F.W.L. de Groot v Staatssecretaris van Financiën.
Date: 2002-12-12
21.  Where, like Mr de Groot, the resident taxpayer earns his income partly in the Netherlands and partly in another Member State, the tax is first calculated using the generally applicable progressive rate on the basis of overall income, including exempt foreign income, from which are deducted the amounts paid under maintenance obligations and the tax-free allowance to which the taxpayer is entitled as a result of his personal or family circumstances.
22.  The relief to be granted for income received and taxed in the various States of employment is deducted from that theoretical amount.
23.  In order to calculate the relief which the taxpayer concerned may claim, the tax on total income is multiplied by the proportionality factor.
56.  The effects contested by Mr de Groot are therefore produced not as a result of the application of the national tax provisions but solely as a result of the application of the method of avoiding double taxation put in place by the bilateral conventions. Thus, it is when applying in the Netherlands the method of exemption with progression and calculating the tax reduction that certain personal allowances are deducted in proportion to the income exempt from tax in that Member State.
75.  The Court observes first of all that, although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence in accordance with Community law and therefore avoid any overt or covert discrimination on the basis of nationality (Schumacker  , paragraphs 21 and 26, and   Gschwind  , paragraph 20).
76.  Any Community national who, irrespective of his place of residence and his nationality, has exercised the right to freedom of movement for workers and who has been employed in a Member State other than that of residence falls within the scope of Article 48 of the Treaty and Article 7 of Regulation No 1612/68 (Case C-419/92   Scholz   [1994] ECR I-505, paragraph 9, and   Terhoeve  , cited above, paragraph 27).
77.  Moreover, it is settled case-law that all of the Treaty provisions relating to the freedom of movement for persons are intended to facilitate the pursuit by Community nationals of occupational activities of all kinds throughout the Community, and preclude measures which might place Community nationals at a disadvantage when they wish to pursue an economic activity in the territory of another Member State (Case C-370/90   Singh   [1992] ECR I-4265, paragraph 16,   Terhoeve  , paragraph 37, Case C-190/98   Graf   [2000] ECR I-493, paragraph 21, and Case C-302/98   Sehrer   [2000] ECR I-4585, paragraph 32).
78.  Provisions which preclude or deter a national of a Member State from leaving his country of origin to exercise his right to freedom of movement therefore constitute an obstacle to that freedom even if they apply without regard to the nationality of the workers concerned (Case C-10/90   Masgio   [1991] ECR I-1119, paragraphs 18 and 19, and   Terhoeve  , paragraph 39, and   Sehrer  , cited above, paragraph 33).
79.  Thus, even if, according to their wording, the rules on freedom of movement for workers are intended, in particular, to secure the benefit of national treatment in the host State, they also preclude the State of origin from obstructing the freedom of one of its nationals to accept and pursue employment in another Member State (see, to that effect,   Terhoeve  , paragraphs 27 to 29).
80.  Consequently, the fact that Mr de Groot has Netherlands nationality cannot prevent him from relying on the rules relating to freedom of movement for workers as against the Member State of which he is a national, since he has exercised his right to freedom of movement and worked in another Member State (Terhoeve  , paragraphs 27 to 29, and   Sehrer  , paragraph 29).
Whether there is an obstacle to freedom of movement for workers
82.  The fact that Mr de Groot was no longer in an employment relationship at the time of the taxation cannot deprive him of certain guaranteed rights which are linked to the status of worker (see, to that effect,   Sehrer  , paragraph 30, and the case-law cited), since the dispute in the main proceedings is concerned with the direct tax consequences of Mr de Groot's pursuit, as a worker, of activities in other Member States.
86.  In that regard, it should be noted that a situation such as that at issue in the main proceedings can be distinguished from that with which the   Gilly   case was concerned. The tax disadvantage suffered by Mr de Groot is in no way, as the national court suggested, the result of the difference between the tax rates of the State of residence and those of the States of employment; the Court ruled however, in paragraph 47 of the judgment in   Gilly  , that the unfavourable consequences which the tax credit mechanism in question might entail for Mrs Gilly were the result primarily of the differences between the tax scales of the Member States concerned, and that, in the absence of any Community legislation in the field, the determination of those scales was a matter for those Member States.
87.  Moreover, while Mrs Gilly obtained in her State of residence all the tax advantages provided for for its residents by the legislation of that State, that is not the case with respect to Mr de Groot, whose claim in the main proceedings is precisely that he was deprived in his State of residence of part of the reductions provided for for residents of that State by its legislation because he exercised his right to freedom of movement.
89.  Moreover, the Court ruled, in paragraphs 36 and 27 respectively of the judgments in   Schumacker   and   Gschwind  , that the Member State of employment is required to take into account personal and family circumstances only where the taxpayer derives almost all or 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.
90.  In paragraph 32 of the   Schumacker   judgment, the Court also ruled that it is a matter for the State of residence, in principle, to grant the taxpayer all the tax allowances relating to his personal and family circumstances because that State is best placed to assess the taxpayer's personal ability to pay tax, since that is where his personal and financial interests are centred.
