Highlights & Insights on European Taxation (H&I) – Year 2022, no. 2

News & Media
Please find below a selection of articles published this month (February 2022) in Highlights & Insights on European Taxation (H&I), plus one freely accessible article.  

Highlights & Insights on European Taxation (H&I) is a publication by Wolters Kluwer Nederland BV.

The journal offers extensive information on all recent developments in European Taxation in the area of direct taxation and state aid, VAT, customs and excises, and environmental taxes.


To subscribe to the Journal’s page, please click HERE


Year 2022, no. 2



–               Commission’s Communication on the next generation of own resources for the EU Budget

(comments by the Editorial Board)


–               Commission proposes swift transposition of the international agreement on minimum taxation of multinationals

(comments by the Editorial Board)

–               Commission proposed a Directive to end the misuse of shell entities for tax purposes within the EU

(comments by the Editorial Board)


–                XY (C-394/20)Inheritance tax. EU law precludes non-deductibility of debt arising from reserved portions in case of limited tax liability. Court of Justice

(comments by Vassilis Dafnomilis) (H&I 2022/15)


–               Amper Metal (C-334/20)VAT deduction paid for advertising services. Court of Justice

(comments by Jeroen Bijl) (H&I 2022/9)

–               Finanzamt N (C-45/20 & C-46/20)Failure to take an allocation decision before the statutory deadline for submitting the annual turnover-tax return expired. Court of Justice

(comments by Thomas Stapperfend) (H&I 2022/10)

–               CHEP Equipment Pooling (C-396/20)Hungary violates EU law by refunding too little VAT. Court of Justice

(comments by Tamas Feher) (H&I 2022/13)

–               Boehringer Ingelheim (C-717/19)Reduction of the taxable amount. Payments to the state health insurance agency. Court of Justice

(comments by Eszter Kalman) (H&I 2022/25)

–               Kemwater ProChemie (C-154/20)No VAT deduction when supplier has not been identified. Court of Justice

(comments by Michal Radvan) (H&I 2022/11)

… and much more on Highlights & Insights on European Taxation (H&I)!



XY (C-394/20)Inheritance tax. EU law precludes non-deductibility of debt arising from reserved portions in case of limited tax liability. Court of Justice

(comments by Vassilis Dafnomilis) (H&I 2022/15)

Wedged between the OECD’s Pillar 2 model rules and the European Commission’s ATAD 3 proposal, the CJ’s judgment in XY (21 December 2021, C-394/20, ECLI:EU:C:2021:1044) concerned the compatibility with EU law of the granting of proportionate subjective inheritance/gift tax exemptions by the EU Member State of situs/source. This corresponds to the first question addressed to the CJ to which the present contribution is dedicated. Subjective tax exemptions are tax-free allowances or deductions granted to certain beneficiaries or donees due to their kinship with the deceased or the donor. The amount of such exemptions often depends on the proximity of the kinship between the parties involved. For instance, the deceased’s children are often entitled to a greater amount of a tax exemption than the deceased’s brothers. In my view, the granting of the subjective tax exemptions is primarily based on the windfall justification, which in my doctoral thesis I considered the most convincing, complete and unique justification of inheritance and gift tax laws (V. Dafnomilis, Taxation of cross-border inheritances and donations. Suggestions for improvement, Wolters Kluwer 2021). This is because the windfall justification explains why States consider it fair to tax incidental and unexpected receipts of wealth (‘why to tax’) and at the same time to protect the family property when acquired by family members (‘how to tax’). Therefore, and in line with the windfall justification, a subjective tax exemption is granted as a recognition of the fact that the beneficiaries or the donees have contributed to the creation of the deceased’s or donor’s wealth, which makes the transfer of the inherited/donated wealth to them less incidental. 

Previous CJ case law on subjective tax exemptions

Regarding EU law, tensions may exist where the inheritance/gift tax legislation of an EU Member State grants a subjective tax exemption the amount of which is higher when it has worldwide tax jurisdiction (being the State of the personal nexus) than in cases in which it has limited tax jurisdiction (being the State of situs). The CJ has already ruled on the compatibility of such legislation with EU law and, interestingly enough, all of them regarded German inheritance and gift tax legislation. In short, the CJ has ruled the free movement of capital precludes an EU Member State from granting a smaller flat-rate tax allowance in the case of a gift (ECJ 22 April 2010, C‑510/08 Mattner,ECLI:EU:C:2010:216) or an inheritance (CJ 17 October 2013, C-181/12 Welte,ECLI:EU:C:2013:662) of property situated in its territory where the EU Member State has limited taxjurisdiction than in cases where the EU Member State has worldwide tax jurisdiction. Following Mattner and Welte, Germany did not amend its laws in time and was censured by the CJ in Commission v Germany (CJ 4 September 2014, C-211/13, ECLI:EU:C:2014:2148). Once Germany did so, the higher/basic allowance of EUR 400,000 (between relatives belonging to tax class I: children and parents) was available to a non-resident beneficiary subject to limited tax liability in Germany only if he opted for resident taxation in Germany. InHünnebeck (CJ 8 June 2016, C‑479/14, ECLI:EU:C:2016:412), the CJ ruled that such optional resource was incompatible with the free movement of capital. 

