ECJ, judgement of 21.12.2021 - C -394/20- (Limited tax liability: Reduction of tax-free amount in accordance with EU law, but limited deduction of estate liabilities contrary to EU law)

Central standards: TFEU Art. 63 and 65; ErbStG § 2 para. 1, § 10 para. 5 no. 2, para. 6 sentence 2, § 16 para. 1 no. 2, para. 2, § 37 para. 14; BGB § 2311

1. Art. 63 and 65 TFEU must be interpreted as not precluding legislation of a Member State concerning the calculation of inheritance tax which provides that, in the case of the acquisition of immovable property situated within the territory of that Member State, where neither the deceased nor the heir was domiciled or habitually resident in that Member State at the time of the deceased's death the allowance on the taxable amount is reduced by an amount corresponding to the ratio of the value of the assets not subject to tax in that Member State to the total value of the estate compared with the allowance that would have applied if at least one of them had been domiciled or habitually resident in that Member State at that time.

2. Articles 63 and 65 TFEU must be interpreted as precluding legislation of a Member State on the calculation of inheritance tax which provides that, in the case of the acquisition of immovable property situated within the territory of the Member State, where neither the deceased nor the heir was domiciled or habitually resident in that Member State at the time of death, liabilities arising from reserved portions are not deductible from the value of the estate as inheritance liabilities, whereas those liabilities may be deducted in full if at least one of them was domiciled or habitually resident in that Member State at that time.

The facts of the case:

The reference for a preliminary ruling has been made in the context of a dispute between XY and FA V (Germany) concerning the calculation of inheritance tax on land located in Germany.

The plaintiff in the main proceedings is an Austrian national and lives in Austria. She is the daughter of E, who was also an Austrian citizen, lived in Austria and died on 12 August 2018. E was the owner of three developed properties and an undeveloped property in Germany. He had made a will in which he appointed his daughter as his sole heir, while his wife and son were entitled to a compulsory portion.

After the death of her father, the claimant undertook in a compulsory portion agreement to pay her mother and her brother amounts of EUR 1.7 million and EUR 2.85 million to correct her compulsory portion claims. In her inheritance tax return submitted to FA V, she applied to deduct the liabilities from the compulsory portions in the amount of EUR 43 %, i.e. a total of EUR 1,956,500, from the value of her acquisition upon death as liabilities of the estate. The portion of the real estate assets subject to inheritance tax in Germany accounted for EUR 43 % of the total value of the estate assets of EUR 11,592,598.10, which also included capital assets and a property located in Spain.

The FA assessed the inheritance tax owed by the plaintiff at EUR 642,333. In doing so, it only taxed the properties located in Germany. It refused to deduct the compulsory portions as estate liabilities on the grounds that these were not economically related to the properties belonging to the estate assets within the meaning of Section 10 (6) sentence 2 ErbStG. Furthermore, when calculating the inheritance tax, instead of the allowance of EUR 400,000 provided for E's children in accordance with § 16 para. 1 no. 2 ErbStG, it took into account a reduced allowance in accordance with § 16 para. 2 ErbStG.

In her action, the plaintiff asserts that she is entitled to the full tax-free amount pursuant to Section 16 para. 1 no. 2 ErbStG, as Section 16 para. 2 ErbStG is contrary to EU law. The same applies to the refusal to allow the deduction of the value of the liabilities from the compulsory portions as a liability of the estate in the amount calculated by her in full or in part.

The referring court states that the outcome of the dispute before it depends on whether Paragraph 16(2) and Paragraph 10(6), second sentence, of the ErbStG, which apply in the case of limited inheritance tax liability 2 ErbStG, which would apply in the case of limited inheritance tax liability if, in circumstances such as those at issue in the main proceedings, neither the testator nor the heir had their domicile or habitual residence in Germany at the time of death, are compatible with Article 63(1) and Article 65 TFEU (FG Düsseldorf of 20 July 2020 - 4 K 1095/20 Erb, DStRE 2021, 30).

