I N D I V I D U. Case C-527/06 R.H.H. Renneberg v Staatssecretaris van Financiën

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1 C-527/06 Renneberg Case C-527/06 R.H.H. Renneberg v taatssecretaris van Financiën ecision date: 16 October 2008 Procedure type: Preliminary ruling AG opinion: Mengozzi, 25 June 2008 Justifications: ouble deduction ecision type: Judgment Legal basis: Art. 39 EC Treaty (Free movement of workers) Other EC Treaty Art. invoked: Art. 56 (Free movement of capital) Other E Legislation: Mutual Assistance irective 77/799/EEC Host tate/home tate: Host tate Keywords: Costs, cross-border workers, disparity, double deduction, employment income, exchange of information (see also administrative assistance), expenses, frontier workers, individual income tax, interest, loan, losses, Mutual Assistance irective, personal and family circumstances, public-service remuneration, real estate, tax base, tax treaty ecision published in: [2008] ECR Authentic language: utch ynopsis ational legislation, under which a non-resident who receives all or almost all of his income in one Member tate cannot deduct from his taxable income the negative rental income relating to a dwelling situated in another Member tate (i.e. mortgage interest, less rentable value of property), while that option is available to residents of the first Member tate, is incompatible with the free movement of workers. Facts Mr. Renneberg was a utch national who moved his residence to Belgium in He bought a dwelling in Belgium, which was financed through a mortgage loan. n 1996 and 1997, he was employed as a civil servant in the etherlands and obtained all his income there. As a non-resident taxpayer, Mr. Renneberg was taxed in the etherlands only in respect of his employment income. n his tax return filed in the etherlands, Mr. Renneberg sought to deduct the negative income from his dwelling situated in Belgium from his employment income. The negative income consisted of the difference between the mortgage interest paid and the rentable value of the dwelling. The utch tax authorities disallowed the deduction, since the dwelling was situated abroad BF

2 Renneberg C-527/06 Legal background and issue The negative income of taxpayers resident in Belgium relating to a dwelling situated therein was not taken into account for the purpose of determining their tax liability in the etherlands, since under the etherlands Belgium tax treaty the etherlands did not have taxing rights over any income from such a dwelling. n contrast, similar negative income of resident taxpayers was deductible. However, the negative income deducted in the etherlands was recaptured if positive foreign income was generated in subsequent taxable periods (recapture rules). The issue was whether or not the utch rules under which the negative income of a non-resident relating to his dwelling situated in Belgium (i.e. mortgage interest, less rentable value of the property) was not deductible from his employment income in the etherlands, even where that non-resident obtained all or almost all his positive income in the etherlands, were compatible with the free movement of workers and the free movement of capital. ecision cope As the case concerned a utch national transferring his residence to Belgium but working in the etherlands, it was decided on the grounds of the free movement of workers. iscrimination/restriction on-residents employed in the etherlands were treated less favourably than residents, as they were not entitled to deduct their negative income from a dwelling situated in Belgium from the income obtained in the etherlands. The possibility to deduct the negative income depended on whether or not the taxpayer was resident in the etherlands, rather than on the allocation of taxing rights under the relevant tax treaty (i.e. taxation based on the situs of property), since under the relevant tax treaty the income derived by residents from immovable property located in Belgium could be included in their utch tax base. nder settled case law, in order for the tax rules in question to be deemed compatible with the free movement of workers, the difference in treatment must concern situations which are not objectively comparable or be justified by imperative requirements in the general interest. The ECJ pointed out that Mr. Renneberg's position was objectively comparable to that of a taxpayer resident in the etherlands, as he derived the major part of his income from employment in the etherlands. n addition, Mr. Renneberg's state of residence (Belgium) was not in a position to grant him the advantages following from his personal and family circumstances, as he had no significant income in that state. The fact that the etherlands refused to take into account his negative income was, therefore, discriminatory. n line with e Groot (C-385/ 00), both Member tates concerned must jointly ensured that the taxpayer s personal and family circumstances have been duly taken into account. Contrary to the utch government s claim, the ECJ held that the disadvantage at issue was not attributable to a disparity between the tax systems of the states of residence and employment. That conclusion was based on the fact that Mr BF 366

