Egon Schempp v Finanzamt München V.

• Jurisdiction: European Union
• Celex Number: 62003CJ0403
• ECLI: ECLI:EU:C:2005:446
• Date: 12 July 2005
• Docket Number: C-403/03
• Writing for the Court: Ó Caoimh
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling

Case C-403/03

Egon Schempp

v

Finanzamt München V

(Reference for a preliminary ruling from the Bundesfinanzhof)

(Citizenship of the Union –– Articles 12 EC and 18 EC –– Income tax –– Deductibility from taxable income of maintenance paid by a taxpayer resident in Germany to his former spouse resident in Austria –– Proof of taxation of the maintenance payments in that Member State)

Opinion of Advocate General Geelhoed delivered on 27 January 2005

Judgment of the Court (Grand Chamber), 12 July 2005

Summary of the Judgment

1. Citizenship of the European Union — Provisions of the Treaty — Material scope — Exclusion of purely internal situations — National tax legislation relating to the deductibility of maintenance payments from taxable income — Taking into account of the fiscal treatment of maintenance paid to a recipient residing in another Member State — Not a purely internal situation

(Art. 17 EC)

2. Citizenship of the European Union — Equal treatment — Discrimination on grounds of nationality — Right to move and reside freely within the territory of the Member States — National legislation under which the deductibility from taxable income of maintenance paid to a recipient residing in another Member State is subject to its being taxed in that State — Whether permitted

(Arts 12 EC and 18(1) EC)

1. Citizenship of the Union, established by Article 17 EC, is not intended to extend the material scope of the Treaty to internal situations which have no link with Community law. The situation of a national of a Member State who has not made use of the right to freedom of movement cannot however, for that reason alone, be assimilated to a purely internal situation.

In the case of national tax legislation which, for the purposes of determining the deductibility of maintenance paid by a taxpayer resident in the Member State concerned to a recipient resident in another Member State, takes account of the fiscal treatment of those payments in the Member State of residence of that recipient, the exercise by the recipient of the right to move and reside freely in another Member State under Article 18 EC influences the taxpayer’s right of deduction in his Member State of residence.

Such a situation cannot therefore be regarded as an internal situation with no connection with Community law.

(see paras 20, 22, 24-25)

2. The first paragraph of Article 12 EC and Article 18(1) EC must be interpreted as not precluding a taxpayer resident in a Member State from being unable under national legislation to deduct from his taxable income in that Member State the maintenance paid to his former spouse resident in another Member State in which the maintenance is not taxable, where he would be entitled to do so if his former spouse were resident in the same Member State.

Article 12 EC is not concerned with any disparities in treatment, for persons and undertakings subject to the jurisdiction of the Community, which may result from divergences existing between the various Member States, so long as they affect all persons subject to them in accordance with objective criteria and without regard to their nationality.

Moreover, the Treaty offers no guarantee to a citizen of the Union that transferring his activities to a Member State other than that in which he previously resided will be neutral as regards taxation. Given the disparities in the tax legislation of the Member States, such a transfer may be to the citizen’s advantage in terms of indirect taxation or not, according to circumstances. The same principle applies a fortiori to a situation in which the person concerned has not himself made use of his right of movement, but claims to be the victim of a difference in treatment following the transfer of his former spouse’s residence to another Member State.

(see paras 34, 45-47, operative part)

JUDGMENT OF THE COURT (Grand Chamber)

12 July 2005 (*)

(Citizenship of the Union – Articles 12 EC and 18 EC – Income tax – Deductibility from taxable income of maintenance paid by a taxpayer resident in Germany to his former spouse resident in Austria – Proof of taxation of the maintenance payments in that Member State)

In Case C‑403/03,

REFERENCE under Article 234 EC for a preliminary ruling from the Bundesfinanzhof (Germany), made by decision of 22 July 2003, received at the Court on 29 September 2003, in the proceedings

Egon Schempp

v

Finanzamt München V,

THE COURT (Grand Chamber),

composed of V. Skouris, President, P. Jann, C.W.A. Timmermans and A. Rosas, Presidents of Chambers, C. Gulmann, J.‑P. Puissochet, A. La Pergola, R. Schintgen, N. Colneric, J. Klučka, U. Lõhmus, E. Levits and A. Ó Caoimh (Rapporteur), Judges,

Advocate General: L.A. Geelhoed,

Registrar: R. Grass,

having regard to the written procedure,

after considering the observations submitted on behalf of:

– Mr Schempp, by J. Seest, Rechtsanwalt,

– the German Government, by W.‑D. Plessing and A. Tiemann, acting as Agents,

– the Netherlands Government, by H.G. Sevenster and C.A.H.M. ten Dam, acting as Agents,

– the Commission of the European Communities, by K. Gross and R. Lyal, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 27 January 2005,

gives the following

Judgment

1 This reference for a preliminary ruling concerns the interpretation of Articles 12 EC and 18 EC.

2 The reference was made in the course of proceedings between Mr Schempp and the Finanzamt München V (Munich V Tax Office, ‘the Finanzamt’), concerning the latter’s refusal to regard the maintenance paid by Mr Schempp to his former spouse resident in Austria as special expenditure deductible in respect of income tax.

Law

3 Under Paragraph 10(1)(1) of the Einkommensteuergesetz (Law on Income Tax, ‘the EStG’), the following expenditure constitutes ‘special expenditure’ if it is neither operating expenditure nor advertising costs:

‘Maintenance payments to a divorced or separated spouse who is subject to unlimited income tax liability, if the debtor applies for this with the consent of the recipient, up to DEM 27 000...