death, the deceased resided in another Member State.
      
      3.        In answering the questions referred in the present proceedings, the Court will have an opportunity to build and elaborate
         upon the existing case-law on inheritance taxation in the context of the free movement of capital, in particular that deriving
         from Barbier (3) and van Hilten-van der Heijden. (4)
      
      II –  The relevant legislation
      A –    Community law
      4.        Article 56(1) EC (formerly Article 73b(1) of the EC Treaty) provides: 
      
      ‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member
         States and between Member States and third countries shall be prohibited.’
      
      5.        Article 58 EC (formerly Article 73d of the EC Treaty) provides: 
      
      ‘1.      The provisions of Article 56 [EC] shall be without prejudice to the right of Member States: 
      (a)      to apply the relevant provisions of their tax law which distinguish between taxpayers who are not in the same situation with
         regard to their place of residence or with regard to the place where their capital is invested;
      
      …
      3.      The measures and procedures referred to in [paragraph 1] shall not constitute a means of arbitrary discrimination or a disguised
         restriction on the free movement of capital and payments as defined in Article 56 [EC].’
      
      6.        Annex I to Council Directive 88/361/EEC of 24 June 1988 for the implementation of Article 67 of the Treaty (an article later
         repealed by the Treaty of Amsterdam), (5) entitled ‘Nomenclature of the capital movements referred to in Article 1 of the Directive’, refers to 13 different categories
         of capital movements. Under heading XI, entitled ‘Personal capital movements’, the following are listed:
      
      ‘…
      D – Inheritances and legacies
      …’
      B –    National law
      7.        Under Netherlands law, every estate is subject to tax. Article 1(1) of the 1956 Law on Succession (Successiewet 1956) of 28
         June 1956 (‘the SW 1956’) draws a distinction on the basis of whether the person whose estate is being administered resided
         in the Netherlands or abroad. That article states: 
      
      ‘In accordance with this law, the following taxes shall be levied:
      1.      Inheritance duty on the value of all the assets transferred by virtue of the right to inherit following the death of a person
         who resided in the Netherlands at the time of death ... 
      
      2.      Transfer duty on the value of the assets set out in Article 5(2) obtained as a gift or inheritance following the death of
         a person who did not reside in the Netherlands at the time of that gift or that death; 
      
      ...’
      8.        Article 5(2) of the SW 1956 states: 
      
      ‘2.      Transfer duty is levied on the value of: 
      1. the domestic possessions referred to in Article 13 of the Wet op de vermogensbelasting 1964 […], after deducting any debts
         referred to in that article; 
      
      ...’ 
      9.        Article 13(1)(b-i) of the 1964 Law on wealth tax (Wet op de vermogensbelasting 1964) of 16 December 1964 (‘the WV 1964’) defines
         ‘domestic possessions’ as including ‘immovable property situated in the Netherlands or rights relating thereto’ (in so far
         as they do not belong to a Netherlands undertaking). 
      
      10.      Under Article 13(2)(b) of the WV 1964, ‘domestic debts’ include debts secured by a mortgage on immovable property situated
         in the Netherlands to the extent that the interest and charges relating to those debts are taken into account for the purposes
         of determining gross domestic income under Article 49 of the 1964 Law on income tax (Wet op de Inkomstenbelasting 1964) of
         16 December 1964. 
      
      11.      Pursuant to Article 49 of the 1964 Law on income tax, ‘gross domestic income’ includes the total net income received by a
         person not residing in the Netherlands from immovable property situated in that Member State. 
      
      12.      As regards succession duties, there is no agreement between the Netherlands and Italy for the avoidance of double taxation.
      
      III –  Factual background, procedure and the questions referred for a preliminary ruling
      13.      Mr P.L. Arens, to whom Ms Arens-Sikken, the appellant in the main proceedings, was married, died on 8 November 1998. At the
         time of his death, Mr Arens was residing in Italy and had already been resident outside the Netherlands for more than 10 years.
      
      14.      Mr Arens had made a will, bequeathing his property in equal parts to Ms Arens-Sikken and each of their four children. 
      
      15.      However, as a result of a testamentary parental partition inter vivos, as referred to in the former version of Article 1167 of the Civil Code (Burgerlijke Wetboek), Mr Arens’ estate passed to
         Ms Arens-Sikken in its entirety – all assets and all liabilities – on condition that she later paid each of the children the
         cash equivalent of their share of the estate (her ‘overendowment debts’). 
      
      16.      The estate included Mr Arens’ share in immovable property situated in the Netherlands, that share being worth HFL 475 000
         (for the sake of clarity, I shall henceforth refer to that share simply as ‘the immovable property’).
      
      17.      The Dutch Tax Inspectorate took the view that Ms Arens-Sikken had acquired, through inheritance from a person resident abroad,
         property in the Netherlands worth HFL 475 000 and, accordingly, issued her with an assessment to transfer duty based on that
         amount. 
      
      18.      Ms Arens-Sikken lodged an objection before the Tax Inspectorate and subsequently appealed to the Gerechtshof te ’s-Hertogenbosch
         (the ’s-Hertogenbosch Regional Court of Appeal). The central issue before that court was whether, in relation to her inheritance
         of the property, Ms Arens-Sikken should be required to pay transfer duty on an acquisition worth HFL 475 000 or on an acquisition
         worth HFL 95 000 (the value of a one-fifth share). 
      
