European Union, Belgium and CJEU: Advocate General finds manner of taking income earned in another Member State into account for the calculation of tax payable and advantages granted in Belgium incompatible with freedom of establishment

June 20, 2013

As previously reported, on 13 June 2013, Advocate General Cruz Villalón of the Court of Justice of the European Union (CJEU) gave his opinion in the case of Guido Imfeld, Nathalie Garcet vs. État Belge (C-303/12).

The Court of First Instance Liège (Tribunal de première instance de Liège) had requested a preliminary ruling from the CJEU on 21 June 2012. Details of the opinion are summarized below.


Mr. Imfeld and Mrs. Garcet, a married couple with two children, were resident in Belgium.

With respect to their tax returns for the tax years 2003 and 2004, they filed separately and did not report their marriage.

Mr. Imfeld derived his entire income as a lawyer from Germany.

In his tax return, he reported that he did not have any taxable income in Belgium and that he did not support any persons in Belgium.

Mrs. Garcet, who is employed in Belgium, reported the mortgage interest, the support of two children and the costs of childcare.

Mr. Imfeld, received a tax exemption for children in Germany.

The tax authorities corrected the tax returns and issued a joint assessment, for which also the German income of Mr. Imfeld was taken into account, based on the exemption-with-progression method.

The taxpayers appealed the decision to issue a joint assessment and the decision that the child credit was allocated to the taxpayer with the highest income.

As that applied to Mr. Imfeld’s German income, he could not benefit from the credit.

Legal background

Article 155 of the Belgian Income Tax Code (ITC) provides that foreign self-employed income is exempt in Belgium under the exemption-with-progression method.

Article 132 ITC provides for a tax credit for children. This tax credit is allocated to the taxpayer with the highest taxable income.


The issue was whether it is incompatible with the freedom of establishment that the result of a domestic tax regulation is that a couple, which is resident in that state and derives income from that state and another Member State, is not entitled to a tax benefit due to the conditions which must be met, while this benefit would have been granted if the couple would have derived the biggest part of their income in Belgium.

Advocate General’s opinion

Applicable treaty freedom

Based on the fact that Mr. Imfeld was working as a self-employed person in Germany, the Advocate General (AG) considered that it should be investigated whether the Belgian rules at issue are compatible with article 49 of the Treaty on the Functioning of the EU (TFEU) (freedom of establishment) and not on the basis of article 45 of the TFEU (freedom of movement of employees) as requested by the referring court.

Restriction of the treaty freedoms

The AG observed that a restriction of the freedom of establishment exists because, under the Belgian rules, married couples resident in Belgium are differently treated if a substantial part of their joint income is derived from another Member State.

This could deter Belgian residents from exercising the freedom of establishment by carrying out self-employed activities in another Member State.

In addition, the AG held that the Belgian system could impede residents of other Member States in establishing themselves in Belgium, for example for family reunion, while remaining to exercise their activities in the Member States of which they are a citizen.

The AG observed that the allocation of tax credits to the taxpayer with the highest income aims to grant the maximum benefit.

The AG rejected the argument of the Belgian Government that the fact that this rule turns into a disadvantage if the highest income is derived in another Member State is the result of differences in the tax systems of the EU Member States.

The AG held decisive that, in the case at issue, the couple lost part of their tax benefits due to the fact that those benefits are allocated to the taxpayer with the highest income, also if it concerns exempt income derived in another Member State.

In addition, the AG rejected the argument of the Belgian Government that that benefit was compensated by the fact that the taxpayer was entitled to an exempt amount for children in Germany.

The AG noted that this benefit could be abolished or reduced in Germany and that, in that case, the conditions for granting the child credit in Belgium would remain unchanged.

Furthermore, the AG held that the compatibility of a domestic regulation with EU law cannot depend on the fact of whether the taxpayer receives compensation in another Member State, as the CJEU, inter alia, held in De Groot (Case C-385/00).

The AG held that an infringement of the freedom of establishment exists, in particular because, under the Belgian rules, the child credit is always allocated to the taxpayer with the highest income.

This is also the case if the taxpayer derives exempt income from another Member State, with the result that the benefits of the child credit are lost.


The AG rejected the argument of the Belgian Government that the Belgian regulations can be justified with the aim of realizing a balanced allocation of taxing rights aimed at avoiding a situation where a taxpayer receives comparable tax benefits in two countries.

The AG pointed out that, even if a benefit is derived in two countries, this is the result of the parallel application of the Belgian and German tax systems, as agreed in their tax treaty, and as the CJEU decided in, inter alia, Columbus Container (Case C-298/05), Damseaux (Case C-128/08) and Kerckhaert-Morres (Case C-513/04).

Furthermore, a tax treaty does not oblige the employment state to take the personal and family situation into account, as the CJEU decided in De Groot (Case C-385/00).

Therefore, the AG held that it is not for the CJEU to coordinate domestic tax systems to prevent the situation where a taxable couple, who are taxed in one Member State while the spouse is also taxed in another Member State, enjoys a double benefit, because their personal and family situation is partially taken into account in both states.

Finally, the AG noted that the Belgian tax benefit is not dependent on the granting of a similar benefit in another Member State, but that the benefit in the case of foreign income is merely lost due to the allocation rules.

Consequently, the AG held that the Belgian allocation rules for the granting of child credit are incompatible with the freedom of establishment rule.

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