The refusal of the subsistence level for nonresident taxpayers: an analytical survey of the relevant legal framework

Abstract

According to the case law of the European Court of Justice, personal circumstances of nonresident taxpayers from other member states of the European Union do not need to be taken into account by the state of source when determining the taxable income of such nonresidents. Thus, the refusal of a subsistence level to nonresidents is in general in line with the European law. However, according to the relevant rulings of the court no additional tax burdens may caused by using higher tax rates for nonresidents. In this paper it is therefore examined in what ways the subsistence level may be refused to nonresidents. In order to do so, it is crucial to examine how the subsistence level is granted to resident taxpayers. Especially if the subsistence level is entirely integrated into the tax scale, this might lead to incorrect results. In order to avoid such incorrect results, each limit of the tax scale has to be analyzed more precisely. As this paper shows, there is even a contradiction in the rulings of the European Court of Justice. Additionally, this paper shows that an incorrect refusal of the subsistence level leads to a modification of the applicable tax rates for nonresidents. As a result, nonresidents are faced with an additional tax burden on top of the additional tax burden caused by the refusal of the subsistence level itself. These implications are shown for the case of Germany. They might be in breach with former rulings of the court.