The latest attempt of Germany to comply with Welte, but not without cost

XY represents the latest attempt of Germany to comply with Welte in a way that would not result in the non-resident beneficiary with limited liability in Germany being entitled to the higher/basic tax allowance in all cases. In that regard, after Hünnebeck, German inheritance and gift tax laws provided that the basic allowance (EUR 400,000 in the case at hand) will be available pro rata. The amount of the pro-rata allowance, in essence, corresponds to the value of the domestic assets subject to limited tax liability in Germany inrelation to the total sum of assets received via inheritance or donation. As a result, if the non-resident beneficiary has only inherited property located in Germany, he is entitled to the basic tax-free allowance infull. However, if the inheritance includes assets located both in Germany and elsewhere, the basic allowance is reduced by an amount equal to the ratio between value of property not subject to tax in Germany and the worldwide property. The latter took place in the XY case in which the non-resident beneficiary XY (an Austrian resident and national) inherited immovable property located in Germany from her non-resident father (who was also a resident and national in Austria). In such a case, Germany had limited tax jurisdiction over the German property as neither XY nor her mother was a resident in Germany. The property in Germany represented 43% of XY’s inherited property. As a result, XY received a tax-free allowance of EUR 172,000 (i.e., EUR 400,000 x 43/100). The question was whether, in light of Welte, such a proportionate tax allowance was inline with EU law. 

German legislation as a restriction on the free movement of capital concerning objectively comparable situations

The Court considered that the German inheritance tax legislation introduces a restriction on the free movement of capital. This is because it results in inheritances between non-residents being subject to a heavier tax burden than those involving at least one resident and, therefore, has the effect of reducing the value of the estate (XY para. 34). In CJ case law on EU inheritance and gift taxation, the reduction of the value of the inherited or donated property as a result of the legislation in review serves as a criterion for the Courtto conclude on the restrictive effects of the legislation at hand. Such a restriction may be justified if it relates to situations that are not objectively comparable or by an overriding reason in the public interest. More specifically, the CJ considered that the situation of a non-resident beneficiary inheriting property from a non-resident deceased (Germany having limited tax jurisdiction) such as XY, is objectively comparable to that of a resident beneficiary inheriting property from a non-resident deceased or that of a non-resident beneficiary inheriting property from a resident deceased (in both situations: Germany having worldwide tax jurisdiction). This is because, according to the CJ, the amount of inheritance tax that the beneficiary shall pay is determined under the same rules (size of inherited property and kinship with the deceased). Neither of these two criteria depend on the beneficiaries’ place of residence (XY para. 38). In addition, a beneficiary with limited liability in Germany is objectively comparable to a beneficiary with unlimited liability in Germany as they are both taxable persons in Germany. I observe that this line of reasoning is consistent with comparability analysis performed by the CJ in all previous cases on subjective tax exemptions (Mattner, Welte and Hünnebeck). 

Restriction that was justified by the need to ensure the coherence of the German tax system

Nevertheless, the CJ considered that the restriction at hand (a proportionate tax allowance) could be justified by the need to ensure the coherence of the German tax system. In that regard, for such justification ground to be accepted, a direct link must be established between the granting of the tax advantage concerned and the offsetting of that advantage by a particular tax, the direct nature of that link falling to be examined in the light of the objective pursued by the legislation at issue (XY para. 46). In that regard, the CJ pointed out that the objective of the German tax legislation was to ensure, in the case of members of a closely linked family, that each of those taxable persons is able to take advantage of the inheritance due to him or her by being partially exempted from inheritance tax, even totally exempted as regards acquisitions of minor importance within the family (XY para. 47). This is, in my view, explained by the windfall justification. In that regard, the CJ acknowledged a direct link between the basic allowance (tax advantage) and the extent of the tax jurisdiction exercised vis-à-vis the enrichment the heir derives from the acquisition on death (tax disadvantage) (XY para. 50). In other words, the beneficiary with unlimited liability in Germany is entitled to the basic allowance because the taxable base in such a case is greater than in the case of a beneficiary with limited liability inGermany. In addition, the direct link at hand, according to the CJ, is appropriate for securing the attainment of the objective pursued by that legislation. First, for overall enrichment of the same value, the allowance granted represents an equivalent proportion of the share of the estate subject to taxation, whether the situation is that of unlimited or limited tax liability (XY para. 51). Second, if the immovable property taxed by Germany is equivalent to the entirety of that estate, the heir with limited tax liability is entitled, as is an heir with unlimited tax liability, to benefit in full from the allowance provided for by reason of his or her family relationship with the deceased (XY para. 53). As a result, the CJ considered that the German legislation was inline with EU law on this point. 

