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Replies to the questionnaire

Meeting in Beaulieu sur Mer on 19th and 20th of October 2010

Dr. Torsten Lohmann
Bremen, Germany

Results of the Questionnaire :

Direct taxation of natural persons and European Law

The discussion of European Tax Law usually focuses on the impact of community law on corporate income tax. This is demonstrated by the names of famous cases like “Cadbury Schweppes”, “Marks & Spencer” or “Lidl Belgium”.

This may lead to the wrong impression, that community law, in particular the basic freedoms, has only a limited impact on personal income tax. But this is not true.

Citizens work – employed or self-employed- in other member states. They invest their money in other member states. They send their children to schools in other member states and engage themselves in many other cross border activities. Activities as such are protected by the basic freedoms.

On the other hand : Member states tend to try to restrict tax benefits to residents. They are very careful concerning cross-border situations.

As a result conflicts between national personal income tax laws and community law arise. As many of the tax cases courts have to deal with concern personal income tax, tax judges have to deal with these conflicts. It depends on their self-conception how such conflicts are solved. As the starting point for all cases before the ECJ is a national procedure, the importance of the approach of national judges is obvious.

Therefore, I thougt that it should be interesting to get an overall picture of the impact of EU-law on the practice of colleagues in different member states.

I received answers to the questionnaire from 11 member states

  • Austria (2),
  • Bulgaria
  • Estonia
  • Finland
  • Germany
  • Greece
  • Italy
  • Latvia
  • Lithuania
  • Luxembourg
  • Netherlands
  • Slovenia
  • Sweden and 
  • Ukraine

Do natural persons as taxpayers question the EU-conformity of provisions of the national law on income tax ? If yes, who, how qualified and with success ?

The picture is different. On one side there are countries as Austria, Finland, Germany, Luxembourg, Netherlands and Sweden, which report an increasing number of cases, in which the Eu-conformity of the national law on personal income tax is questioned.

For Luxembourg, it was stressed that the great number of frontier workers is an important factor for the coming up of such cases.

For Finland it was observed, that information given by consultant firms and the taxpayers’ association has an important impact on the frequency of arguments based on EU-law.

On the other side there are countries as Bulgaria, Estonia, Greece, Latvia, Lithuania, Slovenia where such cases could not be reported.

For Greece it was reported, that the lack of cases concerning direct taxation in contrast to the field of indirect taxation (VAT, customs), may be attributed to the amendments of the national tax legislation following important ECJ case law. Furthermore, the different factual situation was stressed. Different from central European states, in Greece the phenomenon of frontier workers does not exist. As a consequence the specific tax problems of this group do not arise.

Between these to ends of the scales is the position of member states as Italy. Here the EU-conformity of the national law on personal income tax is questioned only rarely. The dependence of taypayers on qualified counsels was stressed.

Summary :

The answers show the factors that are relevant for the relative role of EU-law in personal income tax cases. They are :

  • The geographic situation of the member state that influences the phenomenon of frontier work.
  • The knowledge of consultants, tax advisors and taxpayers’ associations.
  • The economic situation of the citizens that is a condition for cross border activities.
  • The readiness of a member state to draw the necessary consequences from ECJ decisions.

Do courts request preliminary rulings by the ECJ in cases concerning direct taxation of national persons ? If yes, do courts of first instance make such requests ? 

In Austria, Finland, Germany, Luxembourg,Netherlands and Sweden courts of first instance request preliminary rulings of the ECJ. But usually the requests are made by the respective supreme court.

An interesting observation was made for Greece. Requests for preliminary rulings – concerning corporate tax law – were mostly made by courts of first instance.

In Bulgaria, Estonia, Italy, Latvia, Lithuania, Slovenia such requests by courts of first instance did not happen.

Concerning Italy, the lack of professional qualification of the judges of the courts of first and second instance was made responsible for that situation.

Summary :

In principal the answers follow the pattern of the answers to the first question. Courts Judges in “old” member states are using the preliminary ruling procedure. And such requests are made not only by supreme court judges in most of these countries.

But there are interesting exceptions : In Italy the lack of qualification prevents judges of instance courts from making such requests. In Greece, the judges at instance courts seem to be more qualified. They are more active than the courts of last instance.

Do courts suspend judicial proceedings because of pending cases before the ECJ ?

Positive answers came from Austria, Estonia, Finland, Germany, Italy, Latvia, Luxembourg, the Netherlands, Slovenia and Sweden. Besides explicit suspensions of proceedings informal postponements of hearings were observed.

Negative answers came from Bulgaria, Greece, Lithuania.

The question concerned the suspension of proceedings because of pending parallel cases. It seems as if the formulation was not clear enough. The reason for non-supension could be either the lack of relevant cases or the lack of information about the pending ECJ-cases.

Summary :

The question of suspension of judicial proceedings because of other cases pending before the ECJ does only arise when two preconditions are fulfilled :
The outcome of a case pending before the ECJ must be relevant for a concrete litigation.
The parties or the court is informed about the case pending before the ECJ.

Under such circumstances, some codes of procedure provide for suspension of procedures. If such provisions are lacking, courts take an informal approach and just wait for the decision.

Have judges access to information from other member states (e.g. decisions of other national courts) ?