Firstly, the referring court points out that Section 16(2) ErbStG was introduced by the German legislator in response to the judgment of 8 June 2016, Hünnebeck (C-479/14, ECLI:EU:C:2016:412, DStR 2016, 1360). According to this provision and Section 37(14) ErbStG, the tax-free amount pursuant to Section 16(1) ErbStG is to be reduced by an amount to be calculated in accordance with Section 16(2) ErbStG in the case of acquisitions by reason of death where the taxable event occurred after 24 June 2017. However, the referring court has doubts as to the compatibility of this new provision with Article 63(1) and Article 65 TFEU as interpreted by the Court of Justice.

Secondly, the referring court wonders whether Section 10(6) sentence 2 ErbStG is compatible with these provisions. In the context of the limited inheritance tax liability, the FA had only subjected the domestic real estate assets to taxation. In this respect, § 10 para. 6 ErbStG did not allow the plaintiff to deduct the value of the liabilities to be fulfilled by her from the compulsory portions of her mother and her brother from her acquisition upon death as estate liabilities pursuant to § 10 para. 5 ErbStG. According to the case law of the BFH, an economic connection, which is required for the deductibility of debts and charges pursuant to § 10 para. 6, only exists if these can be allocated to specific assets belonging to the estate. According to this case law, however, the fact that the compulsory portion pursuant to § 2311 BGB is assessed according to the value of the estate does not establish such an economic connection, but at most a legal connection. If E or the plaintiff had had a domicile or habitual residence in Germany at the time of the inheritance, the plaintiff in the main proceedings would be subject to unlimited tax liability and could deduct the liabilities from the compulsory portions as estate liabilities without restriction pursuant to § 10 para. 5 no. 2 ErbStG from her acquisition upon death.

In these circumstances, the Düsseldorf tax court decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

1. Are Article 63(1) and Art. 65 TFEU to be interpreted as precluding national legislation of a Member State concerning the levying of inheritance tax which, as regards the calculation of the tax, provides that, in the case of the acquisition of immovable property situated in Germany, the tax-free amount on the taxable amount is lower than the tax-free amount which would have applied if at least one of the deceased and the heir had been domiciled or habitually resident in another Member State at the time of death?

2. Are Article 63(1) and Art. 65 TFEU to be interpreted as precluding national legislation of a Member State concerning the levying of inheritance tax which provides, as regards the calculation of the tax, that liabilities arising from compulsory portions in the case of the acquisition of immovable property situated in the territory of the Member State where the deceased was domiciled or habitually resident in another Member State at the time of his death and the heir was domiciled or habitually resident in another Member State at that time? are not deductible, whereas those liabilities would be fully deductible from the value of the acquisition upon death if at least the testator or the heir had been domiciled or habitually resident in the first Member State at the time of the testator's death?

On the questions referred for a preliminary ruling:

To the first question

26 By its first question, the referring court asks, in essence, whether Art. 63 and 65 TFEU must be interpreted as precluding legislation of a Member State relating to the calculation of inheritance tax which provides that, in the case of the acquisition of immovable property situated within the territory of the Member State, where neither the deceased nor the heir was domiciled or habitually resident in that Member State at the time of the deceased's death the allowance on the taxable amount is reduced by an amount corresponding to the ratio of the value of the assets not subject to taxation in that Member State to the total value of the estate compared with the allowance that would have applied if at least one of them had been domiciled or habitually resident in that Member State at that time.

27 According to the established case law of the Court of Justice, although direct taxation falls within the competence of the Member States, they must exercise this competence in compliance with Union law and, in particular, the fundamental freedoms guaranteed by the TFEU (see, in particular, judgments of 23 February 2006 - C-513/03, van Hilten-van der Heijden, ECLI:EU:C:2006:131, DStRE 2006, 851 para. 36 and the case law cited therein).2006 - C-513/03, van Hilten-van der Heijden, ECLI:EU:C:2006:131, DStRE 2006, 851 para. 36 and the case law cited therein; 3.3.2021 - C-220/19, Promociones Oliva Park, ECLI:EU:C:2021:163, BeckRS 2021, 3138 para. 73; of 29 April 2021 - C-480/19, Veronsaajien oikeudenvalvontayksikkö, ECLI:EU:C:2021:334, BeckRS 2021, 8923 para. 25).

28 Art. 63 (1) TFEU generally prohibits restrictions on the movement of capital between Member States and between Member States and third countries.