      19.      The Gerechtshof dismissed the appeal as unfounded on the grounds, inter alia, that the transfer duty attaches to the inheritance
         of the immovable property under inheritance law. It ruled also that the parental partition inter vivos concerned, in respect of Ms Arens-Sikken, the immovable property as a whole.
      
      20.      Ms Arens-Sikken thereupon brought an appeal in cassation against that decision before the Hoge Raad der Nederlanden. In the
         order for reference, the Hoge Raad der Nederlanden states that the Gerechtshof was right to rule that, for the purposes of
         transfer duty, Ms Arens-Sikken had, by virtue of inheritance law, acquired in its entirety the immovable property assigned
         to her. Accordingly, her principal plea in cassation – to the effect that there had been a joint inheritance, followed by
         a testamentary parental partition inter vivos – could not be upheld.
      
      21.      According to the referring court, the Gerechtshof was also correct in holding that, for the purposes of assessing Ms Arens-Sikken’s
         liability to transfer duty, no account could be taken of her overendowment debts under the partition inter vivos: those debts cannot be regarded as ‘domestic debts’ within the meaning of Article 13 of the WV 1964 and, in the context of
         transfer duty, only domestic debts are deductible.
      
      22.      However, in so far as the effect of the statutory provisions is ultimately to prevent the deduction of overendowment debts
         simply because the property was inherited from a person who, at the time of death, was resident outside the Netherlands, the
         referring court questions whether that consequence is compatible with the free movement of capital as guaranteed by Articles
         56 EC and 58 EC. In that regard, the Hoge Raad der Nederlanden is asking whether the overendowment debts – bearing in mind
         that, in its view, they are less closely connected with the immovable property than the obligation to transfer title in Barbier (6) or the acquisition costs in Gerritse (7) – must, as in those cases, be taken into account in the determination of the basis of assessment.
      
      23.      In the event that the answer to that question is in the affirmative, two further issues arise: first, concerning the correct
         method to be applied in order to compare the amount that would have been taxable by way of inheritance duty with the amount
         taxable by way of transfer duty, in order to determine whether any breach of the principle of the free movement of capital (8) is entailed; and, second, concerning the relevance, if any, of the fact that, if the overendowment debts are deducted in
         the Netherlands, the Member State of residence may, by virtue of its legislation on the prevention of double taxation, grant
         in consequence a smaller concession than would otherwise have been the case when assessing Ms Arens-Sikken’s inheritance to
         tax.
      
      24.      Against that background, the Hoge Raad der Nederlanden decided to stay the proceedings and to refer the following questions
         to the Court of Justice for a preliminary ruling:
      
      ‘1.      Must Articles 73b and 73d of the EC Treaty (now Articles 56 EC and 58 EC respectively) be interpreted as precluding a Member
         State from taxing the inheritance under inheritance law of immovable property situated in that Member State and forming part
         of the estate of a person resident in another Member State at the time of his death on the basis of the value of the immovable
         property without account being taken of overendowment debts owed by the inheritor by reason of a testamentary parental partition
         inter vivos?
      
      2.      If the answer to the previous question is in the affirmative and if it must also be determined by means of a comparison whether
         and, if so, to what extent overendowment debts must be taken into account, what method of comparison … must be used in a case
         such as the present to determine whether the inheritance duty which would have been levied if the testator had been resident
         in the Netherlands at the time of his death would have been less than the transfer duty?
      
      3.      Does it make any difference to the analysis of the obligation possibly imposed by the EC Treaty on the Member State in which
         the immovable property is situated to permit the deduction of the overendowment debts in whole or in part whether that deduction
         leads to a smaller concession to prevent double taxation in the Member State which considers itself to have authority to tax
         the estate by virtue of the testator’s place of residence?’
      
      IV –  Legal analysis
      A –    Main submissions of the parties
      25.      In the present proceedings, observations have been submitted by the Governments of the Netherlands and Belgium as well as
         by the Commission, all of which were also represented at the hearing held on 13 December 2007.
      
      26.      After setting out the Netherlands legislation concerning the taxation of inheritance and, in particular, after clarifying
         the difference between inheritance duty and transfer duty, the Netherlands Government contends that Question 1 should be answered
         in the negative. 
      
      27.      In its view, that position entails neither discrimination nor any obstacle to the free movement of capital. 
      
      28.      In that regard, the Netherlands Government contends, first – relying on van Hilten-van der Heijden (9) – that the fact that the overendowment debts are not deductible (for the purposes of transfer duty) if the deceased was not
         resident in the Netherlands at the time of death, but deductible (for the purposes of inheritance duty) if he was so resident,
         is no more than a distinction which flows naturally from the way in which powers of taxation are allocated between the Member
         States. The Netherlands are competent only to tax the acquisition of domestic property, in this case the immovable property.
         For the purposes of the taxation of acquisition through inheritance, the situation where the deceased was resident in the
         Netherlands and the situation where he was resident elsewhere are quite distinct and cannot be compared.
      
