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The Stauffer Case
On 14 September, 2006 the ECJ released its judgement in the so called « Stauffer Case » (C386/04).
Centro di Musicologia Walter Stauffer is an Italian resident foundation. It derived rental income from German real estate in 1997, which was subject to German corporate tax.Since the German law stipulates that exemption from corporate tax only applies to resident entities, i.e. entities that have their registered office and/or governance structure in Germany, Stauffer decided to bring the case to the Justice and invoked an infringement of the European legislation, namely the freedom of establishment and free movement of capital.
The ECJ ruled that that the differential treatment of resident and non-resident charitable foundations constitutes an unjustified breach on the free movement of capital (article 56 of the Treaty) but only where Germany recognises the charitable status of the Stauffer foundation according to the German Law. Since the referring Court had already recognised the charitable status of Stauffer, the ECJ considered Stauffer to be comparable with a German charitable foundation. Consequently it decided that the foundation should be exempted from real estate tax in Germany.
The ruling of the ECJ is a significant step for the income tax treatment of non-profit organisations operating in other European countries, since many national legislations do not grant exemptions to foreign organisations operating on their territory.
This judgement could also have a favourable impact on inheritance or gift taxes on cross-border giving to charities located in other Member States. The court referred to Annex I of the Council Directive 88/361/EEC, of June 24, 1988, which provides for a community definition of ?capital movements?. It should be stressed that cross-border gifts or legacies are also explicitly described as capital movements in the Annex I of the abovementioned Directive. This means that legislations which restrict privileges on inheritance or gift taxes on cross- border gifts to charities located in another Member State are in conflict with article 56 of the Treaty of Rome.
This ruling of the ECJ will certainly influence future and present (UK request, Walloon Case) actions of the Commission towards Member States and will probably also motivate national autorities to take pro-active action to modify current legal and fiscal discriminations. It could also be said that it shows that if there is no other issue, donors or charitable organisations with cross-border activities or receiving gifts or legacies from donors located in another EU Member State could consider lodging complaints or bringing the case to the Justice if they are excluded from the privileged regime which is foreseen by the legislation of that Member State. |
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