3 C-35/08 Busley and Cibrian Renneberg would, in any event, be unable to benefit from the deduction of the negative income in question from his employment income obtained in the etherlands, regardless of whether or not Belgium provided for a similar deduction under its law. Justifications The argument that there could be a risk of a double deduction of the negative income in question in both Member tates was rejected, since that risk could be countered through (i) the recapture rules and (ii) the Mutual Assistance irective 77/799/EEC, which provides a framework for cooperation and exchange of information between the tax authorities of different Member tates. Case C-35/08 Grundstücksgemeinschaft Busley and Cibrian Fernandez v Finanzamt tuttgart-körperschaften ecision date: 15 October 2009 Procedure type: Preliminary ruling AG opinion: o opinion issued Justifications: ocial objectives, territoriality ecision type: Judgment Legal basis: Art. 56 EC Treaty (Free movement of capital) Other EC Treaty Art. invoked: Art. 18 (Right of E citizens to move and reside freely within the E) Other E Legislation: Council irective 88/361/EEC Host tate/home tate: Home tate Keywords: Cash-flow disadvantage, deduction, depreciation, individual income tax, losses, public policy, real estate, social objectives, tax base, territoriality Authentic language: German ynopsis Legislation of a Member tate which denies resident individuals with unlimited tax liability: the possibility to set off rental losses incurred in respect of immovable property situated in another Member tate in the tax year in which those arise, whilst providing for such a possibility with regard to losses from immovable property situated in the first Member tate; and the option to claim the decreasing-balance method of depreciation in respect of property situated in another Member tate, whilst providing for such an option with regard to immovable property situated in the first Member tate; is incompatible with the free movement of capital BF

4 Busley and Cibrian C-35/08 Facts Ms Busley and Mr Cibrian Fernandez, siblings, were panish nationals. They were resident for tax purposes in Germany and their worldwide income was liable to unlimited taxation in Germany. n 1996, they jointly inherited a house in pain, but never lived there. The house was rented from 2001 and sold in n their tax returns for the tax years, Ms Busley and Mr Cibrian Fernandez requested that (i) the limitations on the offsetting of losses from their foreign immovable property not be applied; and (ii) the decreasing-balance method of depreciation be applied to the house in question. The German tax authorities rejected the request on the ground that the house in question was not situated in Germany. Legal background and issue The losses incurred by individuals with unlimited tax liability in Germany from the letting or leasing of immovable property situated in another Member tate could only be set off against income of the same nature arising in that Member tate. nsofar as those losses could not be set off in the same tax year, they could be carried forward and set off against any income of the same nature derived from the same Member tate in subsequent tax years. n contrast, the losses incurred in respect of immovable property situated in Germany could potentially be set off in full in the tax year in which they arose. n addition, for buildings situated in other Member tates, only the straight-line method of depreciation could be used. By contrast, in respect of buildings situated in Germany, it was possible to opt for a decreasing-balance method of depreciation that could, in certain circumstances, result in a lower tax liability. The issue was whether or not the above-mentioned provisions on the set-off of losses and depreciation with regard to immovable property situated in other Member tates were compatible with the free movement of capital. ecision cope Referring to the nomenclature annexed to Council irective 88/361/EEC, which retains an indicative value for the notion of capital movements, and to its settled case law, the ECJ recalled that an inheritance, including one of immovable property, constitutes a movement of capital, except where its constituent elements are confined within a single Member tate. Therefore, the case was decided on the basis of the free movement of capital. iscrimination/restriction The legislation, under which (i) the rental losses from immovable property situated in another Member tate could only be set off against any income derived from property situated in that Member tate, and (ii) the decreasing-balance method of depreciation could not be applied to immovable property situated in another Member tate, resulted in a cash-flow disadvantage for resident individuals who owned immovable property in another Member tate, as opposed to 2011 BF 368