      29.      The Netherlands Government contends, second, that no discrimination is involved in the exercise of the power of taxation in
         the case before the referring court, as the overendowment debts are not closely linked with the immovable property within
         the meaning of Gerritse. (10)
      
      30.      It argues, third, that such debts do not therefore have the effect of reducing the value of the estate, as referred to in Barbier. (11) A reduction in value is the decisive criterion for identifying a sufficient link between a debt and an immovable property.
         Unlike the obligation to transfer title at issue in Barbier, the overendowment debts in the present case are not linked specifically to the immovable property as such, but rather to
         the inheritance as a whole. 
      
      31.      At the hearing, the Netherlands Government denied the argument put forward by the Commission that the Netherlands legislation
         provides for a different method of calculation to be applied according to whether the deceased concerned was resident or not,
         with the effect that the apportionment of the estate varies for purposes of taxation. It admitted, however, that the overall
         tax burden may differ, mainly due to the incremental nature of the tax applicable. In the case before the referring court,
         the deceased being a non-resident, tax on the acquisition of property through inheritance was levied in the form of transfer
         duty on the value of the property situated in the Netherlands, which was deemed to have been inherited wholly by the spouse.
         If, on the other hand, Mr Arens had been resident in the Netherlands at the time of death, tax would have been levied in the
         form of inheritance duty and account would have been taken of all assets and liabilities of the estate: thus tax would have
         been applied to the spouse, account being taken of her overendowment debts, and also to the children in respect of their underendowment
         claims corresponding to the overendowment of the spouse. The fact that in the present case only the spouse has been assessed
         to tax reflects the fact that, where the estate concerned is that of a non-resident, neither overendowment debts nor the corresponding
         underendowment claims are taken into account. For the reasons set out above, that situation is not contrary to the free movement
         of capital. The basis of assessment – that is to say, the full value of the immovable property taxed – would in any event
         be the same in both cases. 
      
      32.      Wholly in the alternative, the Netherlands Government contends in respect of Question 2 that any comparison to be drawn must
         be confined, in accordance with the parameters of the power of taxation, to the immovable property situated in the Netherlands.
         Accordingly, no account may be taken of extraneous elements of the inheritance nor of any exemptions from which the estate
         could have benefited had the deceased been resident in the Netherlands at the time of death. (12)
      
      33.      As regards Question 3, the Netherlands Government observes that, in order to determine whether there is an infringement, the
         Court considers any taxation agreements in force between the Member States concerned. In particular, it follows from Denkavit (13) that, in order to establish whether Community law has been infringed, the Court first assesses the national legislation and
         only if that is contrary to Community law does it go on to examine, second, whether the disadvantage suffered by the taxable
         person was in fact neutralised under the terms of an agreement between the Member States in question. 
      
      34.      The Netherlands Government concludes that in assessing whether there is an obligation to allow overendowment debts to be deducted,
         in whole or in part, account should be taken of the consequences when the entire estate is assessed to tax by the Member State
         which considers itself to have authority to do so by virtue of the deceased’s place of residence. Specifically, consideration
         should be given to the possibility that the latter Member State may, by virtue of its legislation to prevent double taxation,
         allow only a smaller tax concession in the light of the deduction already granted. 
      
      35.      The Belgian Government essentially concurs with the views expressed by the Netherlands Government. It suggests, moreover,
         that the debts or charges incumbent upon an estate can be divided into three types: (i) those inherent in the property; (ii)
         those arising from the acquisition of the property, which is the type of debt at issue in the present case; and (iii) those
         forming part of the estate, but which are only to a lesser extent – or even not at all – associated with the immovable property
         concerned, as in Eckelkamp and Others. The Belgian Government contends that, in accordance with Barbier, (14) the Member State in which the property is situated need take into account, as regards the assessment to tax of inheritance
         from a non-resident, only debts of the first type, that is to say, debts intrinsic to the property situated in its territory.
         
      
      36.      It emphasises that in the context of direct taxation, the situations of residents and of non-residents are not, as a rule,
         comparable. 
      
      37.      It argues, moreover, that only the Member State in which the deceased was resident (‘the Member State of residence’) is in
         a position to assess his economic situation in its entirety and to take account of all assets and debts in the calculation
         of the succession duties. Accordingly, debts such as those at issue are, in principle, always taken into account by the Member
         State of residence. Thus, the deduction of such debts in the Member State where the property is situated could in fact lead
         to double-deduction.
      
      38.      With regard to Question 2, the Belgian Government contends that in the event that the Member State in which the immovable
         property is situated has to allow the deduction of overendowment debts, such a deduction should only be possible if the proportion
         of the debt attributable to the domestic property has not already been deducted by the Member State of residence for the purposes
         of calculating the succession duties due in that State. Moreover, deduction should be possible only to the extent that transfer
         duty levied on the domestic property would cause the tax burden to be higher than it would have been if the deceased had resided
         in the Member State in which the property is situated and, accordingly, inheritance duty had been levied instead (in which
         case the aggregate worldwide assets of the estate would have been taken into account).
      
      39.      Finally, as regards the answer to be given to Question 3, the Belgian Government agrees essentially with the Netherlands Government.
      
