Case C‑394/20
XY
v
Finanzamt V
(Request for a preliminary ruling from the Finanzgericht Düsseldorf)
Judgment of the Court (Fifth Chamber), 21December 2021
(Reference for a preliminary ruling– Free movement of capital– Articles63 and 65 TFEU– National legislation on inheritance tax– Immovable property situated on national territory– Limited tax liability– Different treatment of residents and non-residents– Right to an allowance on the taxable value– Proportionate reduction in the case of limited tax liability– Liabilities arising from reserved portions– No deduction in the case of limited tax liability)
1.Free movement of capital and liberalisation of payments– Provisions of the Treaty– Scope– Inheritance tax– Included– Exception– Constituent elements confined to a single Member State
(Art.63 TFEU)
(see paragraphs29, 30)
2.Free movement of capital and liberalisation of payments– Tax legislation– Inheritance tax– Restrictions– National legislation on the calculation of inheritance tax with the effect of reducing the value of the inheritance of a resident of a Member State other than that in which the assets concerned are situated
(Art.63 TFEU)
(see paragraphs32, 58, 60)
3.Free movement of capital and liberalisation of payments– Restrictions– Inheritance tax– National legislation on the calculation of inheritance tax granting an allowance for immovable property situated in that Member State– Heavier tax burden for inheritances between non-residents than for those involving at least one resident– Restriction on the free movement of capital
(Arts63 and 65 TFEU)
(see paragraphs33, 34)
4.Free movement of capital and liberalisation of payments– Restrictions– Prohibition– Exceptions– Applicability– Condition– Distinction between resident and non-resident taxpayers not constituting arbitrary discrimination or disguised restriction
(Art.65 TFEU)
(see paragraphs35, 61)
5.Free movement of capital and liberalisation of payments– Restrictions– Inheritance tax– Calculation of inheritance tax on immovable property situated in a Member State– Reduction, as regards only non-resident heirs of a non-resident deceased, of the allowance on the taxable base– Not permissible– Justification– Need to ensure the coherence of the tax system
(Arts63 and 65 TFEU)
(see paragraphs36, 39-41, 43, 50-55, operative part1)
6.Free movement of capital and liberalisation of payments– Restrictions– Tax legislation– Justification– Need to ensure the coherence of the tax system– Whether permissible– Conditions
(Art.63 TFEU)
(see paragraph46)
7.Free movement of capital and liberalisation of payments– Restrictions– Inheritance tax– Calculation of inheritance tax on immovable property situated in a Member State– Refusal, as regards only non-resident heirs of a non-resident deceased, to deduct liabilities arising from reserved portions affecting immovable property included in the estate– Not permissible– Justification– None
(Arts63 and 65 TFEU)
(see paragraphs62-65, 67, 69, 71-76, operative part2)
Résumé
XY, an Austrian national living in Austria, is the sole legatee of her father, an Austrian national who also lived in Austria and who died in 2018. His wife and son were entitled to the reserved portions.
As the estate comprised, inter alia, immovable property situated in Germany, XY, as a person with limited tax liability in that Member State, submitted an inheritance tax return to the tax authorities, seeking to deduct liabilities arising from those reserved portions, amounting to 43% of their total, as debts under the succession.(1)
When calculating(2) the inheritance tax payable by XY, applying only to immovable property situated in Germany, the tax authorities refused to deduct the liabilities arising from the reserved portions as debts under the succession. They have no economic connection with the immovable property included in the estate. In addition, for the purposes of calculating the inheritance tax, the tax authorities applied a lower allowance than that provided, in principle, for the children of the deceased.
Challenging the calculation of that inheritance tax, XY brought an action before the referring court. That court is unsure as to the compatibility of the provisions of the FEU Treaty on the movement of capital with legislation of a Member State prescribing, in the event of acquisition of immovable property situated on the national territory, where, at the date of death, neither the deceased nor the heir resided in that Member State, different rules as to the amount of the personal allowance that the heir may claim and to the deductibility of liabilities arising from the reserved portions, from those applying where at least one of them resided on that date in that Member State.(3)
Findings of the Court
After finding that inheritance tax such as that charged in the present case falls within the scope of the provisions of the FEU Treaty on the movement of capital, the Court examines, first, whether legislation such as that at issue, in so far as it reduces the allowance on the taxable value in a situation such as that in the main proceedings, constitutes a restriction on the free movement of capital and, if so, whether that restriction may be justified.