91.  In this case, even if, as the Netherlands Government claims, the maintenance payments made by Mr de Groot and the tax-free allowance were taken into account in calculating the theoretical amount of tax payable on his total income, it is plain that, as a result of the application of the proportionality factor, Mr de Groot benefited from the allowances relating to his personal and family circumstances only in proportion to the income which he had received in the Netherlands. Thus, as a consequence of his exercise of his right to freedom of movement, he forfeited part of the tax allowances provided for by Netherlands law to which he was entitled as a resident of the Netherlands.
93.  It is settled case-law that in the absence of unifying or harmonising measures adopted in the Community the Member States remain competent to determine the criteria for taxation of income and capital with a view to eliminating double taxation by means,   inter alia  , of international agreements. In that context, the Member States are at liberty, in the framework of bilateral agreements, to determine the connecting factors for the purposes of allocating powers of taxation (Gilly  , paragraphs 24 and 30, and Case C-307/97   Saint-Gobain   [1999] ECR I-6161, paragraph 57).
94.  However, as far as the exercise of the power of taxation so allocated is concerned, the Member States must comply with the Community rules (see, to that effect,   Saint-Gobain  , cited above, paragraph 58) and, more particularly, respect the principle of national treatment of nationals of other Member States and of their own nationals who exercise the freedoms guaranteed by the Treaty.
97.  Firstly, with respect to the argument that the disadvantage suffered by a taxpayer such as Mr de Groot in relation to the reduction of tax is to a large extent compensated for by a progressivity advantage, described by the Advocate General at the national court and referred to by the Belgian Government, it is sufficient to state that it is settled case-law that detrimental tax treatment contrary to a fundamental freedom cannot be justified by the existence of other tax advantages, even if those advantages exist (see, with respect to the freedom of establishment, Case 270/83   Commission   v   France   [1986] ECR 273, paragraph 21, Case C-107/94   Asscher   [1996] ECR I-3089, paragraph 53, and   Saint-Gobain  , paragraph 54; with respect to the freedom to provide services, Case C-294/97   Eurowings Luftverkehr   [1999] ECR I-7447, paragraph 44; and, with respect to the free movement of capital, Case C-35/98   Verkooijen   [2000] ECR I-4071, paragraph 61).
98.  Secondly, it is necessary to reject the argument of the Netherlands Government that it is legitimate for the State of residence to take into account the personal and family circumstances of a resident taxpayer only in proportion to the income derived in its territory since it is for the State of employment to do the same with respect to the share of income taxable in its territory. In that respect, it should be observed that income received in the territory of a Member State by a non-resident worker is in most cases only a part of his total income, which is concentrated at his place of residence. Moreover, a non-resident's personal ability to pay tax, determined by reference to his aggregate income and his personal and family circumstances, is more easy to assess at the place where his personal and financial interests are centred. In general, that is the place where he has his usual abode. International tax law, and in particular the Model Double Taxation Convention of the OECD, also recognises that, in principle, the overall taxation of taxpayers, taking account of their personal and family circumstances, is a matter for the State of residence (see   Schumacker  , paragraph 32).
101.  However, the mechanisms used to eliminate double taxation or the national tax systems which have the effect of eliminating or alleviating double taxation must permit the taxpayers in the States concerned to be certain that, as the end result, all their personal and family circumstances will be duly taken into account, irrespective of how those Member States have allocated that obligation amongst themselves, in order not to give rise to inequality of treatment which is incompatible with the Treaty provisions on the freedom of movement for workers and in no way results from the disparities between the national tax laws.
103.  Thirdly, with respect to the argument put forward by the Belgian Government that it would be disproportionate to place on the State of residence the burden of granting all the allowances which resident taxpayers who have received income in other Member States may claim, even where that income has been taxed in those other Member States without the taxpayer's personal and family circumstances being taken into account, it is settled case-law that a loss of tax revenue can never be relied upon to justify a restriction on the exercise of a fundamental freedom (Case C-264/96   ICI   [1998] ECR I-4695, paragraph 28, and   Saint-Gobain  , paragraph 51).
106.  Certainly, the Court has held that the need to safeguard the cohesion of a tax system may justify rules that are liable to restrict fundamental freedoms (Case C-204/90   Bachmann   [1992] ECR I-249, paragraph 28, and Case C-300/90   Commission   v   Belgium   [1992] ECR I-305, paragraph 21).
110.  The answer to the first question must therefore be that Article 48 of the Treaty precludes rules such as those at issue in the main proceedings ─ irrespective of whether or not they are laid down in a convention for the avoidance of double taxation ─ whereby a taxpayer forfeits, in the calculation of the income tax payable by him in his State of residence, part of the tax-free amount of that income and of his personal tax advantages because, during the year in question, he also received income in another Member State which was taxed in that State without his personal and family circumstances being taken into account.