Finanzamt Dortmund-Unna v Josef Grünewald.
Date: 2015-02-24
13. However, the referring court considers that there is still doubt as to the compatibility of that tax regime with EU law. It is true that, in its judgment in Schröder  (C‑450/09, EU:C:2011:198), the Court held that there is a restriction of free movement of capital under Article 63 TFEU if support payments by a non-resident taxpayer connected with rental income of domestic origin arising from immovable property are not deductible, while corresponding payments undertaken by a resident person with full tax liability are deductible. However, in the view of the referring court, since the Court of Justice was not asked a question on that matter, it did not make a ruling in its judgment in Schröder  (EU:C:2011:198) on the specific issue as to whether it is necessary to take into account the fact that the German tax regime concerned was based on the ‘principle of correspondence’ (‘Korrespondenzprinzip’), according to which, where the person obliged to make the payment has a right to have it deducted, the recipient of the payment must be liable to tax.
15. It must be noted that the case that led to the judgment in Schröder  (EU:C:2011:198) concerned the same national legislation as that whose application is the subject of the present request for a preliminary ruling. In that judgment, the Court held that Article 63 TFEU, which prohibits restrictions on capital movements, must be interpreted as precluding legislation of a Member State which, while allowing a resident taxpayer to deduct the annuities paid to a relative who transferred to him immovable property situated in the territory of that Member State from the rental income derived from that property, does not grant such a deduction to a non-resident taxpayer, in so far as the undertaking to pay those annuities results from the transfer of that property.
18. In that regard, it should first be observed that, in accordance with settled case-law, inheritances and gifts constitute movements of capital for the purposes of Article 63 TFEU, with the exception of cases in which their constituent elements are confined within a single Member State (see, to that effect, inter alia, judgment in Schröder , EU:C:2011:198, paragraph 26). Consequently, it must be held that the transfer of shares in a company established in Germany in the context of anticipated succession to a natural person residing in another Member State is covered by Article 63 TFEU.
19. Secondly, the measures prohibited by Article 63(1) TFEU as restrictions on the movement of capital include those which are liable to discourage non-residents from making investments in a Member State or from maintaining such investments (see, inter alia, judgment in Schröder , EU:C:2011:198, paragraph 30).
20. As regards the legislation at issue in the main proceedings, a natural person who is not domiciled or habitually resident in Germany is liable, under Paragraph 49 of the EStG, to income tax in that Member State in respect of income derived from the commercial activity conducted in Germany by a business in which that person holds shares. By contrast with resident taxpayers, pursuant to Paragraph 50 of the EStG, a non-resident taxpayer may not, as a person with limited liability for tax, only on domestic income, deduct from that income an annuity, such as that paid by Mr Grünewald in the context of the anticipated succession inter vivos , as special expenditure within the meaning of Paragraph 10(1)(1a) of the EStG. The less favourable tax treatment thus reserved for non-residents might deter them from accepting shares in companies established in Germany by way of anticipated succession. It might also deter German residents from naming, as beneficiaries of an anticipated succession inter vivos , persons resident in a Member State other than the Federal Republic of Germany (see, to that effect, judgment in Schröder , EU:C:2011:198, paragraph 32).
22. Thirdly, it is true that, under Article 65(1)(a) TFEU, Article 63 TFEU is without prejudice to the right of Member States to distinguish, in their tax law, between taxpayers who are not in the same situation with regard to their place of residence (judgment in Schröder , EU:C:2011:198, paragraph 34).
23. However, it is important to distinguish unequal treatment permitted under Article 65(1)(a) TFEU from arbitrary discrimination or disguised restrictions prohibited under Article 65(3) TFEU. In order for national tax legislation such as that at issue in the main proceedings, which distinguishes between resident and non-resident taxpayers, to be regarded as compatible with the FEU Treaty provisions on the free movement of capital, the difference in treatment must relate to situations which are not objectively comparable or must be justified by an overriding reason in the public interest (see, inter alia, judgment in Schröder , EU:C:2011:198, paragraph 35).
The comparability of the situations
25. It is settled case-law that, 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 (see, inter alia, judgment in Schröder , EU:C:2011:198, paragraph 37).
26. Thus, 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, given 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 (see, inter alia, judgment in Schröder , EU:C:2011:198, paragraph 38).
27. The position is different, however, where the non-resident receives no significant income in the State of his residence and obtains the greater part of his taxable income from an activity performed in the other Member State concerned (see, to that effect, judgment in Schumacker , C‑279/93, EU:C:1995:31, paragraph 36).
29. The Court has also held, in relation to expenses directly linked to an activity which has generated taxable income in a Member State, that residents of that State and non-residents are in a comparable situation (see, inter alia, judgment in Schröder , EU:C:2011:198, paragraph 40 and the case-law cited).