29 The tax on inheritances by which the assets of a deceased person are transferred to one or more persons is covered by the provisions of the TFEU on the free movement of capital, with the exception of cases in which none of the essential elements cross the borders of a Member State (judgment of 26 May 2016 - C-244/15, Commission v Greece, ECLI:EU:C:2016:359, BeckRS 2016, 81059 para. 25).

30 A situation in which a Member State levies inheritance tax on estate assets located in its territory that belong to a person not resident in that Member State at the time of death and are due to an heir who is also a non-resident cannot be regarded as a purely domestic situation. Such a situation is therefore attributable to the movement of capital within the meaning of Art. 63 (1) TFEU.

31 It must therefore be examined whether a national regulation that provides for a reduction of the tax-free amount on the tax base in the case of limited inheritance tax liability constitutes a restriction on the movement of capital within the meaning of Art. 63 (1) TFEU and, if so, whether this restriction is justified.

The existence of a restriction within the meaning of Art. 63AEUV

32 The measures that constitute restrictions on the movement of capital in the case of inheritances include those that cause a reduction in the value of the estate of the person resident in a Member State other than the one in whose territory the assets in question are located (judgment of 17 October 2013 - C-181/12, Welte, ECLI:EU:C:2013:662, DStR 2013, 2269 para. 23 and the case law cited therein).

33 Under the national legislation at issue in the main proceedings, where an estate includes immovable property situated in Germany and neither the deceased nor the heir is resident in that Member State at the time of the succession, the allowance on the taxable amount is lower than the allowance which would have been applied if the deceased or the heir had been resident in that Member State at that time. This allowance is reduced by an amount corresponding to the ratio of the value of the assets not subject to taxation in that Member State to the total value of the estate.

34 Consequently, such a rule results in inheritances between non-residents being subject to a higher tax burden than those in which at least one resident is involved and therefore results in a reduction in the value of the estate. It follows that national legislation such as that at issue in the main proceedings constitutes a restriction on the movement of capital within the meaning of Article 63(1) TFEU (see, inter alia, judgment of 17 October 2013 - C-181/12, Welte, ECLI:EU:C:2013:662, DStR 2013, 2269 para. 25 and 26).

The existence of a justification for the restriction of the free movement of capital under Art. 65 TFEU

35 It follows from Article 65(1) TFEU in conjunction with Article 65(3) TFEU that Member States may distinguish in their national law between resident and non-resident taxpayers, provided that this distinction does not constitute a means of arbitrary discrimination or a disguised restriction on the free movement of capital.

36 A distinction must therefore be made between unequal treatment authorised under Article 65(1)(a) TFEU and arbitrary discrimination prohibited under Article 65(3) TFEU. In this respect, according to the case law of the Court of Justice, a national provision can only be considered compatible with the Treaty provisions on the free movement of capital if the difference in treatment either concerns situations that are not objectively comparable or if it is justified by overriding reasons in the public interest (see judgment of 30 June 2016 - C-123/15, Feilen, ECLI:EU:C:2016:496, DStRE 2016, 1175 para. 26 and the case law cited therein). In the latter case, the difference in treatment must be appropriate to ensure the achievement of the objective pursued and must not go beyond what is necessary to achieve that objective (see judgment of 22 November 2018 - C-679/17, Huijbrechts, ECLI:EU:C:2018:940, BeckRS 2018, 29344 para. 30 and the case law cited therein).

Comparability of the situations in question

37 The German Government argues that the situations are objectively different in the case of an acquisition upon death involving a non-resident and in the case of such an acquisition involving a resident. The difference in tax treatment between an acquisition by reason of death involving a non-resident and such an acquisition involving a resident is therefore objectively justified as regards inheritance tax on immovable property situated in Germany.

38 Under the legislation at issue in the main proceedings, the amount of inheritance tax on immovable property situated in Germany is calculated both on the basis of the value of that property and on the basis of the personal relationship between the deceased and the heir. However, neither of these two criteria depends on their place of residence. Moreover, the national legislation at issue recognises both the beneficiary of an estate opened between non-residents and the beneficiary of an estate in which at least one resident is involved as taxable persons for the purposes of levying inheritance tax on immovable property located in Germany. In both cases, the determination of the tax class and the tax rate for the purposes of calculating inheritance tax is based on the same regulations. Only with regard to the determination of the taxable enrichment of the beneficiary does this regulation treat acquisitions by inheritance among non-residents and acquisitions with the participation of a resident differently for the purposes of calculating inheritance tax on real estate located in Germany.