      40.      According to the Commission, which answers Questions 1 and 2 together, the situation of a person who is resident in the Netherlands
         and who, generally speaking, has received most of his income there is not in principle comparable with the situation of a
         person who is not resident in the Netherlands and possesses only an immovable property there. The Commission agrees with the
         Belgian and Netherlands Governments that any exemptions should be applied in the Member State of residence and that – unlike
         the debts in issue in Eckelkampand Others – overendowment debts are not to be regarded as debts closely linked with the immovable property within the meaning of Barbier. (15) Such debts do not have the effect of reducing the value of the immovable property concerned.
      
      41.      The Commission maintains, however – viewing the question from another angle – that the Netherlands legislation at issue is
         not coherent, in that the calculation of inheritance duty (applicable where the deceased was resident in the Netherlands)
         would have been based on the assumption that there were several heirs, whereas transfer duty (applicable where the deceased
         is not resident) may be calculated – as in the present case – on the view that the inheritance had passed to only one person,
         namely the spouse. Owing to the incremental nature of those taxes, that may lead the overall tax burden on the immovable property
         to vary according to whether the deceased was resident in the Member State of taxation. At the hearing, the Commission explained
         that it does not criticise the incremental nature of the tax as such, but rather the fact that, in its view, it is possible
         that, in cases where the deceased was a non-resident, only the surviving spouse will be regarded as the heir and taxed accordingly,
         whereas in cases where the deceased was a resident, tax is levied on all the heirs and their respective underendowment claims.
         
      
      42.      The Commission concludes that, in those circumstances, the tax legislation in question may run counter to the free movement
         of capital, no valid justification having been put forward by the Netherlands Government.
      
      43.      In relation to Question 3, the Commission notes that, as regards succession duties, there is no agreement between the Netherlands
         and Italy for the avoidance of double taxation. It also argues that a Member State cannot, in order to justify a restriction
         on the free movement of capital, rely on a tax credit or concession which another Member State may – if it so desires – provide
         for and which may offset wholly or in part the disadvantage suffered by the taxable person. It is thus not relevant for present
         purposes whether or to what extent the State of residence may grant such a concession.
      
      B –    Appraisal
      44.      By its questions, which I consider it appropriate to examine together, (16) the referring court is asking in essence whether Articles 56 EC and 58 EC preclude national legislation such as that at issue
         in the main proceedings, under which – for the purposes of determining the basis of assessment of the tax due on the inheritance
         of an immovable property situated in the territory of the Member State concerned – account may be taken of overendowment debts
         if the person from whom the immovable property has been inherited was resident, at the time of death, in that Member State,
         but not if, as in the case before the referring court, that person was resident in another Member State.
      
      45.      It may be added with regard to the subject-matter of the present proceedings that this Court is not concerned with the issue
         raised in the main proceedings as to whether, for the purposes of levying the transfer duty, the appellant before the referring
         court is to be regarded as having inherited the immovable property in its entirety or whether there was a joint inheritance.
         That is a matter for the national law on succession, which moreover appears from the order for reference to have been answered
         by the referring court to the effect that the appellant had inherited the immovable property as a whole.
      
      46.      Next, it should be recalled that, according to well-established case-law, although direct taxation falls within the competence
         of the Member States, they must none the less exercise that competence consistently with Community law. (17)
      
      47.      As regards, more particularly, the applicability ratione materiae of the Treaty provisions on the free movement of capital to a situation such as that at issue – which has not, in fact, been
         contested by the parties to the present proceedings – it is settled case-law that an inheritance is a movement of capital
         within the meaning of Article 56 EC (formerly Article 73b of the EC Treaty), except in cases where its constituent elements
         are confined within a single Member State. (18)
      
      48.      It suffices to note in that regard that the situation in the case before the Hoge Raad der Nederlanden is clearly not purely
         domestic in that it concerns the taxation of the acquisition of an immovable property through inheritance from a person resident,
         at the time of death, in a Member State other than the Netherlands, that is to say, other than the Member State in which the
         immovable property is situated. 
      
      49.      The inheritance at issue in the main proceedings therefore falls within the scope of the Treaty provisions on the free movement
         of capital.
      
      50.      It is thus necessary to examine whether national legislation such as that at issue amounts to a prohibited restriction on
         the free movement of capital. 
      
      51.      At issue in the present case is the distinction drawn by the Netherlands tax legislation, as regards the taxation of inheritance,
         between two situations: (i) where immovable property situated in the Netherlands is inherited from a non-resident and (ii)
         where such property is inherited from a resident. 
      
      52.      In case (i) (the situation here), the immovable property is subject to transfer duty, which does not allow overendowment debts,
         such as those incurred by Ms Arens-Sikken as a result of the testamentary parental partition inter vivos, to be deducted from the value of the property for the purposes of calculating the basis of assessment, as such debts are
         not regarded as ‘domestic debts’ within the meaning of Article 13(2)(b) of the WV 1964, as interpreted by the Gerechtshof
         and the referring court. Transfer duty is thus levied on the value of the property concerned without deduction.
      
      53.      By contrast, in case (ii), the acquisition through inheritance of the immovable property is subject instead to inheritance
         duty, which means that overendowment debts will be taken into account in the determination of the basis of assessment. 
      
