Must non-Dutch resident taxpayers from different Member States be treated equally for tax purposes or, is the Netherlands allowed, for example, to treat residents of one Member State more favorably than residents of another Member State? This concept is commonly known as the “most-favored nation principle. Differences in treatment may be observed, for example, with respect to withholding tax rates or tax credits, which may vary from one tax treaty to another.

In 2003, the ’s-Hertogenbosch Court of Appeals requested that the European Court of Justice (“ECJ”) issue a preliminary ruling about this principle in what is known as the D case. In that case, a German resident (“Mr. D.”) had invested some 10% of his assets in real estate located in the Netherlands. When he was sent the 1998 net wealth tax assessment, he was denied the right to deduct a tax-free threshold, since non-Dutch resident taxpayers were only entitled to apply this threshold if they had invested 90% or more of their assets in the Netherlands. Mr. D. believed he had been discriminated against in comparison to Belgian residents because, under the tax treaty concluded between the Netherlands and Belgium, Belgian residents were entitled to a tax-free threshold, even if less than 90% of their assets were invested in Dutch real estate.

The ’s-Hertogenbosch Court of Appeals shared Mr. D’s view, and submittedquestions to the ECJ for a preliminary ruling. The ECJ, however, dismissed Mr. D’s claim to most-favored nation treatment because, in its opinion, a tax treaty forms a set of reciprocal rights and obligations that apply only to residents of one of the two contracting states. It follows from this that, with respect to net wealth tax on real estate located in the Netherlands, a taxpayer resident in Belgium is not in the same situation as a taxpayer resident outside of Belgium. Entitlements granted under the treaty concluded between Belgium and the Netherlands may not be separated from the remainder of the treaty, but form an integral part of it and contribute to its overall balance.