39 In those circumstances, it must be held that, by placing, for the purposes of the taxation of immovable property, on the one hand, non-resident heirs who have acquired that property from a non-resident deceased person and, on the other hand, non-resident or resident heirs who have acquired such property from a resident deceased person, the national legislature has itself assumed that there is an equivalence between those two categories of heirs as regards the modalities and the tax treatment of that property, and resident heirs who have acquired this property from a non-resident deceased person, even assuming that there is no objective difference between these two categories of heirs with regard to the modalities and conditions for the assessment of inheritance tax (cf. idS judgment of 17 October 2013 - C-181/12, Welte, ECLI:EU:C:2013:662, DStR 2013, 2269 para. 51).

40 It is true, as the German Government submits, that, first, in cases of limited inheritance tax liability in the case of acquisitions upon death by non-residents, German tax jurisdiction is limited to domestic immovable property, whereas, in cases of unlimited tax liability in the case of acquisitions upon death involving at least one resident, that tax jurisdiction extends to all the assets transferred. Secondly, in contrast to the provisions which were the subject, inter alia, of the judgment of 17 October 2013, Welte (C-181/12, ECLI:EU:C:2013:662, DStR 2013, 2269), the amount of the allowance applicable to heirs with limited tax liability is no longer determined as a lump sum, but in proportion to the value of the assets over which that tax sovereignty is exercised in relation to the value of the estate as a whole.

41 However, those circumstances cannot invalidate the conclusion in paragraph 39 of the present judgment. In cases of unlimited tax liability, the amount of the allowance under the legislation at issue in the main proceedings does not vary at all according to the amount of the taxable amount falling within the German tax jurisdiction. As is apparent from the information submitted to the Court, that allowance, which depends on the relationship between the heir and the deceased, is granted automatically to each heir solely by virtue of his status as a person liable to inheritance tax in Germany, in order to ensure the tax exemption of part of the family assets by reducing the amount of the inheritance. However, with regard to the taxation resulting from the exercise of tax sovereignty by the Federal Republic of Germany, an heir with limited tax liability is in a situation comparable to that of an heir with unlimited tax liability, since, like the status as a taxpayer, it does not depend on the place of residence, because the regulation in question subjects every acquisition of real estate located in Germany to inheritance tax regardless of whether the testator and heir are resident in Germany or not, neither the type of relationship existing between the testator and heir nor the objective of partially exempting the family assets from the place of residence (cf. idS judgement of 17 October 2013 - C-181/12, Welte, ECLI:EU:C:2013:662, DStR 2013, 2269 para. 53).

42 Thus, unlike the applicant in the main proceedings, a person who has acquired property upon death and whose taxable amount in Germany consists of immovable property corresponding to that for which the applicant in the main proceedings is liable to inheritance tax, if he has acquired that property from a person domiciled in Germany with whom there was a family relationship or if he is domiciled there and has acquired that property from a person who was not domiciled there, could claim the entire allowance provided for by the German legislation.

43 It follows that the circumstances cited by the German Government with regard to the tax-free amount cannot lead to an objective difference between the situation of the non-resident heir of a non-resident deceased person, on the one hand, and the situation of a non-resident heir of a resident deceased person or that of a resident heir of a resident or non-resident deceased person, on the other (cf. idS judgement of 17 October 2013 - C-181/12, Welte, ECLI:EU:C:2013:662, DStR 2013, 2269 para. 55).

44 It follows from the foregoing that the difference in treatment in relation to the grant of an allowance such as that at issue in the main proceedings concerns objectively comparable situations.

Justification of the restriction by an overriding reason in the public interest

45 According to the German Government, this difference in treatment can be justified, inter alia, by the need to maintain the coherence of the German tax system.

46 In that regard, it should be noted that the Court has already recognised that the need to ensure the consistency of a tax system may justify a restriction on the exercise of the freedoms of movement guaranteed by the Treaty. However, such a justification is only permissible if a direct link between the tax advantage in question and its compensation through a specific tax burden is demonstrated, whereby the directness of this link must be assessed on the basis of the objective of the regulation in question (judgment of 17 October 2013 - C-181/12, Welte, ECLI:EU:C:2013:662, DStR 2013, 2269 para. 59).

