Provisional text
OPINION OF ADVOCATE GENERAL
KOKOTT
delivered on 15 October 2026 (1)
Case C‑430/25 [Gena] (i)
AR
v
Dyrektor Krajowej Informacji Skarbowej
(Request for a preliminary ruling from the Wojewódzki Sąd Administracyjny w Warszawie (Provincial Administrative Court, Warsaw, Poland))
( Reference for a preliminary ruling – Free movement of persons – Free movement of workers – Direct taxation – Exit taxation – Exit tax on unrealised gains on assets – Unrealised gains arising prior to national tax liability – Failure to take account of unrealised losses – Extent of any deferment of payment of exit tax due )
I. Introduction
1. If a taxpayer moves permanently from one country to another, that normally entails a change in his or her residence status for tax purposes, in other words, a transfer of his or her tax residence. Some States respond by levying an ‘exit tax’ on latent, that is to say unrealised, gains on certain of the taxpayer’s assets, which had arisen up to the date of that transfer and which they can no longer tax once the taxpayer has moved away.
2. The question whether and in what conditions such exit taxation is compatible with EU law has been examined time and again by the Court over the past 20-plus years, starting from the judgment in de Lasteyrie du Saillant. (2) It may now be regarded as settled that the fundamental freedoms of the European internal market do not, in principle, preclude the levying of an exit tax. (3) As so often, however, the devil is in the detail, namely in the specific form and the specific manner in which that tax is levied, which the present case very clearly illustrates.
3. The present case concerns a taxpayer who is currently working as an employee in Poland and whose term of employment is likely to amount to just over five years. At the date of his planned move from Poland in 2028, following the cessation of his employment there, he will most likely be liable to an exit tax on unrealised capital gains on certain significant private assets, essentially shares, in Poland. The dispute now concerns three aspects: first, whether unrealised capital gains arising abroad in the past, when the beneficiary was not yet taxable in Poland, may also be taken into account for exit taxation; second, whether, besides unrealised capital gains, unrealised capital losses are also to be taken into account; and, third, for how long, if at all, any exit tax must be deferrable.
4. The issue of exit taxation illustrates how delicate can be the constant search for a fair balance between the legitimate fiscal interests of Member States on the one hand and the need for optimal functioning of the European internal market on the other.
II. Legislative framework
A. European Union law
5. The framework for this case in EU law is defined by the provisions on free movement of workers (Article 45 TFEU) and additionally by those on free movement of EU citizens (Article 21(1) TFEU).
B. National law
6. In Polish law, various provisions of the Ustawa o podatku dochodowym od osób fizycznych (Law on income tax on natural persons of 26 July 1991; (4) ‘the Law on Income Tax’), as it stood on 31 December 2024, are relevant, along with the Rozporządzenie Ministra Finansów w sprawie przedłużenia terminu do wpłaty przez podatników podatku dochodowego od osób fizycznych podatku należnego od dochodów z niezrealizowanych zysków (Regulation of the Minister for Finance on the extension of the time limit for payment by taxable persons of income tax on natural persons payable on income from unrealised gains of 27 June 2019), (5) also as it stood on 31 December 2024. Of the numerous provisions of those two legal instruments which are mentioned in the order for reference, only a few articles of the Law on Income Tax are reproduced below, in so far as they are directly relevant to the assessment of the present case in the light of EU law.
7. Article 30b(1) of the Law on Income Tax reads, in extract, as follows:
‘On income derived:
…
(2) from the disposal for consideration of shareholdings (shares)
…
– income tax shall be 19% of the income derived.’
8. Article 30da(1) of the Law on Income Tax includes the following provision:
‘The tax on income from unrealised capital gains shall be:
(1) 19% of the taxable amount
– where the tax value of the asset has been established;
…’
9. Under Article 30 da(2) of the Law on Income Tax:
‘The following shall be subject to tax on income from unrealised gains:
…
(2) a change of tax residence by a taxable person subject to unlimited liability to tax in the Republic of Poland, as a result of which the Republic of Poland loses the right to tax income from the disposal of an asset owned by that taxable person in connection with the transfer of his or her residence to another State.’
