On November 19, 2015 the Court of Justice of the European Union (CJEU) judged in Case C‑632/13 Skatteverket versus Hilkka Hirvonen (ECLI:EU:C:2015: 765).
Does Article 45 TFEU preclude provisions in a Member State’s legislation which mean that a person resident in another Member State — who receives all or almost all his income from the first Member State — can choose between two entirely different regimes of taxation, that is to say, either to be taxed at source at a lower tax rate but without the right to such tax relief as is applicable under the ordinary income tax regime, or to be taxed on his income under the latter regime and thus be able to benefit from the tax relief in question?
The main proceedings and the question referred for a preliminary ruling
· Ms Hirvonen moved to Finland during 2000 after having worked in Sweden all her working life. All her income comes from Sweden in the form of a pension, an annuity and sickness benefit. During the year at issue in the main proceedings, she declared, in Finland, apart from living expenses, only expenses related to the interest paid on a housing loan (‘the interest costs’).
· Under the Convention between Sweden and Finland for the avoidance of double taxation, in the version applicable to the main proceedings, income obtained in Sweden is taxable only in that country. Since Ms Hirvonen did not earn any income in Finland, she was not able to set off her interest costs against income tax in that State.
· For its part, for 2005, the Skatteverket taxed Ms Hirvonen’s income in accordance with the special income tax law, without granting her any deduction for her interest costs.
· Ms Hirvonen, who had opted not to have her income taxed under the ordinary taxation regime, since that regime would have resulted in a higher tax burden than that under the taxation at source regime, even taking into account the deduction of her interest costs, contested that decision before the länsrätten i Stockholms län (County Administrative Court, Stockholm), claiming that she should receive a deduction in respect of her interest costs under the taxation at source regime. That court dismissed the action.
· The Kammarrätten i Stockholm (Administrative Court of Appeal, Stockholm), before which Ms Hirvonen appealed against the decision of the länsrätten i Stockholms län (County Administrative Court, Stockholm), on the basis of EU law, granted her the right to the deduction sought. The Skatteverket then appealed against that judgment before the referring court.
· Before that court, the Skatteverket argues that the deduction of the interest paid on a housing loan is possible only under the ordinary taxation regime, for which non-resident taxpayers may opt. The Court of Justice has confirmed the lawfulness of such a right to choose in its judgment in Gerritse (C‑234/01, EU:C:2003:340). In addition, the situation in the main proceedings is not, in the view of the Skatteverket, comparable to that which gave rise to the judgment in Gielen (C‑440/08, EU:C:2010:148). The purpose and objective of taxation at source, which is recognised as a fundamental principle of international tax law, namely to ease the burden on the taxpayer and to simplify the task of the administration, instituted by the special income tax law, precludes the possibility of deducting expenses and costs incurred.
· The referring court does, however, see certain points of convergence between the main proceedings and the case which gave rise to the judgment in Gielen (C‑440/08, EU:C:2010:148) since, in the latter case, the Court held that the fact that a non-resident taxpayer was able to opt for the taxation regime of resident taxpayers rather than being subject to that applicable to non-resident taxpayers cannot remove the discriminatory nature of a specific tax advantage. None the less, that court notes that, unlike the facts of the case which gave rise to the judgment in Gielen (C‑440/08, EU:C:2010:148), the main proceedings concern a tax advantage which is not specific and that, in Sweden, a non-resident taxpayer may choose between ‘two entirely different regimes’ for the taxation of his income.
· In those circumstances, the Högsta förvaltningsdomstolen (Supreme Administrative Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘Does Article 45 TFEU preclude provisions in a Member State’s legislation which mean that a person resident in another Member State — who receives all or almost all his income from the first Member State — can choose between two entirely different regimes of taxation, that is to say, either to be taxed at source at a lower tax rate but without the right to such tax relief as is applicable under the ordinary income tax regime, or to be taxed on his income under the latter regime and thus be able to benefit from the tax relief in question?’
The CJEU ruled as follows:
In matters of taxation of income, the refusal to grant non-resident taxpayers, who obtain the majority of their income from the source State and who have opted for the taxation at source regime, the same personal deductions as those granted to resident taxpayers under the ordinary taxation regime does not constitute discrimination contrary to Article 21 TFEU where the non-resident taxpayers are not subject to an overall tax burden greater than that placed on resident taxpayers and on persons in a similar situation whose circumstances are comparable to those of non-resident taxpayers.
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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