The Court of Justice of the European Union (EuGH, CJEU) has extended the rules on the tax residence of officials and other servants of the European Union to gift tax. According to the decision, the tax residence in the home Member State continues to apply even if the person concerned subsequently moves for private reasons to a Member State other than the state of employment (EuGH, judgment of 15 October 2026 – C-275/25).
Dispute over the taxation of a cash gift
The applicant, A, left Austria in 1995 to settle in Luxembourg and take up employment with the European Investment Bank there. After marrying, he moved to Germany in 2010 but continued to use his apartment in Luxembourg.
In 2013, A received a gratuitous cash transfer of EUR 300,000 from his brother, who lived in Austria. By assessment notice dated 13 April 2017, the German Finanzamt (tax office) assessed gift tax of EUR 56,000 on this transfer.
A challenged the taxation in Germany. Relying on Article 13(1), first sentence, of Protocol No 7 on the Privileges and Immunities of the European Union, he argued that, for tax purposes, Austria alone should continue to be regarded as his state of residence.
The Finanzamt rejected the objection. It took the view that, in addition to his tax residence in Austria, which continued to exist under the Protocol, A had established an additional tax residence in Germany. It considered the Austrian residence to be merely notional and therefore concluded that A was subject to unlimited gift tax liability in Germany.
Decision of the Finanzgericht
By judgment of 16 September 2021, the Finanzgericht Rheinland-Pfalz (Fiscal Court of Rhineland-Palatinate) upheld the action. According to its reasoning, the relevant point in time for determining the reason for the change of residence is when the person takes up service with the Union.
Subsequent changes, particularly a move prompted by private reasons, are therefore irrelevant as long as the employment relationship with the Union continues and the actual residence has a geographical connection to the place of employment. The Finanzamt lodged an appeal on points of law with the Bundesfinanzhof (BFH, Federal Fiscal Court) against that decision.
Relevant provisions of EU law
Article 343 AEUV (Treaty on the Functioning of the European Union, TFEU) provides that the European Union is to enjoy in the territories of the Member States such privileges and immunities as are necessary for the performance of its tasks, under the conditions laid down in Protocol No 7. This also applies to the European Central Bank and the European Investment Bank.
Article 12 of Protocol No 7 governs the taxation of salaries, wages and other emoluments paid by the Union. They are subject to a tax for the benefit of the Union. At the same time, officials and other servants are exempt from national taxes on these payments.
Article 13(1), first sentence, of Protocol No 7 was particularly relevant to the dispute. The provision concerns persons who, solely by reason of the performance of their duties in the service of the Union, establish their residence in a Member State other than the state in which they were domiciled for tax purposes when entering the service of the Union.
For the following purposes, they are treated as having maintained their former residence:
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The provision covers the assessment of income tax.
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It applies to wealth tax.
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It expressly covers inheritance tax.
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It is also relevant to conventions concluded between Member States for the avoidance of double taxation.
Article 17 of the Protocol makes clear that privileges, immunities and facilities are accorded solely in the interests of the Union. Under Article 21(1), the Protocol also applies to the European Investment Bank, its governing bodies and staff, and to the representatives of the Member States participating in its activities.
Gift tax covered despite not being expressly mentioned
Autonomous concepts of EU law
Gift tax is not expressly mentioned in Article 13(1), first sentence, of Protocol No 7. The EuGH therefore first had to determine whether it nevertheless falls within the scope of that provision.
According to the decision, the concepts of income tax, wealth tax and inheritance tax are not to be interpreted by reference to the respective national law. Rather, they are autonomous concepts of EU law whose meaning must be determined uniformly in all Member States.
In the Court’s view, reliance on national definitions would mean that the scope of the provision depended on the structure of tax law in the Member State concerned. Whether gift tax was covered could then depend on whether national law classified it as part of income tax or inheritance tax, or as a separate tax.
It would also be unclear whether the definitions of the home state or those of the state of actual residence should apply. This could result in conflicts over taxing jurisdiction.
Similarities to income tax and inheritance tax
The EuGH held that gift tax falls within the scope of Article 13(1), first sentence, of Protocol No 7 because it shares essential characteristics with the taxes expressly mentioned. It is levied on a gratuitous transfer of assets or on the resulting enrichment of the recipient.
It therefore overlaps with both income tax and inheritance tax. In the legal systems of the Member States, gifts are frequently taxed either under income tax rules or together with inheritances.
Under German law, gift tax is structured as a separate tax. However, it supplements inheritance tax and is largely levied under the same statutory rules. In its interpretation, the Court did not rely on this national classification, but on the common structural characteristics of the taxes concerned.
