On June 30, 2016 the Court of Justice of the European Union (CJEU) judged in Case C-123/15 Max-Heinz Feilen versus Finanzamt Fulda (ECLI:EU:C:2016:496).

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 Mr Max-Heinz Feilen and the Finanzamt Fulda (Fulda Tax Office, Germany) concerning the latter’s refusal to grant Mr Feilen the benefit of a reduction in the inheritance tax to which his mother’s estate is subject.

 

Does the free movement of capital guaranteed by Article 63(1) TFEU in conjunction with Article 65 TFEU preclude legislation of a Member State which provides for a reduction in inheritance tax in the case of an inheritance by persons in a particular tax class where the estate includes assets that were already acquired by persons in that tax class during the ten years preceding the acquisition and inheritance tax was assessed in the Member State in respect of this previous acquisition, whereas a tax reduction is excluded where inheritance tax was levied in another Member State in respect of the previous acquisition?

 

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

·        Mr Feilen, who is resident in Germany, is the sole heir of his mother, who died in 2007 in Germany, where she was last resident. His mother’s estate consisted mainly of her share in the estate of her deceased daughter who died in 2004 in Austria, where the mother had also lived until her daughter’s death. The distribution of the daughter’s estate took place in Austria only after the mother’s death, with the result that the inheritance tax on that estate, amounting to EUR 11 961.91, was paid by Mr Feilen.

 

·        In the tax return relating to his mother’s estate, Mr Feilen claimed the inheritance tax paid by him in Austria as a liability of the estate and applied for a reduction, pursuant to Paragraph 27 of the ErbStG, in the amount of inheritance tax due. In its assessment of 28 October 2009, the Fulda Tax Office deducted the inheritance tax paid in Austria as a liability of the estate, but refused to allow any reduction in the inheritance tax.

 

·        The Finanzgericht (Finance Court, Germany) dismissed the action lodged by Mr Feilen against that assessment on the grounds that Paragraph 27(1) of the ErbStG presupposed a previous inheritance that had been taxed under that law. However, that was not the situation in the present case, as the previous acquisition by the mother of her daughter’s estate had not been subject to inheritance tax in Germany because neither the mother nor the daughter was, at the time of the latter’s death, resident in Germany within the meaning of Paragraph 2(1)(1) of the ErbStG, and as the estate did not include domestic assets within the meaning of Paragraph 2(1)(3) of the ErbStG.

 

·        The Bundesfinanzhof (Federal Finance Court, Germany), before which an appeal on a point of law (‘Revision’) has been brought, expresses doubts as to whether Paragraph 27 of the ErbStG is compatible with EU law.

 

·        The Bundesfinanzhof notes, first, that the inheritance which the applicant in the main proceedings received may come within the scope of the EU-law provisions on the movement of capital. According to the Bundesfinanzhof, the inheritance received by Mr Feilen from his mother should not be regarded as a purely domestic transaction because the mother’s assets consist essentially of her share in her daughter’s estate in Austria.

 

·        Second, the referring court states that the refusal to allow a reduction in inheritance tax pursuant to Paragraph 27(1) of the ErbStG might, in the light of the Court’s case-law, constitute a restriction on the movement of capital, since its effect is to reduce the value of an estate which includes an asset which has been subject to foreign inheritance tax. In that regard, the referring court expresses its doubts as to whether, in light of the Court’s judgment of 12 February 2009 in Block (C‑67/08, EU:C:2009:92), the existence of such a restriction is to be excluded.

 

·        Third, the referring court is unsure whether a possible restriction on the free movement of capital resulting from Paragraph 27(1) of the ErbStG is justified under the provisions of the TFEU.

 

·        It was in those circumstances that the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and to refer the following question to the Court:

‘Does the free movement of capital guaranteed by Article 63(1) TFEU in conjunction with Article 65 TFEU preclude legislation of a Member State which provides for a reduction in inheritance tax in the case of an inheritance by persons in a particular tax class where the estate includes assets that were already acquired by persons in that tax class during the ten years preceding the acquisition and inheritance tax was assessed in the Member State in respect of this previous acquisition, whereas a tax reduction is excluded where inheritance tax was levied in another Member State in respect of the previous acquisition?’

 

The CJEU judged as follows:

Articles 63(1) TFEU and 65 TFEU do not preclude legislation of a Member State, such as that at issue in the main proceedings, which provides for a reduction in inheritance tax in the case of inheritance by persons within a particular tax class where the estate includes assets that had already been acquired, by way of inheritance, by persons within that tax class during the 10 years prior to the acquisition, on condition that inheritance tax was levied in that Member State in respect of that earlier acquisition.

 

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.

 

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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