      54.      The Netherlands Government has emphasised in that regard, however, that although it is true that, for the purposes of inheritance
         duty, account would be taken of Ms Arens-Sikken’s overendowment debts, the corresponding underendowment claims of the other
         heirs would also be assessed to tax. 
      
      55.      The Netherlands Government has nevertheless not denied the Commission’s assertion that, on account of the fact that both the
         transfer duty and the inheritance duty are progressive taxes, the overall taxation of the immovable property may be higher
         in cases such as that before the referring court than it would have been if the property had been inherited from a resident
         and subject to inheritance duty.
      
      56.      The fact remains, consequently, that the total tax liability in a case such as that of Ms Arens-Sikken – where account cannot
         be taken of her overendowment debts for the determination of the transfer duty – exceeds that which would be incurred if inheritance
         duty were applicable, that is to say, if the immovable property were inherited from a resident. Moreover, that finding is
         not called into question by the fact that, as the Netherlands Government has contended, the immovable property transferred
         as such is assessed at the same value in either case.
      
      57.      It is thus clear that, under the Netherlands legislation on succession duties, an inheritance such as that in issue, acquired
         from a non-resident, receives less favourable tax treatment as compared with such an inheritance acquired from a resident.
      
      58.      In that regard, it should be noted that the Court held in Barbier – which also concerned the taxation of an immovable property acquired through inheritance from a non-resident – that measures
         prohibited by Article 56 EC as being restrictions on the movement of capital include those whose effect is to reduce the value
         of the inheritance of a resident of a State other than the Member State in which the assets concerned are situated and which
         taxes the inheritance of those assets. (19)
      
      59.      The Netherlands Government submitted in that regard that the present case must be distinguished from Barbier, in that the legislation at issue here does not have the effect of reducing the value of the inheritance within the meaning
         of the above ruling, since, unlike the obligation to transfer title at issue in Barbier, the obligation at issue in the present case is not connected with the immovable property in such a way that it would affect
         the value as such at which the property is assessed, whether for transfer duty or inheritance duty. 
      
      60.      I am not persuaded, however, of the relevance of that distinction. In my view, the value of the inheritance, seen in the light
         of economic realities, is also reduced within the meaning of Barbier if the value of the inheritance considered as a whole is, as in the present case, reduced – as compared with a purely domestic
         situation – as a result of the non-deductibility of overendowment debts incurred when the property was acquired through inheritance.
         
      
      61.      Both from the point of view of a (prospective) testator – who takes such fiscal effects into account when taking up residence
         in a Member State other than his Member State of origin where he owns immovable property or when acquiring immovable property
         in the latter State while residing in another Member State (20) – and, a fortiori, from the perspective of the heirs, the decisive question is not at which point in the determination of
         the tax due ‘technically’ an obligation or another factor capable of reducing the tax amount will not be taken into account,
         but rather the question whether the overall tax burden will be higher, with the effect that the total value of the inheritance
         finally received will be reduced. (21)
      
      62.      It follows that the national legislation at issue in the main proceedings is, in principle, liable to restrict the free movement
         of capital. 
      
      63.      However, the Netherlands Government, supported by the Belgian Government, relies essentially on two main arguments in order
         to show that that legislation is compatible with the Treaty provisions on the free movement of capital and that the distinction
         on which it is based is justified. It maintains, first, relying on case-law of the Court, such as Schumacker (22) and Gerritse, (23) that the respective situations of a resident de cujus and a non-resident de cujus are not comparable as regards the taxation of acquisition through inheritance. Second, and closely related to that argument,
         it points out that the non-deductibility of overendowment debts in the case of immovable property inherited from a non-resident
         is rooted in the principles of international tax law, under which it is for the Member State of residence to take account
         of personal obligations such as those at issue here. 
      
      64.      In order to assess whether those considerations can justify the legislation at issue in the present case, it may be useful
         to recall certain aspects of the ‘legal environment’ in which the Treaty provisions on the free movement of capital operate
         as regards direct taxation and to recapitulate briefly the case-law relevant in that context.
      
      65.      It must be borne in mind, in particular, that in so far as no unifying or harmonising Community measures have been adopted
         as regards direct taxation to that effect, the Member States remain in principle competent to determine the criteria for taxation
         and to determine the connecting factors for the purposes of allocating powers of taxation, either unilaterally or by international
         agreements. (24)
      
      66.      One consequence, to which I will have to come back later, is that, as in other areas where there is no Community harmonisation,
         Article 56 EC does not prohibit restrictions or disadvantages resulting merely from existing disparities between national
         tax systems and the exercise in parallel by two Member States of their sovereign powers of taxation. (25) The implication is that Article 56 EC covers, by contrast, restrictions which are attributable to the tax rules of one Member
         State.
      
      67.      Next, it can be said that the Court has in general accepted apportionment criteria following from the principle of territoriality
         and recognised, in particular, that residence is, for tax purposes, the connecting factor on which international tax law is
         as a rule founded for the purposes of allocating powers of taxation between States in situations involving extraneous elements. (26)
      
      68.      Seen in that light, the place of residence of a taxable person may therefore – as a criterion for the allocation of powers
         of taxation – be objectively relevant as regards the levying of direct taxes. 
      
