(February 24, 2015) 

On February 24, 2015 the European Court of Justice (CJEU) ruled in Case C-512/13; C.G. Sopora versus Staatssecretaris van Financiën (ECLI:EU:C:2015:108).

1)     Can an indirect distinction on the basis of nationality or an impediment to the free movement of workers — requiring justification — be said to exist if the legislation of a Member State allows the tax-free reimbursement of extraterritorial expenses for incoming workers and a worker who, in the period prior to his employment in that Member State, lived outside that Member State at a distance of more than 150 kilometres from the border of that Member State may, without the provision of further proof, be granted tax-free reimbursement of expenses calculated on a flat-rate basis, even if that amount exceeds the extraterritorial expenses actually incurred, whereas, in the case of a worker who, during that period, lived within a shorter distance of that Member State, the extent of the tax-free reimbursement is limited to the demonstrable actual amount of the extraterritorial expenses?

2)     If Question 1 is to be answered in the affirmative: is the relevant Netherlands rule, as laid down in the Decision of 17 May 1965 implementing the 1964 Law on Wages Tax, based on overriding reasons in the public interest?

3)     If Question 2 is also to be answered in the affirmative: does the 150-kilometre criterion in that rule go further than is necessary to attain the objective pursued?’

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

·       Mr Sopora was employed in the Netherlands from 1 February 2012 to 31 December 2012 by a company associated with his employer established in Germany. During the 24-month period prior to his recruitment in the Netherlands, Mr Sopora had his place of residence in Germany, at a distance of less than 150 kilometres from the Netherlands border. Thereafter, he remained resident in Germany, whilst renting a flat in the Netherlands in which to stay during part of the week.

·       Mr Sopora and his employer requested the competent authority to apply the flat-rate rule.

·       By decision of 11 April 2012, confirmed after Mr Sopora had lodged an objection, that authority found that Mr Sopora did not satisfy the requirement that, for more than two-thirds of the 24-month period prior to his recruitment in the Netherlands, he must have resided at a distance of more than 150 kilometres from the Netherlands border.

·       Mr Sopora brought an action against that decision before the Rechtbank te Breda (District Court, Breda). That court dismissed his action after finding, in particular, that the requirement that the worker had to reside at such a distance from the Netherlands border was not contrary to EU law.

·       Mr Sopora brought an appeal in cassation against the decision of the Rechtbank te Breda before the Hoge Raad der Nederlanden (Supreme Court of the Netherlands).

·       In the order for reference, the Hoge Raad asks whether the flat-rate rule is compatible with EU law.

·       It indicates, first of all, that the Netherlands legislature had stated that workers coming from other Member States generally experience a higher cost of living than do workers who have for a long time been established in the Netherlands. In order to avoid any dispute as to the level of those expenses, the legislature initially wished to make the flat-rate rule applicable to workers belonging to the first group in every case and without the need for further proof.

·       The referring court then sets out the reasons why the criterion based on a distance of more than 150 kilometres from the Netherlands border was introduced as from 1 January 2012.

·       It states that the flat-rate rule had been used more widely than had been envisaged at the time of its adoption, and that this gave rise to a distortion of competition in the cross-border region to the detriment of workers resident in the Netherlands. Employers established in that Member State made greater use of workers residing outside the country, to whom they could pay a lower salary as a result of the application of the flat-rate rule, while at the same time ensuring that those workers would have a higher net income for the same work. The national legislature wished to rectify that situation by excluding from the benefit of the flat-rate rule workers who could be assumed to incur limited, or even no, extraterritorial expenses inasmuch as they could travel each day from their place of residence to their place of work and back again. The national legislature for that reason introduced the criterion based on a distance of 150 kilometres as the crow flies between the worker’s place of residence in the Member State of origin and the Netherlands border. The national legislature took the view that, beyond such a distance, a worker could not travel to and from his place of work on a daily basis.

·       According to the referring court, the national legislature has acknowledged that, for workers residing in the Member State of origin at a distance of less than 150 kilometres from the Netherlands border, the distance separating them from their place of work may vary considerably. The legislature, however, formed the view that taking into account the distance between the place of work in the Netherlands and the place where the worker resided in the Member State of origin prior to his recruitment in the Netherlands would have led to implementation problems for the tax authorities.

·       Finally, the referring court asks whether the distance criterion adopted results in a distinction being made between comparable situations and, in the event that it creates an impediment to the free movement of workers, whether that impediment can be justified.

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

‘(1) Can an indirect distinction on the basis of nationality or an impediment to the free movement of workers — requiring justification — be said to exist if the legislation of a Member State allows the tax-free reimbursement of extraterritorial expenses for incoming workers and a worker who, in the period prior to his employment in that Member State, lived outside that Member State at a distance of more than 150 kilometres from the border of that Member State may, without the provision of further proof, be granted tax-free reimbursement of expenses calculated on a flat-rate basis, even if that amount exceeds the extraterritorial expenses actually incurred, whereas, in the case of a worker who, during that period, lived within a shorter distance of that Member State, the extent of the tax-free reimbursement is limited to the demonstrable actual amount of the extraterritorial expenses?

(2) If Question 1 is to be answered in the affirmative: is the relevant Netherlands rule, as laid down in the Decision of 17 May 1965 implementing the 1964 Law on Wages Tax, based on overriding reasons in the public interest?

(3) If Question 2 is also to be answered in the affirmative: does the 150-kilometre criterion in that rule go further than is necessary to attain the objective pursued?’

The CJEU ruled as follows:

Article 45 TFEU must be interpreted as not precluding national legislation, such as that at issue in the main proceedings, by which a Member State provides that workers who resided in another Member State prior to taking up employment in its territory are to be granted a tax advantage consisting in the flat-rate exemption of reimbursement of extraterritorial expenses in an amount up to 30% of the taxable base, on condition that those workers resided at a distance of more than 150 kilometres from its border, unless — and this is a matter for the referring court to ascertain — those limits were set in such a way that that exemption systematically gives rise to a net overcompensation in respect of the extraterritorial expenses actually incurred.

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

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