47 In the present case, as has been stated in paragraph 41 of this judgment, the German Government submits that the allowance provided for in Paragraph 16 of the ErbStG, the amount of which depends on the relationship between the testator and the heirs, is intended, in the context of inheritance tax, which is intended to tax the enrichment resulting from an acquisition upon death, to ensure the tax exemption of part of the family assets by reducing the amount of the inheritance. In particular, in the case of close family members, it is intended to ensure that each of these taxpayers benefits from the inheritance passed on to them in part or, in the case of smaller acquisitions within the family, completely free of inheritance tax.

48 Pursuant to Section 16 (1) ErbStG, the acquirers can claim the entire tax-free amount if the tax burden to which it relates extends to the entire acquired estate.

49 By contrast, Section 16 (2) ErbStG provides that the tax-free amount that the heir can claim on the basis of his or her relationship to the deceased is reduced in proportion to the part of the heir's enrichment that is not subject to German tax jurisdiction.

50Thus, a rule such as that at issue in the main proceedings establishes a direct link between the allowance which the heir may claim and the extent of the tax jurisdiction in respect of the enrichment resulting for him from the acquisition by reason of death.

51 Moreover, in the light of the principles set out in paragraph 36 of the present judgment, it must be held, first, that that link is such as to ensure that the objective pursued by that legislation is achieved. The legislation at issue in the main proceedings ensures that, in the event of an overall enrichment of the same amount, the allowance granted represents an equivalent proportion of the taxable part of the estate, irrespective of whether the situation is one of unlimited or limited tax liability.

52 This provision thus avoids systematically underestimating the tax capacity of an heir with limited tax liability by allowing him to claim the full amount of the tax-free allowance, even though this allowance would not relate to a tax burden levied on the entire enrichment resulting from the inheritance transfer.

53 Secondly, that legislation does not go beyond what is necessary to achieve the objective pursued, since the allowance at issue in the main proceedings is claimed in proportion to the extent of the tax sovereignty exercised by Germany in relation to the entire estate. In particular, it follows from that legislation that, where the immovable property taxed by that Member State corresponds to the entire estate, the heir with limited tax liability is entitled, like an heir with unlimited tax liability, to claim the entire allowance provided for by virtue of his relationship with the deceased.

54 It follows that, unlike the legislation at issue in the case that gave rise to the judgment of 17 October 2013, Welte (C-181/12, ECLI:EU:C:2013:662, DStR 2013, 2269), which provided for a flat-rate allowance in cases of limited tax liability, the restriction on the movement of capital within the meaning of Art. 63(1) TFEU resulting from national legislation such as that at issue in the main proceedings, in so far as it relates to the allowance on the taxable amount, is justified by the need to preserve the coherence of the tax system.

55 The answer to the first question must therefore be that Art. 63 and 65 TFEU must be interpreted as not precluding legislation of a Member State concerning the calculation of inheritance tax which provides that, in the case of the acquisition of immovable property situated within the territory of the Member State, where neither the deceased nor the heir was domiciled or habitually resident in that Member State at the time of death, the allowance on the taxable amount is to be reduced in comparison with the allowance which would have applied if at least one of them had been domiciled or habitually resident in that Member State at that time, the allowance on the taxable amount is reduced by an amount corresponding to the ratio of the value of the assets not subject to taxation in that Member State to the total value of the estate compared with the allowance that would have applied if at least one of them had been domiciled or habitually resident in that Member State at that time.

The second question

56 By its second question, the referring court asks, in essence, whether Art. 63 and 65 TFEU must be interpreted as precluding legislation of a Member State concerning the calculation of inheritance tax which provides that, in the case of the acquisition of immovable property situated within the territory of the Member State, where neither the deceased nor the heir was domiciled or habitually resident in that Member State at the time of death, liabilities arising from reserved portions are not deductible from the value of the estate as liabilities of the estate, whereas those liabilities may be deducted in full if at least one of them was domiciled or habitually resident in that Member State at that time.

57It follows from the considerations in paragraphs 27-30 of the present judgement that it must be examined whether such national legislation constitutes a restriction on the movement of capital within the meaning of Article 63(1) TFEU and, if so, whether this restriction is justified.

