ECJ Rules In Favour Of Dutch Government In Wealth Tax Case

by Ulrika Lomas, Tax-News.com, Brussels

07 July 2005

In something of a surprise decision this week, the European Court of Justice ruled that the Dutch government has not breached European rules on the free movement of capital by denying a German national the right to claim a preferential rate of wealth tax.

The case arrived at the ECJ after a German taxpayer, known as 'D' had requested to be taxed in the Netherlands on his Dutch source assets as if he were a Dutch resident. The Netherlands' wealth tax gives resident taxpayers an allowance not available to non-residents unless 90% or more of their estate is in the Netherlands. However the German individual had only 10% of his wealth in the Netherlands.

'D' argued that a double tax treaty between the Netherlands and Belgium, which allows Belgian treaty beneficiaries to enjoy the same reduction as Dutch residents, was not available in the less beneficial Netherlands-Germany treaty, and therefore breached the Treaty of Rome by distorting the free movement of capital within the EU.

Surprisingly, the ECJ disagreed with the opinion of advocate-general Damaso Ruiz-Jarabo Colomer, delivered last October, and held that the individual was not comparable to a Dutch resident, as he held only a minor part of this wealth there. The Court decided that the allowance given to Dutch residents was given because all of their worldwide wealth was taxed. The ECJ also ruled that a German individual is not in a comparable position to a Belgian as the double tax treaty with Belgium has different terms to that with Germany.

Commenting on the the decision, Bill Dodwell, head of Tax Policy Group for the professional services firm Deloitte UK, observed that:

“It is unusual for the ECJ to over-rule the Advocate General’s opinion, as they have done in this case. This case could have been significant in allowing non-resident taxpayers to scrutinise the taxing country’s various double tax treaties and to argue that they should be treated in line with the most favourable.

"As the decision has gone against the taxpayer, such arguments now look less likely to succeed. Companies are of course different from individuals, so it seems likely such arguments will continue to be made – but perhaps now with less prospect of success.”

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