      69.      It is against that background that, as the Netherlands Government observed, the Court accepted in the Schumacker line of cases that, in relation to direct taxes, the respective situations of residents and non-residents are not, as a rule,
         comparable, so that, in tax law, it is possible that the taxpayer’s residence may constitute a factor justifying national
         rules providing for different treatment as between resident and non-resident taxpayers. (27)
      
      70.      In the same vein, Article 58(1)(a) EC expressly provides that ‘Article 56 [EC] shall be without prejudice to the right of
         Member States … to apply the relevant provisions of their tax-law which distinguish between taxpayers who are not in the same
         situation with regard to their place of residence …’.
      
      71.      The Court has repeatedly emphasised, however, that that provision, in so far as it is an exception to the fundamental principle
         of the free movement of capital, must be interpreted strictly and that not all tax legislation making a distinction between
         taxpayers based on their place of residence or the Member State in which they invest their capital is automatically compatible
         with the Treaty. (28)
      
      72.      Also, the exception provided for in Article 58(1)(a) EC is itself limited by Article 58(3) EC, which provides that the national
         provisions referred to in Article 58(1) EC ‘shall not constitute a means of arbitrary discrimination or a disguised restriction
         on the free movement of capital and payments as defined in Article 56 [EC]’. 
      
      73.      A distinction must therefore be drawn between unequal treatment which is permitted under Article 58(1)(a) EC and arbitrary
         discrimination which is prohibited by Article 58(3) EC. As follows in that regard from the case-law of the Court, for a national
         measure to be capable of being regarded as compatible with the Treaty provisions on the free movement of capital, the difference
         in treatment must concern situations which are not objectively comparable or be justified by overriding reasons in the general
         interest. (29)
      
      74.      It is thus clear that what serves in the final analysis as a yardstick is the general principle of equal treatment, or non-discrimination,
         which requires that comparable situations must not be treated differently and that different situations must not be treated
         in the same way. (30)
      
      75.      Although, in principle, it has to be considered in each specific situation whether a distinguishing criterion like residence
         is a relevant objective element apt to justify the difference in treatment concerned, (31) the case-law discloses certain criteria that the Court has applied to establish whether two situations are objectively comparable
         with regard to a certain taxation measure. 
      
      76.      It can be noted, first, that the Court attaches importance to consistency in the exercise of taxation powers in that, where
         a Member State has chosen to impose a particular form of tax on non-residents as well as residents, it follows that residents
         and non-residents must also be considered comparable as regards any deductions relating to that taxation. (32)
      
      77.      Thus, in Denkavit, the Court held that as soon as a Member State, either unilaterally or by means of an agreement, imposes a charge to tax
         on the income, not only of resident shareholders, but also of non-resident shareholders, from dividends which they receive
         from a resident company, the situation of those non-resident shareholders becomes comparable to that of resident shareholders. (33)
      
      78.      The reasoning of the Court proceeds along similar lines in a number of cases from which it appears that, in so far as the
         situations of residents and non-residents are regarded under the tax legislation of a Member State as comparable with regard
         to a certain form of income, asset or, more generally, taxable event, their situations must also be regarded as comparable
         when it comes to the taking into account of costs, charges or obligations which are in any way ‘directly linked’ with the
         income, asset or taxable event on which the tax is levied. 
      
      79.      Thus, in Gerritse, the Court held that, by virtue of the fact that the business expenses in question were directly linked to the activity that
         generated the taxable income in Germany, residents and non-residents were placed in a comparable situation in that respect,
         so that residents and non-residents had also to be treated alike with regard to the deduction of those expenses. (34) Similarly, in Bouanich, the Court examined legislation which, with regard to the taxation of payments to shareholders on the occasion of a repurchase
         of shares, allowed resident shareholders to deduct the cost of acquisition of those shares, whereas such deduction was denied
         to non-resident shareholders. The Court held that, since the cost of acquisition was directly linked to the payment subject
         to tax, the two categories of taxpayer were, in that regard, in a comparable situation. (35)
      
      80.      Against that background it should be noted in the present case, first, that although the applicable succession duties are
         formally levied on the value of immovable property forming part of the estate of a non-resident, the fact that the inheritance
         is taxed in the hands of the heirs is not to be overlooked. Thus, the case does not exclusively concern the personal situation
         of the deceased and the responsibility of the Member State of his residence to take account, in accordance with the residence
         principle invoked by the Netherlands Government, of all his personal circumstances and obligations, as it is the heirs who
         are the taxable persons under the SW 1956 and liable to tax according to their share in the inheritance. 
      
      81.      In particular, in a situation where the heirs were themselves resident in the Netherlands, and to whom the same non-deductibility
         rule would apparently apply as regards the inheritance of immovable property from a non-resident, one might well ask if the
         State of residence would really be in a better position to take into account obligations such as that in issue, which are
         incurred by the heir due to his overendowment. (36)
      
      82.      Secondly, the occasion on which the overendowment debts are incurred is the acquisition through inheritance on which the transfer
         duties are levied. They are thus directly linked with the transfer to the heirs of the immovable property giving rise to the
         levying of taxes on inheritance. 
      