30. Thus, expenses occasioned by the activity in question are directly linked to that activity and are accordingly necessary in order to carry out that activity (see, to that effect, judgments in Gerritse , C‑234/01, EU:C:2003:340, paragraphs 9 and 27, and Centro Equestre da Lezíria Grande , C‑345/04, EU:C:2007:96, paragraph 25).
31. That being so, although the income which Mr Grünewald earned in Germany in the years concerned did not constitute the greater part of his overall income, it could not be accepted that his situation was comparable with that of a resident unless the annuity which he paid were to be regarded as an expense directly linked to the income from the activity of the business established in Germany, the shares in which were transferred to him by way of anticipated succession.
32. It must be observed that it is ultimately for the national court, which has sole jurisdiction to determine the facts in the case before it and to interpret the national legislation, to determine whether that is the case. However, in preliminary ruling proceedings, the Court, which is called on to provide answers of use to the national court, may provide guidance based on the documents in the file and on the written and oral observations submitted to it, in order to enable the national court to give judgment (see, inter alia, judgment in Alakor Gabonatermelő és Forgalmazó , C‑191/12, EU:C:2013:315, paragraph 31 and the case-law cited).
35. First, the existence of the link between the expenses borne by the non-resident taxpayer and his taxable income in the Member State concerned cannot be dependent on the nature of the income generated by the assets thus transferred. Although the income in the case that led to the judgment in Schröder (EU:C:2011:198) came from letting immovable property transferred by way of anticipated succession, while the income concerned in the present case comes from shares in a fruit and vegetable business, and although, as a consequence, that income comes under different categories of taxation, the end result is not that the link between the expenditure and the income at issue in the main proceedings has to be characterised differently, since the nature of that income is of no relevance in that respect.
36. Secondly, even assuming that the amount of an annuity, such as that paid by Mr Grünewald, is determined on the basis of the debtor’s ability to pay and the recipient’s personal needs, the fact remains that the existence of a direct link within the meaning of the case-law cited in paragraph 29 above results, not from a correlation, of whatever kind, between the amount of the expenditure in question and that of the taxable income, but from the fact that that expenditure is inextricably linked to the activity which gives rise to that income (see, to that effect, judgment in Schröder  EU:C:2011:198, paragraph 43).
37. Thirdly, it is common ground in the present case, as in the case that led to the judgment in Schröder  (EU:C:2011:198), that the payment of the annuity by the non-resident taxpayer was made in the context, not of a transfer for valuable consideration of an asset but a transfer by way of anticipated succession, free of charge. In that regard, the fact that that transfer was not for valuable consideration, moreover, renders ineffective ab initio the argument referred to by the national court to the effect that the annuity should not be deductible in the case of the acquisition of an asset for valuable consideration unless divided into acquisition costs and an interest portion. In any event, that argument concerns the amount of the deduction and not the principle of deduction, which is the only matter at issue in the present case.
40. It should be recalled in that regard that preservation of the balanced allocation of powers of taxation between Member States is a legitimate objective recognised by the Court. Moreover, it is settled case-law that, in the absence of any unifying or harmonising measures adopted by the European Union, the Member States retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation, particularly with a view to eliminating double taxation (judgment in DMC , C‑164/12, EU:C:2014:20, paragraphs 46 and 47).
47. Since no direct link has been established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, the legislation at issue cannot be justified by the need to preserve the coherence of the national tax regime.
48. It is true that the Court has recognised that the need to maintain the coherence of a tax system can justify a restriction on the exercise of the freedoms of movement guaranteed by the Treaty. However, for an argument based on such a justification to be accepted, the Court requires a direct link to be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, with the direct nature of that link falling to be examined in the light of the objective pursued by the rules in question (see, to that effect, judgments in Papillon , C‑418/07, EU:C:2008:659, paragraphs 43 and 44, and Commission  v Germany , C‑211/13, EU:C:2014:2148, paragraph 55).
49. There is no such direct link when it is a question, in particular, of different taxes or the tax treatment of different taxpayers (judgment in DI. VI. Finanziaria di Diego della Valle & C. , C‑380/11, EU:C:2012:552, paragraph 47). That is the position in the present case, since the deduction of the annuities by the debtor and the taxation of those annuities in the hands of the recipient necessarily concerns different taxpayers.
52. Lastly, in relying without further explanation on the risk of the payments being deducted a second time in the recipient’s State of residence, the German Government does not enable the Court to assess the implications of that argument when it has not been claimed that that risk could not have been avoided through the application of Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums (OJ 1977 L 336, p. 15), in force at the time.