Under the national legislation, persons with unlimited tax liability may benefit from the full allowance where the tax charge to which the allowance relates extends to the whole of the estate acquired. By contrast, for persons with limited tax liability, the allowance is reduced in proportion to the share of the estate that is not subject to tax in the Member State in question. Since such legislation leads to a heavier tax burden for the latter, it constitutes a restriction on the movement of capital.
The Treaty allows a distinction to be made between resident and non-resident taxpayers, provided that it does not constitute a means of arbitrary discrimination or a disguised restriction. Accordingly, the difference in treatment must relate to situations which are not objectively comparable or which are justified by an overriding reason in the public interest.
In that regard, the Court notes that the criteria according to which the amount of inheritance tax relating to immovable property in Germany is calculated do not depend on the place of residence. Moreover, for the purposes of collecting inheritance tax relating to immovable property situated in Germany, national law considers the beneficiary of an inheritance between non-residents, such as that of an inheritance involving at least one resident, to be liable, the determination of the class and rate of taxation following from the same rules. The only distinction the national legislation makes between residents and non-residents concerns determination of the taxable enrichment of the heir. The Court infers from this that the national legislature itself considered that, in the light of the detailed rules and conditions governing taxation, there is no objective difference in the situation between the two categories of heirs and finds that the difference in treatment relating to the benefit of the allowance at issue concerns comparable situations.
Next, the Court examines whether the restriction caused by that difference in treatment may be justified by an overriding reason in the public interest, in this instance the need to ensure the coherence of the tax system. Such a justification requires, in particular, a direct link between the granting of the tax advantage concerned and the offsetting of that advantage by a particular tax charge. In the light of the objective pursued by the national legislation, namely to ensure that a part of the family estate is exempted by a reduction in the total amount of the inheritance, the Court finds that that legislation establishes a direct link between the allowance that the heir may rely on and the extent of the tax jurisdiction exercised in relation to the enrichment arising from the inheritance. Since that direct link is appropriate for ensuring attainment of the objective pursued by the legislation in question and does not go beyond what is necessary to achieve that objective, the Court considers the restriction on the movement of capital resulting from such legislation, in so far as it concerns the allowance on the taxable value, to be justified by the need to preserve the coherence of the tax system and compatible with the provisions of the Treaty relating to the free movement of capital.
Secondly, the Court examines whether national legislation such as that at issue restricts movements of capital in that it does not allow the liabilities arising from the reserved portions to be deducted from the value of the inheritance, as debts under the succession, where, at the date of death, neither the deceased nor the heir resided in the Member State concerned, whereas those liabilities may be deducted in full if at least one of them resided, on the same date, in that Member State.
The Court finds, first, that such legislation means that inheritances between non-residents relating to immovable property situated on national territory are subject to a heavier tax burden than those involving at least one resident and has the effect of reducing the value of the inheritance for the first category of heirs. Such legislation therefore constitutes a restriction on the movement of capital.
Examining whether that restriction may be justified where the difference in treatment concerns situations that are not objectively comparable or meets an overriding reason in the public interest, the Court then notes, as regards the amount of inheritance tax payable in respect of immovable property situated in Germany, that there is no objective difference between, respectively, inheritances involving persons who, at the time of death, are not resident in that Member State and inheritances involving persons at least one of whom resides, on that date, in that State. The difference in treatment relating to the deductibility of the liabilities in question therefore concerns objectively comparable situations.
Finally, the Court rejects the justifications put forward by Germany, namely, first, the need to preserve the coherence of the German tax system and, secondly, the application of the principle of territoriality and the need to ensure a balanced allocation of the Member States’ power to impose taxes. Legislation such as that at issue which provides that, in the event of acquisition of immovable property situated on national territory, where, at the date of death, neither the deceased nor the heir resided in that Member State, the debts arising from reserved portions are not deductible, as debts under the succession, from the value of the inheritance, whereas those debts may be deducted in full if at least one of them resided, on that same date, in that Member State, is therefore incompatible with the provisions of the Treaty relating to the free movement of capital.
1According to XY, the proportion of immovable property assets subject to inheritance tax in Germany represented 43% of the total value of the assets in the estate, which also included capital assets and immovable property in Spain.
2On the basis of provisions of national law relating to inheritance tax.
3To that effect, first, the allowance on the taxable value is reduced, in relation to the allowance applied where at least one of them was resident, on the same date, in that Member State, by an amount corresponding to the share that represents the value of the asset that is not subject to taxation in that Member State in relation to the value of the whole estate, and, secondly, the liabilities arising from the reserved portions are not deductible from the value of the inheritance, as debts under the succession, whereas those liabilities may be deducted in full if at least one of them resided, on that date, in that Member State.