The European Court of Justice has found that the calculation of taxable income in a Member State of employment must in certain circumstances take into account “negative income” relating to a dwelling located in the Member State of residence.

An individual working and residing in the Netherlands is entitled to have negative income (being the difference between the rental value of an individual's dwelling and the mortgage interest paid) taken into account in the calculation of taxable income in the Netherlands. In the case of R.H.H Renneberg v Staatssecretaris van Financien, Mr Renneberg resided in Belgium but worked in the Netherlands. He was denied a deduction of negative income on his Belgium dwelling in the calculation of taxable income in the Netherlands.

The court's decision in favour of Mr Renneberg cited the freedom of movement provided under the Treaty of Rome which precludes measures which might place a person at a disadvantage when they wish to pursue an economic activity in the territory of another Member State and granted Mr Renneberg the entitlement to deduct the negative income on his Belgium residence against his Dutch tax liability.

This case makes a particularly clear statement about the relationship between double taxation agreements and the EU treaty. Irrespective of what a particular DTA might say, EU Member States are not entitled to impose measures that contravene the freedoms of movement guaranteed by the EU treaty. As such, this case may have implications for any cross border workers where Treaty provisions seem to deny a tax relief in one jurisdiction which might otherwise be available in the other jurisdiction.

Details of the Renneberg case are available at

http://curia.europa.eu/en/actu/communiques/cp08/aff/cp080074en.pdf