The European Court of Justice has once more gone all the way to reinforce the fact that EU member states have to tread carefully when distinguishing between persons residing in their own territory or their own citizens and other EU citizens. Granting a tax exemption only to persons residing in a particular member state or to a member state’s own nationals is in breach of EU rules, the ECJ recently affirmed.
Greek legislation provides, subject to certain conditions, for an exemption from the tax payable on the purchase of a first residential property. Such an exemption is granted only to buyers who are permanently resident in Greece and, by way of exception, to non-resident Greeks who have worked abroad for at least six years. The Commission filed judicial proceedings against Greece, maintaining that such a rule expressly discriminated against persons resident abroad who are not Greek nationals.
The Commission argued that, although the requirement for permanent residence does not necessarily entail discriminatory treatment between EU nationals since the exemption applies irrespective of nationality, in practice permanent residents in Greece are, in the great majority, Greek nationals. The Commission also maintained that the Greek rules being contested prevented or deterred a national of a member state from leaving his country of origin in order to exercise his fundamental right to freedom of movement.
The court reasoned that, although direct taxation falls within the competence of the individual member states, the latter must nonetheless exercise that competence in line with EU law. EU rules forbid not only direct discrimination by reason of nationality but also all covert forms of discrimination. It could well be that through the application of criteria such as residence or ordinary residence, the measure could still be found to be discriminatory in nature since persons who are not resident on the national territory are in the majority of cases foreigners. Accordingly, the Greek legislation, by deterring persons not residing in Greece from purchasing, in pursuance of the right to freedom of movement, a first home there, impeded the freedom of movement of workers and the freedom of establishment.
The court went on to address Greece’s argument that the requirement of permanent residence is justified by social policy objectives since the measures were intended to make it easier for individuals to purchase a first home. Furthermore, Greece was thereby also seeking to prevent property speculation, tax evasion and abuse.
The court rejected these justifications. In so far as the prevention of speculation objective is concerned, the court noted that the Greek law in question imposed no obligation on the purchaser of immovable property to use it as a permanent residence and did not prohibit him from letting the property.
Similarly, the court was not impressed by the socio-political objective put forward by Greece since the tax advantage was granted on a non-selective basis and irrespective of the income of the purchaser. In so far as the alleged tax evasion objective is concerned, the court remarked that the same aim could be achieved by other less restrictive means. The Greek authorities could ensure that the purchaser of the immovable property meets all the conditions necessary to be entitled to the tax exemption by, for example, enforcing registration on the tax register or the land register or by a requirement for declarations as to tax or accommodation.
Greece offered a social justification also for the fact that the tax exemption was granted only to Greek nationals or persons of Greek origin who have worked abroad for at least six years. It maintained that it was, in this way, seeking to make it easier for Greeks who have emigrated to purchase a home, to encourage their return and, generally, to maintain links between Greeks who have emigrated and their country of origin.
The court once again rebutted Greece’s argument and pointed out that this rule drew a clear distinction based on the criterion of nationality and consequently amounted to direct discrimination.
Furthermore, the court did not think that there were objective circumstances capable of justifying such discrimination.
This ruling serves as a stern warning to member states that even in areas such as taxation, which fall directly within the competence of the member states, they have to act prudently before applying any measure which in practice discriminates against other EU citizens. This is the case even if such measure is based on seemingly objective criterion such as residence. Both the court and the ECJ will not think twice to shoot down any measure which has the practical effect of putting nationals of other EU member states at a disadvantage.
mariosa@vellacardona.com
Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a member of the National Commission for the Promotion of Equality.