Arnoud Gerritse v Finanzamt Neukölln-Nord.
Date: 2003-06-12
9.  Mr Gerritse, a Netherlands national resident in the Netherlands, received the sum of DEM 6 007.55 in 1996 for performing as a drummer at a radio station in Berlin.  The documents before the Court show that the business expenses occasioned by that performance amounted to DEM 968.
27.  It is to be noted at this stage that the business expenses in question are directly linked to the activity that generated the taxable income in Germany, so that residents and non-residents are placed in a comparable situation in that respect.
28.  In those circumstances, a national provision which, in matters of taxation, refuses to allow non-residents to deduct business expenses, whereas residents are allowed to do so, risks operating mainly to the detriment of nationals of other Member States and therefore constitutes indirect discrimination on grounds of nationality, contrary in principle to Articles 59 and 60 of the Treaty.
29.  Since no precise argument has been put before the Court to justify such a difference in treatment, Articles 59 and 60 must be held to preclude a national provision such as that at issue in the main proceedings in so far as it excludes the possibility for partially taxable persons to deduct business expenses from their taxable income, whereas such a possibility is granted to wholly taxable persons.
The deduction at source of 25%
Observations submitted to the Court
43.  As the Court has already held, in relation to direct taxes, the situations of residents and of non-residents are generally not comparable, because the income received in the territory of a Member State by a non-resident is in most cases only a part of his total income, which is concentrated at his place of residence, and because a non-resident's personal ability to pay tax, determined by reference to his aggregate income and his personal and family circumstances, is easier to assess at the place where his personal and financial interests are centred, which in general is the place where he has his usual abode (Schumacker  , paragraphs 31 and 32;   Gschwind  , paragraph 22; Case C-87/99   Zurstrassen   [2000] ECR I-3337, paragraph 21).
44.  Also, the fact that a Member State does not grant to a non-resident certain tax benefits which it grants to a resident is not, as a rule, discriminatory having regard to the objective differences between the situations of residents and of non-residents, from the point of view both of the source of their income and of their personal ability to pay tax or their personal and family circumstances (Schumacker  , paragraph 34;   Gschwind  , paragraph 23).
47.  The question therefore arises whether the objective difference in situation between such a non-resident and a resident allows one to disregard the discriminatory character of a national provision such as that at issue in the main proceedings which makes the income of non-residents subject to a definitive tax at the uniform rate of 25% deducted at source, whereas the income of residents is taxed according to a progressive table including a tax-free allowance.
48.  Concerning, first, the tax-free allowance, since, as the Finanzgericht Berlin, the Finnish Government and the Commission have argued, it has a social purpose, allowing the taxpayer to be granted an essential minimum exempt from all income tax, it is legitimate to reserve the grant of that advantage to persons who have received the greater part of their taxable income in the State of taxation, that is to say, as a general rule, residents.
49.  It should be noted that, where it is nevertheless established that a partially taxable person has received the greater part of his income in Germany, by fulfilling one of the two conditions mentioned in paragraph 7 of this judgment, the national provision at issue in the main proceedings assesses him to tax in precisely the same way as a wholly taxable person, by applying to the income of the taxpayer concerned a progressive table including a tax-free allowance.
50.  That is not, however, the case with Mr Gerritse.
51.  In that regard, the Netherlands Government has stated, in reply to a question by the Court, that, in a case such as that at issue in the main proceedings, the taxpayer may benefit in the Netherlands, the State of residence, from the tax-free allowance which is deducted from overall income.  In other words, an advantage comparable to that claimed by Mr Gerritse in Germany is granted in the State of his residence, which must, in principle, take into account the personal and family situation of the person concerned.
52.  Moreover, as regards the application to non-residents of a flat rate of tax of 25% while residents are subject to a progressive table, as the Commission has pointed out, the Netherlands as State of residence, pursuant to the bilateral convention, integrates the income in respect of which the right to tax belongs to Germany into the basis of assessment, in accordance with the progressivity rule.  It does, however, take account of the tax levied in Germany, by deducting from the Netherlands tax a fraction which corresponds to the relation between the income taxed in Germany and worldwide income.
53.  That means that, with regard to the progressivity rule, non-residents and residents are in a comparable situation, so that application to the former of a higher rate of income tax than that applicable to the latter and to taxpayers who are assimilated to them would constitute indirect discrimination prohibited by Community law, in particular by Article 60 of the Treaty (see, by analogy,   Asscher  , paragraph 49).
54.  It is for the referring court to verify, in this case, whether the 25% tax rate applied to Mr Gerritse's income is higher than that which would follow from application of the progressive table.  In order to compare comparable situations, it is necessary in that respect, as the Commission has rightly pointed out, to add to the net income received by the person concerned in Germany an amount corresponding to the tax-free allowance.  According to the Commission, which carried out that calculation, application of the progressive table, in a case such as that at issue in the main proceedings, would lead to a rate of tax of 26.5%, which is higher than that actually applied.
55.  In view of the whole of the above considerations, the answer to the Finanzgericht Berlin must be:
─  Articles 59 and 60 of the Treaty preclude a national provision such as that at issue in the main proceedings which, as a general rule, takes into account gross income when taxing non-residents, without deducting business expenses, whereas residents are taxed on their net income, after deduction of those expenses;
─  However, those articles of the Treaty do not preclude that same provision in so far as, as a general rule, it subjects the income of non-residents to a definitive tax at the uniform rate of 25%, deducted at source, whilst the income of residents is taxed according to a progressive table including a tax-free allowance, provided that the rate of 25% is not higher than that which would actually be applied to the person concerned, in accordance with the progressive table, in respect of net income increased by an amount corresponding to the tax-free allowance.