      83.      Thirdly, it must be noted that the legislation at issue acknowledges by implication the comparability of the situations where
         immovable property is inherited from residents and non-residents respectively, in so far as it provides (under the SW 1956)
         for succession duties to be levied in both cases, either in the form of inheritance duty or transfer duty. It is clear from
         the case-file that, but for the possibilities of deduction, those two taxes are in principle two sides of the same coin.
      
      84.      In those circumstances, it cannot in my view be sustained that, as regards the deductibility of overendowment debts, the situation
         of a person who inherits immovable property from a non-resident is objectively different from that of a person who inherits
         from a resident. Accordingly, I fail to see how the mere fact that the deceased was not, at the time of death, resident in
         the Member State where immovable property forming part of his estate is situated could provide objective justification for
         denying an heir, in a situation such as that before the referring court, the deduction of overendowment debts incurred on
         the occasion of the acquisition of that property through inheritance. 
      
      85.      It follows from the foregoing that the difference in fiscal treatment at issue amounts to arbitrary discrimination and is
         therefore incompatible with the Treaty provisions on the free movement of capital. 
      
      86.      Finally, it should be added that, as the Commission has rightly stated, the question whether or to what extent the Member
         State of residence of the deceased may grant a tax credit or concession can have no bearing on that finding. 
      
      87.      That is in fact a consequence of the absence of common rules governing the allocation of the Member States’ powers of taxation, (37) which – particularly in a case such as this where there is no agreement for the avoidance of double taxation – would make
         the obligations of a Member State under the Treaty provisions on the free movement of capital randomly dependent on the way
         in which another Member State chose to make use of its own taxing powers. Moreover, it would be very difficult to establish
         systematically in each case, even if the State of residence provided for a concession or credit to be granted, whether the
         disadvantageous effect of the taxation in the Member State where the property was situated would be fully offset. 
      
      88.      What is more, even if, as regards the present case, the disadvantage suffered by the heir in the Member State where the property
         is situated would be fully offset by a credit or concession granted by the deceased’s Member State of residence, that may
         not be so in cases where the deceased was resident in another Member State.
      
      89.      It is also clear from the case-law of the Court that, in the case of direct taxation, the possibility that Treaty provisions
         on freedom of movement have been infringed is as a rule assessed on the basis of a country-by-country approach. (38)
      
      90.      As regards, more particularly, the argument put forward by the Netherlands Government that the taking into account of the
         overendowment debts at issue might lead to double-deduction, it is settled case-law that a Community national cannot be deprived
         of the right to rely on the provisions of the Treaty on the ground that he is profiting from tax advantages which are legally
         provided by the rules in a Member State other than his State of residence. (39)
      
      91.      It follows that the provisions of the Treaty on the free movement of capital preclude national legislation such as that at
         issue in the main proceedings, under which – for the purposes of determining the basis of assessment of the tax due on the
         inheritance of an immovable property situated in the territory of the Member State concerned – account may be taken of overendowment
         debts arising from a testamentary parental partition inter vivos, if the person from whom the property has been inherited was resident, at the time of death, in that Member State, but not
         if that person was resident in another Member State. It is not relevant in that regard whether or to what extent the Member
         State of residence of the deceased may grant a tax concession.
      
      V –  Conclusion
      92.      For the reasons given above, I propose that the questions referred by the Hoge Raad der Nederlanden should be answered as
         follows:
      
      The provisions of the Treaty on the free movement of capital preclude national legislation such as that at issue in the main
         proceedings, under which – for the purposes of determining the basis of assessment of the tax due on the inheritance of an
         immovable property situated in the territory of the Member State concerned – account may be taken of overendowment debts arising
         from a testamentary parental partition inter vivos, if the person from whom the property has been inherited was resident, at the time of death, in that Member State, but not
         if that person was resident in another Member State. 
      
      It is not relevant in that regard whether or to what extent the Member State of residence of the deceased may grant a tax
         concession.
      
      1 –	Original language: English.
      
      2 –	Eckelkamp and Others, pending before the Court.
      
      3 –	Case C‑364/01 [2003] ECR I‑15013.
      
      4 –	Case C‑513/03 [2006] ECR I‑1957.
      
      5 –	OJ 1988 L 178, p. 5.
      
      6 –	Cited in footnote 3.
      
      7 –	Case C‑234/01 [2003] ECR I‑5933.
      
      8 –	In that regard, the referring court compares the approaches defined in Barbier, cited in footnote 3, in particular at paragraph 62, and Gerritse, cited in footnote 7, respectively.
      
      9 –	Cited in footnote 4.
      
      10 –	Cited in footnote 7, paragraph 27.
      
      11 –	Cited in footnote 3.
      
      12 –	In that regard, reference is made to Gerritse, cited in footnote 7, and Case C‑279/93 Schumacker [1995] ECR I‑225.
      
      13 –	Case C‑170/05 [2006] ECR I‑11949.
      
      14 –	Cited in footnote 3.
      
      15 –	Cited in footnote 3.
      
      16 –	In particular, as will become apparent from the following assessment, the question whether or not there is a restriction
         or discrimination prohibited by the provisions on the free movement of capital cannot be answered without a point of reference
         or a method of comparison to be applied.
      
      17 –	See, inter alia, Case C‑319/02 Manninen [2004] ECR I‑7477, paragraph 19; Case C‑386/04 Centro di Musicologia Walter Stauffer [2006] ECR I‑8203, paragraph 15; and Case C‑347/04 Rewe Zentralfinanz [2007] ECR I‑2647, paragraph 21.
      