5 C-155/09 Commission v Greece resident individuals who owned immovable property situated in Germany. Accordingly, the legislation in question constituted a restriction on the free movement of capital, as it was likely to deter resident individuals from investing in immovable property situated in other Member tates and from retaining such immovable property. Justifications nder settled case law, in order for the legislation in question to be deemed compatible with the free movement of capital, the difference in treatment must be justified by imperative requirements in the general interest. n addition, the restrictive measure must be proportionate to the objectives pursued. (i) (ii) Territoriality. The legislation in question could not be justified by the principle of territoriality. That principle seeks to establish, in the application of EC law, the need to take into account the limits on the Member tates' powers of taxation. However, that principle cannot be claimed to deny a resident individual of a Member tate the possibility to set off the rental losses in respect of immovable property situated in another Member tate. ocial objectives. The legislation at issue could not be justified based on social objectives, as it was not suitable for the attainment of the objective pursued, i.e. the construction of rental property to satisfy the demand for such housing. Whilst the legislation in question made a clear distinction based on whether or not the housing intended for rent was situated in Germany, it failed to identify the German regions where the shortage of such housing was acute. n addition, the scope of that legislation was not limited to social housing; it applied to any category of rental property Acquisition of immovable property Case C-155/09 Commission of the European Communities v Hellenic Republic ecision date: 20 January 2011 Procedure type: nfringement procedure AG opinion: o opinion issued Justifications: Prevention of property speculation, social objectives, tax avoidance, tax evasion ecision type: Judgment Legal basis: Art. 12 EC Treaty, Art. 18 TFE (Prohibition of discrimination on grounds of nationality) Host tate/home tate: Host tate Keywords: Exemption, immovable property tax, real estate, social objectives, tax incentives Authentic language: Greek BF

6 Commission v Greece C-155/09 ynopsis Legislation of a Member tate which exempts the purchase of a first home in that Member tate from the tax on the transfer of immovable property only where the purchaser (i) is permanently resident in that Member tate or (ii) is not permanently resident there at the time of purchase, but is a national of that Member tate who had worked for at least six years abroad, constitutes a restriction on the freedom of establishment, the free movement of workers and the right of E citizens to move and reside freely in the E. t also results in direct discrimination based on nationality prohibited by E law. Facts The Commission had referred Greece to the ECJ following an infringement procedure in respect of Greece's legislation granting exemption from tax on the purchase of a first home in Greece solely to persons permanently resident in Greece and, under certain conditions, to Greek nationals living abroad, but denying that exemption to non-residents who intend to settle in Greece in the future. Legal background and issue nder Greek law, subject to conditions, the purchase of a first home in Greece was exempt from the tax on the transfer of immovable property where the purchaser (i) was permanently resident in Greece or (ii) was not permanently resident in Greece at the time of purchase, but was a Greek national or a person of Greek origin who had worked for at least six years abroad. The issue was whether or not the above-mentioned provisions were compatible with the right of E citizens to move and reside freely within the E, the freedom of establishment, the free movement of workers and the principle of non-discrimination. ecision cope The case was decided on the basis of the non-discrimination principle, the right of E citizens to move and reside freely within the E, and, in the case of economically active nationals, the freedom of establishment and the free movement of workers. iscrimination/restriction The legislation in question constituted a restriction on the freedom of establishment, the free movement of workers and the right of E citizens to move and reside freely in the E. By making the exemption from the immovable property transfer tax subject to the condition that the purchaser of a first home be permanently resident in Greece, that legislation dissuades non-residents, who are in most cases nationals of other Member tates and EEA countries, from purchasing a first home in Greece with a view to settle there BF 370

7 C-155/09 Commission v Greece t was also held that the granting of the exemption, subject to conditions, only to Greek nationals and persons of Greek origin constituted direct discrimination based on nationality and was prohibited by E law. Justifications The restriction at issue can only be justified by objective requirements in the general interest. n addition, the restrictive measure must be proportionate to the objectives pursued. (i) Prevention of property speculation. The national law did not impose any obligations on the purchaser of immovable property to use it as a permanent residence and did not prohibit him from letting out the property. Accordingly, the legislation at issue was not suitable for the attainment of that objective. Furthermore, that objective could be attained by less restrictive measures than the requirement of permanent residence. (ii) ocial objectives. The tax exemption was granted to all individuals meeting the permanent residence requirement, regardless of the income of the purchaser. Therefore, the legislation at issue was not suitable for supporting low- or middle-income families and for facilitating the purchase of a first home. (iii) Tax evasion. The requirement of permanent residence was not suitable for countering abusive practices, e.g. claiming the exemption in respect of several purchases. That objective could be achieved by less restrictive measures BF