10. Article 30da(3) of the Law on Income Tax contains the following provision:
‘In the case of a non-business asset, only assets constituting the following shall be subject to tax on income from unrealised gains in the case referred to in paragraph 2(2): all rights and obligations in a company which is not a legal person, shareholdings in a company, shares and other securities, derivative financial instruments and units in capital funds (‘personal property’), if the taxable person has resided in the territory of the Republic of Poland for a total of at least five years in the ten-year period preceding the date of the change of tax residence.’
11. The following is set out in Article 30da(12) of the Law on Income Tax:
‘The taxable amount for the purposes of tax on income from unrealised gains shall be the sum of the income from unrealised capital gains established in respect of each asset.’
12. Article 30da(14) of the Law on Income Tax lays down the following provision:
‘Taxable persons shall be required to submit to the tax offices declarations, in accordance with the established form, on the amount of income from unrealised gains by the seventh day of the month following the month in which the total market value of the transferred assets exceeded 4 000 000 zlotys (PLN) and to pay the tax due within that period. If further assets are transferred after the month in which the total market value of the assets transferred exceeds PLN 4 000 000, taxable persons shall be required to submit a declaration by the seventh day of the month following the month in which the assets are transferred and to pay the tax due within that period.’
13. In addition, under Article 30db(1) of the Law on Income Tax:
‘The provisions of Article 30da shall not apply if the total market value of the transferred assets does not exceed PLN 4 000 000.’
14. Finally, Article 30de(1) of the Law on Income Tax is worded as follows:
‘A taxable person may apply to the competent head of the tax office to pay in instalments all or part of the tax on income from unrealised gains, over a period of no more than five years …’.
III. Facts and main proceedings
15. AR is an Italian and US citizen. Having come from Italy, he has resided since August 2022 in Poland, where he works as an employee of a Polish undertaking.
16. Since 1 January 2023, AR has been a Polish tax resident and has consequently been liable since then to income tax in Poland on all his income (revenue), regardless of the location of the sources of revenue (unlimited tax liability).
17. AR intends to keep his tax residence in Poland until at least 1 January 2028, so that the total duration of his Polish tax residence will have been at least five years. After the cessation of his employment in Poland, AR intends not to engage in any further economic activity. He plans to move to Germany, where he owns immovable property, and also to transfer his tax residency to Germany.
18. Prior to taking up employment in Poland, AR accumulated significant assets which were unrelated to income derived in Poland and whose disposal would not have been subject to tax in Poland had he not acquired Polish tax resident status by moving to that country.
19. At the time of his planned move from Poland to Germany, AR’s personal property, according to his own estimates, will be worth more than PLN 4 000 000 and will mainly comprise the following: non-business-related shares in various companies, which AR acquired privately and under employee incentive programmes, stock units granted under such programmes and immovable property outside Poland. In the course of the preliminary ruling proceedings, however, the referring court established that, in the dispute in the main proceedings, only the shares held by AR are relevant for the purposes of exit taxation.
20. On 30 October 2024, AR requested an advance tax ruling from the Dyrektor Krajowej Informacji Skarbowej (Director of the National Revenue Administration Information Centre, Poland; ‘the tax authority’) on various questions regarding a possible obligation to pay exit tax on his assets at the time of his planned move from Poland to Germany.
21. In the advance tax ruling of 31 December 2024 which was then issued, the tax authority explained, in essence, that all assets accumulated by AR were subject to Polish exit tax, including those dating from the period prior to his move to Poland. The tax authority provided details of the calculation of taxable unrealised capital gains and of the rules governing their taxation, in particular on the applicable time limits for the submission of the relevant tax return and for the payment of exit tax.
22. AR brought an action against that advance tax ruling before the Wojewódzki Sąd Administracyjny w Warszawie (Provincial Administrative Court, Warsaw, Poland), the referring court. In support of his action, he claims, in essence, that the legal position of the tax authorities expressed in the advance ruling is contrary to EU law. Some of his doubts are shared by the referring court.
