Good news for non-resident EU taxpayers with overseas income: ECJ rules on personal deductions

Posted on 3rd January, 2017

Estimated reading time 3 minutes

The European Court of Justice (the “ECJ”) has brought good news for many individuals who live and work across EU borders, in a case in which Loyens & Loeff acted for the taxpayer.  

According to the ECJ, an individual paying tax in a EU jurisdiction where they are not resident can now claim a tax deduction in that jurisdiction against mortgage interest and other personal deductions paid in another EU jurisdiction.

The ECJ made this ruling on the basis that not allowing a deduction would be a violation of the freedom of establishment.  The question was whether an individual who resides in Spain, with income from the Netherlands representing 60% of his total taxable income (and 40% of his income from Switzerland), could claim a deduction for mortgage interest paid on his Spanish property, against tax payable in the Netherlands.  The Court indicated that the deduction is allowed despite the individual being self-employed and receiving part of his income from employment in a non-EU membership state.

What does this ruling mean?

This means that individuals who do not effectively pay taxes in their home country, may now be able to lower their tax liabilities in other EU jurisdictions where they effectively pay taxes.  Personal deductions such as mortgage interest and alimony payments, can now be deducted at a pro rata basis in the EU jurisdictions where they effectively pay their taxes, even if their income in that jurisdiction is less than 90% of their total income.

Non-resident taxpayers who work in multiple jurisdictions with residence in another country should review and adjust their income tax returns where necessary.  It is expected that the conclusion will also impact the current Dutch legislation regarding the deduction of interest for non-resident Dutch tax payers.

Further information

For further information or to discuss any of the issues raised, please contact Bas Dieleman on +31 10 224 66 52  or Aleid Langevoord on +31 10 224 65 17, Loyens & Loeff.


Link to case: Case C-283/15




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