Case C‑440/08, Gielen v Staatssecretaris van Financiën

This reference for a preliminary ruling concerned the interpretation of Art. 43 EC. The reference had been made in the context of a dispute between Mr Gielen and the State Secretary for Finance in relation to income tax for 2001.


Art. 2.1(b) of the Law on income tax of 2001 provided that natural persons who were not resident in the Netherlands but who received income from that country were liable to income tax. In accordance with Art. 3.2 of the Law of 2001, taxable profit was the profit which the taxable person derived as a business operator from one or more undertakings, minus the selfemployed person’s deduction. Under Art. 3.76(2) of the Law of 2001, the amount of that deduction depended on the amount of the profit, determined in accordance with the table laid down in that provision, which operated degressively. The deduction amounted to EUR 6 084 for profit of less than EUR 11 745 and fell in stages to a minimum amount of EUR 2 984 for profits in excess of EUR 50 065. In accordance with Art. 3.76(1) of the Law of 2001, the right to the self-employed person’s deduction was subject, inter alia, to an “hours test’.

According to Art. 3.6 of that law, the hours test corresponded to the provision during the calendar year of at least 1 225 hours of work for one or more undertakings from which the taxable person derived profit as a business operator. In order to determine whether a nonresident taxable person satisfied that test, account was taken only of hours worked for the part of an undertaking operated in a permanent establishment in the Netherlands. However, a nonresident taxable person who was subject to the tax regime of another Member State in which he was resident might opt, in accordance with Art. 2.5(1) of the Law of 2001, to be made subject to the regime applicable to resident taxable persons.

The Hoge Raad (Supreme Court) of the Netherlands asked, in essence, whether Art. 49 TFEU precluded national legislation which, in relation to the granting of a tax advantage, such as the selfemployed person’s deduction, was potentially discriminatory towards nonresident taxable persons, even though the latter might take advantage of the option to be treated as resident taxable persons provided for in that legislation in order to benefit from that tax advantage.

The Court reiterated that although direct taxation fell within their competence, the Member States must none the less exercise that competence consistently with European Union law (see, inter alia, C-347/04, Rewe Zentralfinanz [2006], on which I wrote this post). The Court also reiterated that the rules regarding equal treatment forbid not only overt discrimination by reason of nationality but also all covert formed of discrimination which, by the application of other criteria of differentiation, led in fact to the same result. Furthermore, discrimination could arise only through the application of different rules to comparable situations or the application of the same rule to different situations (see, inter alia, Case C279/93 Schumacker [1995])

The Court held that, with regard to satisfaction of the “hours test” for the purposes of the selfemployed person’s deduction, the national legislation at issue in the main proceedings treats taxable persons differently depending on whether or not they were resident in the Netherlands. Such a difference in treatment risked operating primarily to the detriment of nationals of other Member States, since nonresidents were most often nonnationals.

However, the Hoge Raad pointed out that the selfemployed person’s deduction was not related to the personal capacity of taxable persons but rather to the nature of their activity. That deduction was granted to business operators whose main activity was running their business, which was demonstrated, inter alia, by satisfying the “hours test’. The Court held that in so far as that deduction was granted to all taxable business operators who had satisfied that test, inter alia, it must be held that it was not relevant in that regard to make a distinction according to whether those business operators performed their work in the Netherlands or in another Member State.

Consequently, for the purposes of the selfemployed person’s deduction, the situation of non-resident taxable persons was comparable to that of resident taxable persons (see, to that effect, Case C234/01 Gerritse [2003] and Case C346/04 Conijn [2006]).

The Court concluded that Article 49 TFEU precluded national legislation which, in relation to the granting of a tax advantage, such as the selfemployed person’s deduction at issue in the main proceedings, was discriminatory towards nonresident taxable persons, even though those taxable persons might opt for the regime applicable to resident taxable persons in order to benefit from that tax advantage.