The existence of a restriction within the meaning of Art. 63AEUV

58 As stated in paragraph 32 of the present judgment, in inheritance cases, measures which have the effect of reducing the value of the estate of a person resident in a Member State other than that in which the assets in question are located are measures constituting restrictions on the free movement of capital.

59 In the present case, the national legislation at issue in the main proceedings provides that, in the case of an estate comprising immovable property situated in Germany, where neither the testator nor the heir was domiciled in that Member State at the time of the succession, the heir cannot deduct the liabilities arising from reserved portions as a liability of the estate, whereas that deductibility exists where the testator or the heir was domiciled in Germany at that time.

60 Consequently, such a rule, which makes the possibility of deducting from the taxable amount of the estate the liabilities arising from reserved portions in respect of immovable property situated in the territory of the Member State concerned, dependent on the place of residence of the deceased and of the heir at the time of the succession, results in inheritances between non-residents involving such property being subject to a higher tax burden than those involving at least one resident and thus reduces the value of that estate. It follows that national legislation such as that at issue in the main proceedings constitutes a restriction on the movement of capital within the meaning of Article 63(1) TFEU (see, by analogy, judgment of 11 September 2008 - C-11/07, Eckelkamp and Others, ECLI:EU:C:2008:489, DStRE 2009, 560 para. 45 and 46).

The existence of a justification for the restriction of the free movement of capital under Art. 65 TFEU

61 It must therefore be examined whether the restriction on the free movement of capital found can be justified under Article 65(1)(a) TFEU and whether, in the light of the reasons set out in paragraphs 35 and 36 of the present judgment, the difference in treatment concerns situations which are not objectively comparable or whether it is justified by an overriding reason relating to the public interest and, where appropriate, whether it is appropriate for securing the attainment of the objective which it pursues and does not go beyond what is necessary to attain that objective.

Comparability of the situations in question

62 As can be seen from paragraphs 37-39 of this judgement, there is no objective difference in the amount of inheritance tax payable on immovable property located in Germany between inheritances between persons none of whom is resident in that Member State at the time of the inheritance and inheritances between persons at least one of whom is resident in that State at that time.

63 That assessment cannot be called into question by the German Government's argument that, unlike the case-law resulting, inter alia, from the judgment of 11 September 2008, Eckelkamp and Others (C-11/07, ECLI:EU:C:2008:489, DStRE 2009, 560), which relates to the deductibility of charges on a property subject to inheritance tax, the liabilities arising from the compulsory portions are not directly connected with the property subject to inheritance tax situated in Germany.

64 Irrespective of their categorisation under national law, the liabilities from the compulsory portions relate at least in part to the properties located in Germany, over which the Federal Republic of Germany thus exercises its tax sovereignty.

65 It follows from the foregoing that the difference in treatment as regards the deductibility of liabilities arising from compulsory portions concerns objectively comparable situations to that at issue in the main proceedings.

Justification of the restriction by an overriding reason in the public interest

66 The German Government argues, first, that this difference in treatment can be justified by the need to maintain the coherence of its tax system.

67 As stated in paragraph 46 of the present judgment, the need to preserve the coherence of a tax system may justify a restriction on the exercise of the freedoms of movement guaranteed by the Treaty. However, such justification depends on a direct link being established between the tax advantage in question and its compensation by a particular tax burden, the directness of that link having to be assessed in the light of the objective pursued by the legislation in question.

68 In the present case, the German Government submits that the provisions on the deductibility of liabilities arising from compulsory portions are intended to enable the actual increase in assets resulting from the acquisition by reason of death to be determined and inheritance tax to be paid on that basis.

69 However, the unequal treatment resulting from the legislation at issue in the main proceedings cannot be justified by the need to preserve the coherence of the German tax system, since, as the Advocate General stated in point 104 of his Opinion, Paragraph 10(6) of the ErbStG precludes the deduction of liabilities arising from reserved portions where, at the time of succession, neither the testator nor the acquirer of the estate was domiciled or habitually resident in Germany, even where, as is apparent from paragraph 64 of the present judgment, those liabilities are at least partially connected with the assets of the estate over which the Federal Republic of Germany exercises its tax jurisdiction and form part of the estate. 64 of the present judgement, even if these liabilities are at least partially sufficiently connected to the items of the estate over which the Federal Republic of Germany exercises its tax sovereignty and correspond to a part of the estate that does not constitute an enrichment of the heirs with limited tax liability.