The CJ judgment may sound reasonable to some, but I believe that the reasoning of the Court on the coherence justification raises some questions. First of all, the CJ seemed to consider sufficient that a taxadvantage (i.e., basic allowance of EUR 400,000) is offset by a tax advantage taking the form of a broader taxable basis (in the case of Germany having worldwide tax jurisdiction). This is, in my view, derived fromparagraph 50 of the judgment. However, a broader taxable base does not, in my view, automatically mean a ‘particular tax’ (seen as a disadvantage that offsets the advantage at hand, which is a requirement for the coherence justification to be accepted). Besides, in cases of acquisitions of less than EUR 400,000 between persons belonging to tax class I, there does not seem to be any tax offsetting the advantage at hand (see also AG’s Opinion in XY, para. 80 (16 September 2021). Second, as the CJ itself pointed out in para. 41: ‘the amount of the allowance on the taxable value […] does not vary at all according to the amount of the taxable value that falls within the German tax jurisdiction.’ Therefore, in a situation in which Germany has worldwide taxjurisdiction, the basic allowance is not linked to any taxable value. It is lump sum allowance of EUR 400,000 regardless of the amount of tax that Germany would have levied on domestic and foreign property. Accordingly, there seems to be no direct link between that allowance and a particular tax levy. In addition, as the AG had already pointed out in his Opinion in Welte (12 June 2013): ‘the [basic allowance] would also be granted to a German resident inheriting a single item of immovable property even though, on account of the deceased’s place of residence on the date of death, the estate was located abroad, without the Federal Republic of Germany being able, for various reasons, to tax that estate.’ (See AG’s Opinion in Welte, para. 71). In this case, therefore, there is no direct and logical symmetrical link between the tax advantage and a particular tax levy. These considerations are not, in my view, reflected in XY.

I believe that the only way to understand the reasoning of the CJ regarding the coherence justification is to read it with the eyes of the justification of the balanced allocation of taxing powers and the principle of territoriality. In that regard, I refer to the AG’s Opinion in XY, in which the AG argued that Germany had demonstrated that the difference in treatment is necessary to safeguard its taxing powers and is proportionate to the objective pursued, in so far as it takes into account the different taxable base when Germany has unlimited (resident heir and/or deceased) and limited taxing rights (non-resident heir and deceased) (see AG’s Opinion in XY, para. 86). In addition, it seems proportionate to the objective of the avoidance of double non-taxation of inherited property (that would have been the case if the non-resident beneficiary could have benefited from full amounts of subjective tax exemptions in different EU Member States of situs). 


In XY, the CJ allowed Germany as the EU Member State of situs having limited tax jurisdiction, to grant a proportionate tax allowance to the non-resident beneficiary, corresponding to the value of the domestic assets subject to limited tax liability in Germany in relation to the total sum of assets received via inheritanceor donation. Nevertheless, the reasoning of the CJ on the justification part raises some questions. Perhaps, the CJ could have better justified the restrictive German legislation by the justification of the balanced allocation of taxing powers and, most importantly, of the principle of territoriality. As a final observation, I note that a proportionate tax allowance requires an exchange of information framework (considering that the tax authorities need to be informed about the value of the foreign assets for the calculation of the reduction in the amount of the basic allowance). This can be done either based on the Directive on Administrative Cooperative (Directive 2011/16/EU) that applies to inheritance and gift taxes, or, in my view, the applicable inheritance and gift tax treaty or even an income and capital tax treaty (for which the exchange of information framework is not limited to the taxes covered). Perhaps, this is the reason why the German legislation currently provides that the (proportionate) tax allowances are available to beneficiaries who are only subject to limited tax liability, provided that between Germany and the State of residence of the beneficiary or the deceased/donor, administrative cooperation in the field of taxation is in place (see Art. 17 para. 3 of the German Law on inheritance and gift tax). 

Vassilis Dafnomilis

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