(June 18, 2015)

On June 18, 2015 the European Court of Justice (CJEU) ruled in Case C‑9/14 Staatssecretaris van Financiën versus D.G. Kieback (ECLI:EU:C:2015:406).

·        Must Article 39 EC be interpreted as meaning that the Member State where a taxpayer engages in paid employment is, when charging income tax, to take the personal and family circumstances of the interested party into account in circumstances where (i) that taxpayer worked only for a part of the tax year in that Member State while living in another Member State, (ii) received all or almost all of his income in that State of employment, (iii) has left, in the course of the relevant year, to live and work in another State, and (iv) when the tax year is considered as a whole, he did not receive all or almost all of his income in the State of employment?

·        Does it make a difference to the answer to the first question whether the State where the worker has gone to live and work during the course of the tax year is not an EU Member State?

The dispute in the main proceedings and the questions referred for a preliminary ruling.

·        Mr Kieback is a German national. From 1 January to 31 March 2005, when he left to work in the United States, Mr Kieback worked in the Netherlands, but resided in Germany, where he possessed a dwelling as owner.

·        Had he continued in his employment in the Netherlands during the whole of 2015, he would have been able, despite being a non-resident in that Member State, to deduct the ‘negative income’ relating to his dwelling and resulting from the expenses incurred in relation to the loan taken out for its acquisition from the taxable income from his employment for that year provided that he had received, in that Member State, the major part of his income during that year.

·        Having established that Mr Kieback had received the major part of his income for 2005 in the United States, the Netherlands tax authorities taxed him on the income he received in the Netherlands for that year, without taking account of the ‘negative income’ relating to his dwelling.

·        Following the rejection of the challenge brought before those authorities, Mr Kieback brought the case before the Rechtbank te Breda (District Court, Breda), which upheld his application. On appeal, the Gerechtshof te ʼs-Hertogenbosch (Regional Court of Appeal, ʼs-Hertogenbosch) upheld, on 23 March 2012, the decision given at first instance.

·        The Staatssecretaris van Financiën appealed on a point of law before the referring court on the basis that, in accordance with the Court’s case-law, the granting to non-residents of tax advantages linked to personal and family circumstances, on the same footing as residents, is mandatory only if at least 90% of the worldwide income of the interested party is taxable in his State of employment and that that standard must be assessed on an annual basis in that State.

·        The referring court is uncertain whether, in circumstances such as those of the case in the main proceedings, in determining whether the taxpayer receives all or almost all of his income in the State of employment, it is not the situation that exists during the whole of the tax year that should to be taken into consideration, but solely the situation corresponding to the period in which the taxpayer resided in a Member State, namely the Federal Republic of Germany, and worked in another Member State, namely the Kingdom of the Netherlands. Although that approach seems to it to be the most logical, the referring court nevertheless harbours doubts in view of the Commission Recommendation 94/79/EC of 21 December 1993 on the taxation of certain items of income received by non-residents in a Member State other than that in which they are resident (OJ 1994 L 39, p. 22). Article 2(2) of that recommendation refers to the total taxable income of a calendar year.

·        In those circumstances, the Hoge Raad der Nederlanden (Supreme Court of the Netherlands) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

(1)    Must Article 39 EC be interpreted as meaning that the Member State where a taxpayer engages in paid employment is, when charging income tax, to take the personal and family circumstances of the interested party into account in circumstances where (i) that taxpayer worked only for a part of the tax year in that Member State while living in another Member State, (ii) received all or almost all of his income in that State of employment, (iii) has left, in the course of the relevant year, to live and work in another State, and (iv) when the tax year is considered as a whole, he did not receive all or almost all of his income in the State of employment?

(2)    Does it make a difference to the answer to the first question whether the State where the worker has gone to live and work during the course of the tax year is not an EU Member State?

The CJEU ruled as follows:

Article 39(2) EC must be interpreted as not precluding a Member State, for the purposes of charging income tax on a non-resident worker who has pursued his occupational activity in that Member State during part of the year, from refusing to grant that worker a tax advantage which takes account of his personal and family circumstances, on the basis that, although he received, in that Member State, all or almost all his income from that period, that income does not form the major part of his taxable income for the entire year in question. The fact that that worker left to pursue his occupational activity in a non-member State and not in another EU Member State does not affect that interpretation.

For further information click here to be forwarded to the text of the ruling as published on the website of the CJEU, which will open in a new window.

Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).

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