Case C-11/07, Eckelkamp

>> Court finds Belgian rules concerning the assessment of inheritance duties and transfer duties incompatible with Articles 56 and 58 EC

This case is largely similar to C-43/07, Arens-Sikken (delivered the same day), on which I wrote this post.

The referring court asked whether Arts 12, 17 and 18 EC and Arts 56 and 58 EC precluded legislation of a Member State concerning the assessment of transfer and inheritance duties payable in respect of an immovable property situated in that Member State which made no provision for the deductibility of debts secured on such property where the person whose estate was being administered was residing, at the time of death, not in that State, in which the immovable property was situated, but in another Member State, whereas provision was made for such deductibility where the person concerned was, at the time of death, residing in the first-mentioned State.

The Court of justice reiterated that in the absence of a definition in the EC Treaty of “movement of capital” for the purposes of Art. 56(1) EC, the nomenclature annexed to Directive 88/361 had indicative value, subject to the qualification, contained in the introduction to the nomenclature, that the list set out therein was not exhaustive (see
Case C-513/03 van Hilten-van der Heijden [2006]; Case C-452/04 FidiumFinanz [2006]; Joined Cases C-463/04 and C-464/04, Federconsumatori and Others [2007]; and Case C-256/06 J├Ąger [2008]).

The Court of Justice held that an inheritance was a movement of capital for the purposes of Art. 56 EC, except in cases where its constituent elements were confined within a single Member State. The present case clearly did not concern a situation purely internal to a Member State.

The Court reiterated that in order for national tax rules such as those at issue in the main proceedings to be considered compatible with Articles 56 and 58 EC, the difference in treatment must concern situations which were not objectively comparable or be justified by overriding reasons in the general interest. That difference in treatment could not be justified on the ground that it concerned situations which were not objectively comparable (
Case C-35/98 Verkooijen [2000]; Case C-319/02 Manninen [2004]).

Where national legislation placed the heirs of a person who, at the time of death, had the status of resident and those of a person who, at the time of death, had the status of non-resident on the same footing for the purposes of taxing an inherited immovable property which was situated in the Member State concerned, that legislation could not, without giving rise to discrimination, treat those heirs differently in the taxation of that property so far as concerned the deductibility of charges secured on it. By treating the inheritances of those two categories of persons in the same way (except in relation to the deduction of debts) for the purposes of taxing their inheritance, the national legislature had in fact admitted that there was no objective difference between them in regard to the detailed rules and conditions relating to that taxation which could justifiy different treatment. (see
Case 270/83 Commission v France [1986], and Case C-170/05 Denkavit Internationaal and Denkavit France [2006]).

The Court held that a citizen could not be deprived of the right to rely on the provisions of the Treaty on the ground that he was profiting from tax advantages which were legally provided for by the rules in force in a Member State other than his State of residence.

Furthermore, the Member State in which the immovable property included in the estate was situated could not, in order to justify a restriction on the free movement of capital arising from its legislation, rely on the existence of a possibility, beyond its control, of a tax credit being granted by another Member State, which could, wholly or partly, offset the loss incurred by that person’s heirs as a result of the fact that, in the Member State in which the property inherited was situated, debts secured on that property were not deductible for the purposes of assessing transfer duties.

A Member State could not rely on the existence of a tax advantage granted unilaterally by another Member State in order to escape its obligations under the Treaty and, in particular, under the Treaty provisions relating to the free movement of capital.

Having regard to the foregoing, the Court found there was no need to answer the question referred for a preliminary ruling in so far as it concerned the interpretation of Arts 12 EC, 17 EC and 18 EC.

Text of Judgment