ExpatBriefing: ECJ Issues Ruling On Italian Tax Rules For Expats In Portugal

Friday May 15, 2020.

By Hans Esser, for Expatbriefing.com 15 May, 2020

The European Court of Justice has ruled that Italy did not infringe EU law when determining that two of its nationals were not entitled to benefit from certain provisions under the country's tax treaty with Portugal.

The ruling in the case, HB v Istituto Nazionale della Previdenza Sociale (INPS) (Case C-168/19), was released on April 30, 2020.

The Court concluded that: "The Italian tax regime resulting from the Italian-Portuguese double taxation convention does not infringe the principles of freedom of movement and non-discrimination."

Under Italian law, pensioners in the private and public sectors may be subject to different national tax regulations. Two taxpayers, "HB" and "IC", of Italian nationality, brought cases before Italian courts. They are former Italian public sector employees receiving a retirement pension from the National Social Security Institute.

After transferring their residence to Portugal, they requested to the INPS, in 2015, that they receive, pursuant to the Italian-Portuguese double taxation convention, the gross amount of their pension without deduction of tax at source by Italy, so as to be able to benefit from the tax advantages offered by Portugal.

The INPS rejected those requests, taking the view that those rules apply only to Italian private sector pensioners who have transferred their residence to Portugal and to Italian public sector pensioners who, in addition to having transferred their residence to Portugal, have acquired Portuguese nationality (a condition which HB and IC do not meet).

HB and IC then brought actions before the Court of Auditors - Judicial Chamber for the Region of Puglia, Italy. That court asked the Court of Justice whether the Italian tax system as it results from the convention constitutes an obstacle to the freedom of movement of Italian public sector pensioners and discrimination on grounds of nationality.

The European Court Justice answered both questions in the negative, stating: "The Court recalls its case-law, according to which Member States are free, within the framework of double taxation conventions, to lay down the criteria for the allocation of tax jurisdiction between them, and such conventions are not intended to ensure that taxation in one State is not higher than taxation in another State. In this context, Member States may in particular allocate tax jurisdiction on the basis of criteria such as paying State or nationality."

"The difference in treatment which HB and IC claim to have suffered arises from the allocation of the power to impose taxes between Italy and Portugal and from the disparities existing between the tax systems of those Member States. In these circumstances, there can be no question of prohibited discrimination."

ExpatBriefing: ECJ Issues Ruling On Italian Tax Rules For Expats In Portugal

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