Lakebrink case: losses must count

A German husband and wife, resident in Germany, were employed solely in Luxembourg and had no income in Germany for the relevant year. They applied to have rental losses on two houses which they leased out in Germany taken into account in the determination of the tax rate to be applied to their income. The Luxembourg tax authority refused on the ground that under Luxembourg law, in respect of non-resident taxpayers, only foreign earned income could be taken into account, as well as local income. Negative rental income would not be considered, unlike in the case of resident taxpayers.
The claimants said that this was contrary to article 39 of the EC Treaty concerning freedom of movement for workers within the EC.
The European Court of Justice ruled that article 39 precluded national legislation which did not take into account unearned income from another Member State belonging to an EC national not resident in the country. This would constitute discrimination under article 39.
état du Grand-Duché de Luxembourg v Lakebrink and another (Case C-182/06), European Court of Justice, 18 July 2007

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