Ruling of 12 July 2005 [.of the Court Grand Chamber] in Case [C-403/03] Egon Schempp v Finanzamt München  ECR I-06421
Referred by [Bundesfinanzhof – Germany]
Following his divorce, Mr. Schempp, a German national resident in Germany, pays maintenance to his former spouse resident in Austria.
Mr. Schempp sought to deduct the maintenance payments, in accordance with the correspondent German law. However, in his income tax assessments for 1994 to 1997, the Finances Authorities refused him the deduction on the ground that it had not received a certificate from the Austrian tax authorities to show that his former spouse had been taxed in Austria on the maintenance payments.
Mr. Schempp was unable to produce such a certificate, as Austrian tax law excludes, in principle, taxation of maintenance payments and does not allow them to be deducted. The documents in the case show, however, that Mr. Schempp would have been able to deduct the total amount of the maintenance payments to his former spouse if she had been resident in Germany. In that case, she for her part would not have paid any tax on the maintenance, as her income is less than the taxable minimum in Germany.
Citizenship of the Union – Articles 12 EC and 18 EC – Income tax – Deductibility from taxable income of maintenance paid by a taxpayer resident in Germany to his former spouse resident in Austria – Proof of taxation of the maintenance payments in that Member State / Is the first paragraph of Article 12 EC and Article 18(1) EC to be interpreted as precluding a taxpayer resident in Germany from being unable, under the national legislation at issue in the main proceedings, to deduct from his taxable income in that Member State the maintenance paid to his former spouse resident in Austria, where he would have been entitled to do so if she were still resident in Germany?
ANSWER of the COURT:
The first paragraph of Article 12 EC and Article 18(1) EC must be interpreted as not precluding a taxpayer resident in Germany from being unable, under national legislation such as that at issue in the main proceedings, to deduct from his taxable income in that Member State the maintenance paid to his former spouse resident in another Member State in which the maintenance is not taxable, where he would be entitled to do so if his former spouse were resident in Germany.
REASONING of the Court
First the Court examined if the case falls under the scope of EU law. In the light of the fact that the applicant did not make use of his rights under Article 18 TEC, now Article 21 TFEU, but his former spouse did, in respect to the effect that this had on his deductibility capacity, the situation is not purely internal, so that it falls under the scope of EU law.
As regards the first paragraph of Article 12 EC, now Article 18 TFEU and Article 18(1) EC, now Article 21 TFEU,it must be interpreted as not precluding a taxpayer resident in a Member State from being unable under national legislation to deduct from his taxable income in that Member State the maintenance paid to his former spouse resident in another Member State in which the maintenance is not taxable, where he would be entitled to do so if his former spouse were resident in the same Member State.
Article 12 EC, now Article 18 TFEU is not concerned with any disparities in treatment, for persons and undertakings subject to the jurisdiction of the Community, which may result from divergences existing between the various Member States, so long as they affect all persons subject to them in accordance with objective criteria and without regard to their nationality.
Moreover, the Treaty offers no guarantee to a citizen of the Union that transferring his activities to a Member State other than that in which he previously resided will be neutral as regards taxation. Given the disparities in the tax legislation of the Member States, such a transfer may be to the citizen’s advantage in terms of indirect taxation or not, according to circumstances. The same principle applies a fortiori to a situation in which the person concerned has not himself made use of his right of movement, but claims to be the victim of a difference in treatment following the transfer of his former spouse’s residence to another Member State.
The Court showed no hesitation to examine German tax rules applied to a German citizen residing in Germany. The claimant was placed in a marginally less favourable situation as regards the tax treatment of duly payable alimony, as a result of the fact that his former wife had moved to Austria. The Court considered the case to be far from being purely internal; as his former wife had exercised her free movement rights, there was no bar for him to appeal
to Articles 12 and 18 (1) EC, though the German rules at stake were ultimately found to square with these provisions.
Considering that there is no discrimination under Article 18 TFEU, resulting from the existing disparities in the tax regimes of Member states, the Court ruled that there is no difference in treatment, applying the assessement of the principle of equal treatment. The court stated that the payment of maintenance to a recipient resident in Germany cannot be compared to the payment of maintenance to a recipient resident in Austria. The recipient is subject in each of those two cases, as regards taxation of the maintenance payments, to a different tax system. As a consequence, given the fact that there is no breach of the equal treatment principle, there is no discrimination under Article 18 TFEU.
Under the EU citizenship provisions, namely Article 21 TFEU, the Court followed AGs’ Opinion, as expressed at point 39, and ruled that the disparities between the tax regimes cannot constitute a restriction on the freedom to move and reside within EU, as enshrined by the Treaty, so that no discrimination was found there either.
Advocate General in the Case stated at point 34 of his Opinion that the situation is the result of a lack of coordination between the tax systems of the Member States and can only be resolved by the Community legislature. Does that mean that he suggested that maybe a harmonization in the field of taxation at EU level would be welcomed?
 C-403/03 Egon Schempp v Finanzamt München  ECR I-06421, paragraph 36