On June 8, 2016 the Court of Justice of the European Union (CJEU) judged in Case C‑479/14 Sabine Hünnebeck versus Finanzamt Krefeld (ECLI:EU:C:2016:412).
This request for a preliminary ruling concerns the interpretation of Articles 63(1) TFEU and 65 TFEU.
The request has been made in proceedings between Ms Sabine Hünnebeck and the Finanzamt Krefeld (Tax Office, Krefeld), concerning the calculation of the transfer duties payable in respect of the gift of real property in Germany of which Ms Hünnebeck was a joint owner.
Must Article 63(1) TFEU, read in conjunction with Article 65 TFEU, be interpreted as precluding legislation of a Member State which provides that, for the calculation of gift tax, the allowance to be set against the taxable value in the case of a gift of real property situated in that Member State is lower in the case where the donor and the beneficiary had their place of residence in another Member State on the date of execution of the gift than the allowance which would have been applicable if at least one of them had had his or her place of residence in the former Member State on that date, even if other legislation of the Member State provides that, on the application of the beneficiary of the gift, the higher allowance is to be applied, on condition that account is taken of all assets transferred gratuitously by the donor 10 years prior to and within 10 years following the date of execution of the gift?
The dispute in the main proceedings and the question referred for a preliminary ruling
· Ms Hünnebeck and her two daughters are German nationals. They reside in Gloucestershire in the United Kingdom. Ms Hünnebeck has not lived in Germany since 1996. Her daughters have never lived in Germany.
· Ms Hünnebeck was the 50% co-owner of real property situated in Düsseldorf in Germany. By an agreement of 20 September 2011 certified by a notary, Ms Hünnebeck transferred that portion of the property to her daughters in shares of 50% each. It was provided that Ms Hünnebeck would be liable for any gift tax which might become payable on that gift. On 12 January 2012, a lawyer acting as a guardian of Ms Hünnebeck’s daughters, who are minors, granted his approval with respect to the declarations made in the agreement of 20 September 2011.
· By two decisions of 31 May 2012, the Krefeld Tax Office set the amount of transfer duties payable by Ms Hünnebeck in respect of each share at EUR 146 509. In calculating the transfer duties, the Office deducted from the taxable value of each share the personal tax-free allowance of EUR 2 000 granted to persons with limited tax liability.
· Ms Hünnebeck lodged an administrative appeal seeking to obtain, in respect of each of the shares given to her two children, the application of the personal tax-free allowance of EUR 400 000 available to persons with unlimited tax liability pursuant to Paragraph 16(1), point 2, of the ErbStG. That appeal was dismissed. Following that dismissal, Ms Hünnebeck brought an action before the Finanzgericht Düsseldorf (Finance Court, Düsseldorf, Germany) seeking to have that allowance applied. Before that court, Ms Hünnebeck submitted that she had not made a claim to the tax service for the allowance under Paragraph 2(3) of the ErbStG on the ground that that provision, which entered into force after the gifts had been made, was not applicable to her and required that account be taken of gifts made before the gift at issue in the main proceedings.
· The Krefeld Tax Office contended, before that court, that Paragraph 2(3) of the ErbStG ensured that persons with unlimited tax liability and those with limited tax liability were treated equally in all respects.
· The referring court has doubts as to whether Paragraph 16(2) of the ErbStG, also when read in conjunction with Paragraph 2(3) of that law, is compatible with Article 63(1) TFEU and Article 65 TFEU.
· The referring court notes that, in the judgment of 22 April 2010 in Mattner (C‑510/08, EU:C:2010:216), the Court has already ruled on the compatibility with EU law of Paragraph 16(2) of the ErbStG, in a version worded in almost identical terms to the relevant provision at issue in the main proceedings in the present case. The referring court considers that, having regard to that judgment alone, it must uphold the action before it, inasmuch as EU law precludes the combined application of Paragraph 2(1), point 3, and Paragraph 16(2) of the ErbStG, which resulted in the grant to Ms Hünnebeck and to her daughters of a tax-free allowance of EUR 2 000 by reason of the fact that they resided, as at the date of the gift at issue in the main proceedings, in the United Kingdom, whereas that tax-free allowance would have amounted to EUR 400 000, under the combined provisions of Paragraph 2(1), point 1(a), Paragraph 15(1) and Paragraph 16(1), point 2, of the ErbStG, if the donor or the beneficiaries had, as at that same date, been resident in Germany.
