The Court of Justice of the European Union has recently recalled that restrictions on the freedom to provide services within the Union are prohibited in respect of nationals of Member States residing in a Member State other than that of the recipient of the services. Such restrictions on the freedom to provide services include national measures which prohibit, impede or render less attractive the exercise of that freedom. Moreover, a Member State which grants residents the possibility of deducting business expenses from the calculation of taxable income may not, in principle, exclude the same expenses from being taken into account for non-residents.
In the case in question, the underlying problem was that, under Romanian law, the withholding tax applicable to taxable income earned in Romania and collected by non-residents is calculated by applying a 16% tax rate to the gross income. The income tax payable by resident service providers is also 16% of the net amount of their income, but they are allowed to deduct their business expenses from the taxable amount. Unlike residents, non-resident service providers are not allowed to deduct business expenses related to their relevant taxable income.
According to the settled view of the Court of Justice of the European Union, a national rule under which service providers who are resident in a Member State may deduct from the taxable amount of their gross income the business expenses relating to a service, whereas non-resident service providers do not have that possibility, constitutes a restriction on the freedom to provide services.
Thus, given that it is for the Member State which invokes a ground justifying a restriction on one of the fundamental freedoms guaranteed by that treaty to demonstrate the existence of a general interest and that the Romanian Government has failed to justify the domestic rules in the instant case, it follows that the legislation in that form infringes Union law and is not permitted by it.