      18 –	See, to that effect, inter alia Case C‑256/06 Jäger [2008] ECR I‑0000, paragraph 25, and van Hilten-van der Heijden, cited in footnote 4, paragraph 42.
      
      19 –	See to that effect Barbier, cited in footnote 3, paragraph 62; van Hilten-van der Heijden, cited in footnote 4, paragraph 44; and, most recently, Jäger, cited in footnote 18, paragraph 30.
      
      20 –	See Opinion of Advocate General Mischo in Barbier, cited in footnote 3, point 30.
      
      21 –	See also to that effect Jäger, cited in footnote 18, paragraph 32, where the Court considered it decisive in this context that the national provisions
         in question result in an inheritance being subject to inheritance tax that is higher than that which would be payable in a purely domestic situation.
      
      22 –	Cited in footnote 12.
      
      23 –	Cited in footnote 7.
      
      24 –	See to that effect Case C‑336/96 Gilly [1998] ECR I‑2793, paragraphs 24 and 30, and Case C‑307/97 Saint-Gobain [1999] ECR I‑6161, paragraph 57. 
      
      25 –	See to that effect, for example, Case C‑427/05 Porto Antico di Genova ?2007? ECR I‑0000, paragraph 19, and Case C‑513/04 Kerckhaert and Morres ?2006? ECR I‑10967, paragraph 22.
      
      26 –	See, for example, Gerritse, cited in footnote 7, paragraph 45.
      
      27 –	In Schumacker, cited in footnote 12, the Court held, with regard to income tax, that the situation of a resident is different from that
         of a non-resident ‘in so far as the major part of his income is normally concentrated in the State of residence. Moreover,
         that State generally has available all the information needed to assess the taxpayer’s overall ability to pay, taking account
         of his personal and family circumstances’ (see paragraphs 31 and 33).
      
      28 –	See, for example, Case C‑446/03 Marks & Spencer ?2005? ECR I‑10837, paragraph 37; Manninen, cited in footnote 17, paragraph 28; and Jäger, cited in footnote 18, paragraph 40.
      
      29 –	See to that effect, inter alia, Manninen, cited in footnote 17, paragraphs 28 and 29; Case C‑35/98 Verkooijen ?2000? ECR I‑4071, paragraph 43; Case C‑376/03 D. [2005] ECR I‑5821, paragraph 25; and Case C‑512/03 Blanckaert [2005] ECR I‑7685, paragraph 42.
      
      30 –	See to that effect Schumacker, cited in footnote 12, paragraph 30; see also, inter alia, Case C‑354/95 National Farmers’ Unionand Others [1997] ECR I‑4559, paragraph 61; and Case C‑148/02 Garcia Avello [2003] ECR I‑11613, paragraph 31.
      
      31 –	Cf. in that regard Marks & Spencer, cited in footnote 28, paragraph 38.
      
      32 –	See, to this effect, Case 270/83 Commission v France [1986] ECR 273, paragraph 20. See also Opinion of Advocate General Lenz in Case C‑250/95 Futura Participations and Singer [1997] ECR I‑2471, points 38 and 39.
      
      33 –	Denkavit, cited in footnote 13, paragraph 35; see also Case C‑374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I‑11673, paragraph 68.
      
      34 –	See Gerritse, cited in footnote 7, paragraphs 27 and 28. See also as to references to a ‘direct link’ Case C‑265/04 Bouanich [2006] ECR I‑923, paragraph 40, and Jäger, cited in footnote 18, paragraph 44.
      
      35 –	Bouanich, cited in footnote 34, paragraphs 39 and 40; for a further reference to the criterion of ‘direct link’ see also Jäger, cited in footnote 18, paragraph 44. It appears to me, however, that what constitutes a sufficiently ‘direct link’ depends
         very much on the concrete context and, in particular, on the type of tax in question. I am therefore not convinced that it
         is useful or even possible to distinguish, as the Belgian Government suggested, in abstracto between certain degrees of ‘directness’ an obligation or charge may exhibit, for example, with regard to an asset on which
         a tax is levied. 
      
      36 –	See in this context footnote 27 above. Seen from that perspective, the present situation bears also a resemblance to cases
         concerning the taxation of foreign-source income, for example from dividends, by the State of residence of the taxable person
         and in which the Court held that in respect of the tax legislation of his State of residence, the position of a shareholder
         receiving dividends is not necessarily altered merely by the fact that he receives those dividends from a company established
         in another Member State, which, in exercising its fiscal sovereignty, makes those dividends subject to a deduction at source
         by way of income tax. See to that effect, for example, Kerckhaert and Morres, cited in footnote 25, paragraph 19.
      
      37 –	See point 66 above.
      
      38 –	Thus, the Court has not accepted the argument that it is for another State, even if there is a double taxation convention,
         to rectify the effects of a restriction: see, to that effect, Denkavit, cited in footnote 13, paragraphs 51 and 52, and Case C‑379/05 Amurta [2007] ECR I‑0000, paragraph 55.
      
      39 –	Inter alia Barbier, cited in footnote 3, paragraph 71.