· However, the referring court is unsure whether the position is different following the adoption of Paragraph 2(3) of the ErbStG by the German legislature in response to the judgment of 22 April 2010 in Mattner (C‑510/08, EU:C:2010:216).
· With reference to the line of authority established by the judgments of 12 December 2006 in Test Claimants in the FII Group Litigation (C‑446/04, EU:C:2006:774, paragraph 162), of 18 March 2010 in Gielen (C‑440/08, EU:C:2010:148, paragraph 53), and of 28 February 2013 in Beker (C‑168/11, EU:C:2013:117, paragraph 62), the referring court takes the view that, while the Court has not yet ruled on that point, it has nonetheless held that a national law that is optional may be contrary to EU law. Consequently, that court considers it likely that the adoption of Paragraph 2(3) of the ErbStG is not capable of remedying the incompatibility of Paragraph 16(2) of the ErbStG with EU law on the ground, in particular, that that latter provision is automatically applied in the absence of an application by the taxable person.
· The referring court also questions whether the rule set out in Paragraph 2(3) of the ErbStG is compatible with EU law.
· First, under that provision, the beneficiary can make an application for the higher tax-free allowance only if, at the time of the transfer, the deceased, the donor or the beneficiary was resident in the territory of a Member State of the European Union or in a State to which the EEA Agreement applies, whereas the Court, in its judgment of 17 October 2013 in Welte (C‑181/12, EU:C:2013:662) held that the provisions of EU law preclude legislation of a Member State relating to the calculation of inheritance tax which provides, in the event of inheritance of immovable property situated in that State, for the application of a tax-free allowance, in a case where, at the time of the death, the deceased and the heir had a permanent residence in a third country, which was less than the allowance which would have been applied if at least one of them had been resident in that Member State at that time.
· Second, the referring court states that, in the case of multiple transfers from a single person in the 10 years preceding and the 10 years following the transfer of the assets, the second sentence of Paragraph 2(3) of the ErbStG requires that those multiple transfers also be treated as subject to unlimited tax liability and aggregated in accordance with Paragraph 14 of the ErbStG. Thus, whereas, in the case of taxable persons covered by Paragraph 2(1), point 1, of the ErbStG, the allowance applies to all the assets transferred by the same person within a period of 10 years, the period taken into account in the case of taxable persons covered by Paragraph 2(3) is 20 years.
· In those circumstances, the Finanzgericht Düsseldorf (Finance Court, Düsseldorf) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘Must Article 63(1) TFEU, read in conjunction with Article 65 TFEU, be interpreted as precluding legislation of a Member State which provides that, for the calculation of gift tax, the allowance to be set against the taxable value in the case of a gift of real property situated in that Member State is lower in the case where the donor and the beneficiary had their place of residence in another Member State on the date of execution of the gift than the allowance which would have been applicable if at least one of them had had his or her place of residence in the former Member State on that date, even if other legislation of the Member State provides that, on the application of the beneficiary of the gift, the higher allowance is to be applied, on condition that account is taken of all assets transferred gratuitously by the donor 10 years prior to and within 10 years following the date of execution of the gift?’
The CJEU judged as follows:
Articles 63 TFEU and 65 TFEU must be interpreted as precluding rules of national law that provide, in respect of gifts between non-residents, in the absence of a specific request by the beneficiary, for recourse to a method of calculation of taxation by application of a lower tax-free allowance. Those articles also preclude, in any event, rules of national law which provide, at the request of such a beneficiary, for recourse to a method of calculation of taxation by application of a higher tax-free allowance which applies to gifts in respect of which at least one party is a resident, the exercise of that option by the non-resident beneficiary involving the aggregation, for the purpose of the calculation of tax due on the gift in question, of all the gifts received by that beneficiary from the same person over the course of the 10 years preceding and the 10 years following that gift.
For further information click here to be forwarded to the text of the judgment as published on the website of the CJEU, which will open in a new window.
The opinion in this case as delivered on February 18, 2016 by Advocate General Wathelet can be found here.
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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