Single tax residence in the interests of the Union
Simple and predictable allocation
According to the EuGH, the privileges and immunities under Protocol No 7 must be interpreted in a manner that facilitates the performance of the Union’s tasks. This includes clear rules that reduce the administrative difficulties associated with mobility between Member States.
Maintaining the tax residence existing when a person enters the service is intended to avoid uncertainties and formalities that might otherwise arise whenever the person’s actual place of residence changes. The tax status of staff in respect of the taxes covered should be determined simply and predictably.
If gift tax were excluded, two different connecting factors could arise: the home state would be relevant for income tax, wealth tax and inheritance tax, while gift tax could be governed by the state of actual residence. This would make the intended unambiguous allocation more difficult.
No preferential treatment for individual staff members or Member States
According to the judgment, the provision is not intended to confer a personal tax advantage on officials or other servants. Nor is it intended to favour individual Member States. The interests of the Union alone are decisive.
Transferring tax residence for gift tax purposes to the state of residence could be advantageous for some staff members and disadvantageous for others. The outcome would depend on the applicable national gift tax rules.
At the same time, states in which bodies or institutions of the Union have their seat would receive a tax advantage. Other Member States, by contrast, could lose taxing rights even though the persons concerned would have retained their tax residence there but for their work for the Union. Such an effect would be incompatible with the neutrality required by the Protocol.
Connection between gifts and inheritances
The Court also took into account that treating gifts and inheritances differently could partly undermine the practical effectiveness of the provision. If different tax residences applied, the two forms of gratuitous transfer of assets would be subject to different national tax systems.
If gift tax in the state of actual residence were lower than inheritance tax in the home state, inheritance tax could be avoided by making a prior gift. By contrast, including gift tax allows both forms of transfer to be allocated consistently for tax purposes.
The EuGH therefore answered the first question by ruling that Article 13(1), first sentence, of Protocol No 7 applies to a tax on gifts.
A private move does not change tax residence
Only one tax residence under the Protocol
Article 13(1), first sentence, of Protocol No 7 uses the term tax residence in the singular. According to the Court’s interpretation, the officials and other servants covered are therefore treated as having maintained only one tax residence. That residence is in the home state.
For A, this meant that, in addition to his tax residence in Austria, there could be no further tax residence in Germany within the meaning of this provision. A distinction must be drawn between the actual place of residence and the tax residence relevant under the Protocol.
Move to a third Member State
Particular circumstances arose because A had initially moved from Austria to Luxembourg to take up his employment, but later transferred his place of residence to Germany for private reasons. He retained the apartment he actually used in Luxembourg.
According to the EuGH, the wording of the provision initially allowed for two interpretations. On the one hand, it could be assumed that the staff member had to live exclusively in the state in which he performed his official duties. On the other hand, the condition could be understood as requiring only that the original decision to leave the home state was prompted by service with the Union.
The Court adopted the second interpretation. The determination of tax residence must not depend on the wishes of the person concerned. Otherwise, a staff member could determine, by moving for private reasons, which Member State had taxing jurisdiction in respect of the taxes covered.
Personal motives do not affect the allocation
The choice of actual residence may be based on professional, economic, personal or family reasons. Staff members may choose, or may be prompted, to establish the centre of their family life in a Member State other than the state of employment.
If the allocation of taxing jurisdiction depended on which subjective reasons for the choice of residence predominated, the application of the Protocol would entail considerable uncertainty. This would be contrary to the objective of determining tax residence clearly and predictably.
An official or other servant therefore retains tax residence in the home state if that person initially moved to another Member State to perform official duties and subsequently transferred their actual place of residence to a third Member State for private reasons. Continued employment in the service of the Union is decisive in this regard.
Rules under employment law governing the choice of residence must be distinguished from this. The EuGH noted that EU officials are generally required to reside either in the place where they are employed or at no greater distance from it than is compatible with the proper performance of their duties. Employees of the European Investment Bank were likewise generally required to reside at or near their place of employment unless an exception had been approved.
Significance of the decision for gift tax
The EuGH provided clear answers to both questions referred to it. First, Article 13(1), first sentence, of Protocol No 7 also applies to gift tax. Second, tax residence remains in the home Member State where, after establishing residence in another Member State for employment-related reasons, a staff member moves to a further Member State for private reasons.
The proceedings before the EuGH formed part of the dispute pending before the Bundesfinanzhof. It is therefore for the national court to decide on the costs of the main proceedings.
The distinction between the actual place of residence and tax residence can be particularly significant in the case of cross-border gifts. MTR Legal advises companies, investors and private individuals on matters relating to international taxation and the tax treatment of asset transfers. Further information is available under Tax Law Advice.
