Gerritse decision
With the Gerritse ruling , the ECJ confirmed that taxpayers with limited tax liability should not be treated worse than taxpayers with unlimited tax liability.
Facts and subject of dispute
Mr. Arnoud Gerritse , a Dutch citizen with residence in the Netherlands is, in principle, unlimited in the Netherlands tax . He works as a drummer and in 1996 received a fee of around 6,000 DM for a performance in Germany , whereby he incurred costs of around 1,000 DM.
The tax regulations applicable at that time provided that Mr. Gerritse had to pay a flat tax of 25% on the (gross) income (§ 50a Paragraph 4, Paragraph 5 Sentence 4 EStG 1997). In contrast, a person with unlimited tax liability in Germany would have been allowed to deduct income-related expenses from gross income. His request to be treated like a resident taxpayer was rejected because his income in the Netherlands was too high (Section 1 (3) EStG 1996).
In the financial court proceedings, the FG Berlin submitted a preliminary ruling request to the ECJ as to whether Section 50a EStG 1997 is compatible with the freedom of establishment under Article 43 (formerly 52) of the EC Treaty .
Decision of the ECJ
The Court stated in its decision of 12 June 2003 (Rs. C-234/01) initially clear that it is a question of the freedom to provide services (Art. 49, formerly. 59 TEC) IN QUESTION since Gerritse only a temporary power have provided.
He divided the submission into two sub-questions:
- a) the question of the taxation of gross income (without deducting income-related expenses) from the assessment base ,
- b) the question of taking into account the basic allowance and the application of the progressive income tax rate .
Taxation of gross income incompatible with the EC Treaty
The ECJ dealt only very briefly with the first sub-question. Refusing non-residents (limited taxpayers) the deduction of business expenses is an unjustified unequal treatment of comparable situations and discriminates against non-residents.
Tax deduction of 25% is conditionally permitted
On the other hand, the question of whether the application of a fixed tax rate of 25% was permissible or whether the normal tariff including the basic tax allowance and progression should be applied to the income of the person with limited tax liability was dealt with in more detail. Ultimately, the ECJ rejected the action to the extent that the basic tax-free allowance also had to be taken into account for persons with limited tax liability. The basic allowance serves to take into account the subsistence level for tax purposes , for which the country of residence is generally responsible. However, in the case of persons with limited tax liability, the tax must not exceed the tax that would result if the progressive tax rate were applied to the income increased by an amount equal to the basic tax allowance.