Austrian judges have access to the decisions of German courts. This indicates the important role of the language. Austrian judges further make use of the databases of the Association of the Councils of State and Supreme Administrative Jurisdictions of the EU (www.juradmin.eu). The decions of Austrian tax judges are accessible in FINDOK (https://findok.bmf.gv.at/findok).

As Finnish judges discuss with colleagues from the Nordic countries, besides the language the proximity of countries seems also to be important.

German, Latvian, Lithuanian, Luxembourgish and Dutch judges can use the information that is accessible to the general public. Depending on the facilities of their court German judges can use journals specialized in international tax matters. And as citations demonstrate, they have access to Austrian decisions.

For Greek judges foreign law reviews are available. Furthermore, a review of the the up to date case law including decisions of foreign supreme courts is released by the Greek Council of State.

Judges in Bulgaria, Estonia, Italy, Slovenia and Sweden have no access to information from other member states.

Summary :

Still the approach to European tax law is primarily national. The use of information from other member states is the exception.

One reason is the problem of the need to use foreign languages. Without that problem the use of decisions from courts in other member states is much more easier. This is shown by the example of Austrian and German courts that have access to each others decisions.

Another factor that encourages the exchange of views is the geographic proximity and of course a tradition of co-operation as is demonstrated by the Nordic example.

An interesting model for other countries coul be the practice of the Greek Council of State that publishes a review of decisions including decisions of foreign supreme courts.

The databases of the Association of the Councils of State and Supreme Administrative Jurisdictions of the EU (www.juradmin.eu) still did not reach a stage of development and publicity to be a working tool for tax judges.

Does the ascertainment of facts and/or law constitute a specific problem in “EU-Cases” ? If yes, in which way ?

In Austria and Germany taxpayers’ obligations to provide the administration with facts are higher in cases with foreign connections.

The role of the respective agreements of mutual assistance was stressed.

It was mentioned that the ascertainment of law of other Member States is an issue due to the difficulty to find sources in a usable language (Lithuania, Luxembourg).

The answers from other countries did not mention any specific difficulties.

Summary :

The assumption that lead to this question was, that all cases that are not purely domestical are complicated relating to the facts and perhaps to applicable foreign law.

One answer to this question is given by national tax laws as in Germany or Austria that impose stricter duties on tax payers in non domestic cases.

Another factor thas was stressed is the mutual assistance between member states.

In general, for courts specific problems do to seem to exist in that field. Probably the difficulties of the tax administration to pick up such cases are responsible.

Please mention examples in which the specific fundamental freedoms and discrimination prohibitions were invoked :

First I have to explain my examples that were mostly drawn from German experience. Therefore I shall restrict my report to the answers from other member states.

Freedom of establishment
e.g. :
Subsidy – restriction to houses situated in member state
Exit Tax
Deduction of losses in another member state
Deduction of foreign losses
Different treatment of pension

Deduction of losses
Exit tax regulation (Lack of enforcement)

Requirement of equal treatment - Tax on non-residents’ income

Restriction of tax exemption to lottery prizes from domestic lotteries.
Free movement of capital
e.g. :
Deduction of losses from the letting of properties in other Member States
Deduction of gifts to bodies recognised as charitable established in another Member State
Lump-sum taxation of “black” investment funds
Taxation of foreign capital income
Lump-sum taxation of “black” investment funds

Deduction of gifts to charitable bodies

Refusal of income tax bonification for investments abroadManual word wrap

Restriction of tax deferral to domestic situations.
Freedom to provide services
e.g. :
Deduction of school fees for a private school in another Member State
Exemption from national income tax for teaching in another Member State
Equal treatment of service provider residing in another member state
Free movement of workers
e.g. :
Deduction of negative income relating to the residence in another Member State
Joint assessment of married couples residing in different
Denial of the right to savings pension bonus to cross border workers
Reduction of child benefits
Tax exemption only for employees of Austrian companies.

Tax assessment for divorced persons only for residents
Deduction of negative income relating to the residence in another Member State

Restriction of beneficial rules to Swedish residents
Restriction of basic deduction to residents.
Free movement of Union citizens
e.g. :
Deduction of school fees for a private school in another Member State

Prohibition of discrimination
e.g. :
Denial of the special allowance in respect of a non-resident
Restriction of tax exemption for non distributed profits to domestic companies (corporate tax)

Summary :

The examples that were mentioned show a great variety of cases.

Many cases concern the discrimination of investmens of citizens in other member states. They concern e.g. the deduction of losses, the refusal of income tax bonifications or tax deferrals.

Another area concerns the consequences of employed work in other member states without being a resident in such states. Non-resident taxation in the context of the EU seems to pose many problems that need to be resolved.

A third complex concerns tax benefits that are restricted to domestic facts. The deduction of donations to charitable bodies in other member states is restricted. Domestic lottery prizes receive a preferential treatment.

Would you like to make other observations ?

Other observations were not made by the colleagues.

General Conclusion

The relevance of EU law for personal income tax cases differs between member states. The reasons for the differences are

The economic situation of the citizens of a member state, that allows or demands transborder activities.
The stage of development and specialisation of the judicial system where tax litigations happens.

Specific problems in dealing with the factual and legal aspects of such cases were hardly seen by the colleagues. Those who are aware of the EU-aspect of cases seem to have the means to deal with those cases.

Still the working approach is almost purely national. There are only some first beginnings of an European approach to such cases. ...