The Italian tax regime resulting from the Italo-Portuguese double taxation convention does not infringe the principles of free movement and non-discrimination, the Court of Justice of the European Union (CJEU) ruled on Thursday 30 April in its judgment in Joined Cases C-168/19 and C-169/19.
The cases concern former Italian public sector employees who, after transferring their residence to Portugal, applied to receive the gross amount of their pension without deduction of tax at source by Italy, pursuant to the Italian-Portuguese double taxation convention, in order to benefit from the tax advantages offered by Portugal.
However, the Italian National Social Security Institute rejected their applications on the ground that the Convention applies 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.
When the two former public sector employees appealed against this decision, an Italian court asked the CJEU whether this Italian tax regime constitutes an obstacle to the free movement of Italian public sector pensioners and discrimination on grounds of nationality.
In its reply, the Court relies on its 2015 ‘Bukovansky’ case law (Case C-241/14), in which it had already ruled that Member States are free, in the context of double taxation conventions, to lay down the criteria for allocating tax jurisdiction between them. It also relies on its ‘Gilly’ case law (Case C-336/96) of 1998, where it held that such conventions are not intended to ensure that taxation in one State is not higher than in another State.
Consequently, where, in such a convention, the criterion of nationality appears in a provision which is intended to distribute tax jurisdiction, such differentiation on the basis of nationality cannot be regarded as constituting prohibited discrimination, the Court points out.
In the present case, the difference in treatment allegedly suffered by the two former Italian employees derives from the distribution of the power of taxation between Italy and Portugal and from the disparities between the tax systems of those Member States.
See judgment: https://bit.ly/3d5ttCO (Original version in French by Marion Fontana)