70 The German Government submits, secondly, that unequal treatment such as that at issue in the main proceedings may be justified by the principle of territoriality and the need to ensure a balanced allocation of taxing powers between the Member States, which is a legitimate objective recognised by the Court (judgment of 8 June 2016 - C-479/14, Hünnebeck, ECLI:EU:C:2016:412, DStR 2016, 1360 para. 65).

71 However, it should be noted that the difference in treatment at issue in the main proceedings as regards the deductibility of liabilities arising from compulsory portions results solely from the application of the German legislation in question. Furthermore, the German Government does not explain why the taking into account of liabilities arising from compulsory portions, where they relate to immovable property over which the Federal Republic of Germany exercises its fiscal sovereignty in the context of partial taxation, would lead that Member State to relinquish part of that fiscal sovereignty in favour of other Member States or would affect that Member State's power of taxation (see in this sense, judgments of 8 June 2016 - C-479/14, Hünnebeck, ECLI:EU:C:2016:412, DStR 2016, 1360 para. 66; of 22 June 2017 - C-20/16, Bechtel, ECLI:EU:C:2017:488, DStRE 2018, 7 para. 70).

72 In so far as that Member State argues that such unequal treatment is justified in order to avoid a double deduction of liabilities arising from compulsory shares, it must first be pointed out that a national of a Member State does not lose the right to rely on the provisions of the TFEU by availing himself of tax advantages which are legally available to him under the rules applicable in a Member State other than his State of residence (judgment of 22 April 2010 - C-510/08, Mattner, ECLI:EU:C:2010:41, para. 41 and case-law cited therein). 22 April 2010 - C-510/08, Mattner, ECLI:EU:C:2010:216, DStR 2010, 861 para. 41and the case law cited therein).

73 Next, as the German Government has stated in its written observations and subject to review by the referring court, there is no double taxation convention between Germany and Austria in the field of inheritance tax. In those circumstances, the Member State in which the immovable property forming part of the estate is situated cannot, in order to justify a restriction on the free movement of capital based on its legislation, rely on a possibility, independent of its will, of a similar deduction granted to the heir by another Member State which could compensate, in whole or in part, for the disadvantage suffered by the heir because, in the Member State in which that property is situated, liabilities arising from compulsory portions are not deductible when inheritance tax is assessed (see inter alia judgements of 11 September 2008 - C-11/07, Eckelkamp and others, ECLI:EU:C:2008:489, DStRE 2009, 560 para. 67 and 68; of 11 September2008 - C-43/07, Arens-Sikken, ECLI:EU:C:2008:490, DStRE 2009, 731 para. 64 and 65, and of 22 April 2010 - C-510/08, Mattner, ECLI:EU:C:2010:216, DStR 2010, 861 para. 42).

74 A Member State cannot rely on the existence of an advantage granted unilaterally by another Member State in order to evade its obligations under the TFEU, in particular those arising from the rules on the free movement of capital (see, inter alia, judgment of 22 April 2010 - C-510/08, Mattner, ECLI:EU:C:2010:216, DStR 2010, 861 para. 43 and the case law cited therein).

75 It follows that the restriction on the movement of capital within the meaning of Article 63(1) TFEU resulting from national legislation such as that at issue in the main proceedings, in so far as it concerns the non-deductibility of liabilities arising from compulsory portions, cannot be justified either by the need to preserve the coherence of the German tax system or by the principle of territoriality and the need to ensure a balanced allocation of taxing powers between the Member States.

76 The answer to the second question must therefore be that Art. 63 and 65 TFEU must be interpreted as precluding legislation of a Member State concerning the calculation of inheritance tax which provides that, in the case of the acquisition of immovable property situated within the territory of the Member State, where neither the deceased nor the heir was domiciled or habitually resident in that Member State at the time of death, liabilities arising from reserved portions are not deductible from the value of the estate as liabilities arising from the estate, whereas those liabilities may be deducted in full if at least one of them was domiciled or habitually resident in that Member State at that time.