IV. Request for a preliminary ruling and proceedings before the Court of Justice
23. By an order dated 29 May 2025, the Wojewódzki Sąd Administracyjny w Warszawie (Provincial Administrative Court, Warsaw) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:
‘(1) Must the provisions of European Union law, in particular Articles 21 and 45 TFEU, be interpreted as precluding legislation of a Member State which, in the taxable amount for the purposes of income tax on natural persons in respect of unrealised gains from personal property collected in connection with a person’s transfer of tax residence to another State (‘tax on income from unrealised gains’), takes into consideration an increase in the value of the asset which took place at a time when the person was not a resident of that Member State?
(2) Must the provisions of European Union law, in particular Articles 21 and 45 TFEU, be interpreted as precluding legislation of a Member State which, for the purposes of determining the taxable amount for the purposes of the tax on income from unrealised gains, requires that only income from those assets whose value has increased be taken into consideration, excluding from consideration in the taxable amount losses from those assets whose value has decreased?
(3) Must the provisions of European Union law, in particular Articles 21 and 45 TFEU, be interpreted as precluding legislation of a Member State which provides that a change of tax residence by a natural person subject to tax on income from unrealised gains results in the immediate levying of that tax, or alternatively payment thereof in instalments over a period of no more than five years (from the end of the tax year), instead of deferring payment thereof until the disposal of individual assets?’
24. In the preliminary ruling proceedings before the Court, AR, the Polish, German and Norwegian Governments (6) and the European Commission submitted written observations. On 21 April 2026, the Court of Justice requested clarification from the referring court regarding the first question referred, to which the referring court replied on 22 May 2026.
V. Assessment
25. The three questions referred for a preliminary ruling, the scope of which, according to the information provided by the referring court, is limited to the shares held by AR, give the Court the opportunity to examine in more detail certain important practical aspects of exit taxation from the perspective of the fundamental freedoms of the European internal market. First, it will be necessary to examine whether a national exit tax may extend to unrealised capital gains arising abroad at a time when the taxpayer was not yet resident for tax purposes in the national territory (see section B below). Second, it will be necessary to examine whether it is compatible with the same fundamental freedoms that a national exit tax, while covering unrealised capital gains in assets, does not also consider unrealised capital losses in those same assets (see, in that regard, section C below). Third, and lastly, it will be necessary to ascertain the period for which the payment of any exit tax by the taxpayer is deferrable, if at all (see, in that regard, section D below). As a preliminary question concerning all those points, I shall endeavour to determine which fundamental freedom is relevant to the present case (see, in that regard, section A below).
A. Preliminary question: Determination of the applicable fundamental freedom
26. All three questions referred for a preliminary ruling refer in the same breath to both the free movement of Union citizens (Article 21 TFEU) and the free movement of workers (Article 45 TFEU).
27. The parties disagree as to whether Article 21 TFEU or Article 45 TFEU is applicable. While the German Government wishes to rely on the first of those two fundamental freedoms, the Polish Government and the Commission consider the second to be relevant. In his observations, AR relies on both provisions without distinction, while the Norwegian Government, for its part, comments only on Article 45 TFEU. (7)
28. It is settled case-law (8) that free movement of Union citizens, enshrined in general terms in Article 21 TFEU, finds specific expression in the special provisions governing free movement of persons, in particular in those relating to the free movement of workers (Article 45 TFEU). The free movement of citizens of the Union is therefore in a relationship of subsidiarity to the specific rights of free movement enshrined in the FEU Treaty. Ultimately, the free movement of Union citizens applies primarily to economically inactive persons, whereas, in the case of economically active persons, the more specific fundamental freedom relating to their respective activities applies, depending on the circumstances of the case.
29. In the present case, at first glance, free movement of Union citizens (Article 21 TFEU) could indeed be relevant, since AR – as far as can be ascertained – does not intend to engage in gainful employment any more once his stay in Poland is over. Accordingly, his envisaged move and the corresponding transfer of his tax residence from Poland to Germany in 2028, as such, are unlikely to be work-related.
30. On closer inspection, however, both AR’s entry into Poland during the second half of 2022 (with his consequent tax residence in Poland from 2023) and his planned departure from Poland in 2028 (including the transfer of his tax residence from Poland) are inextricably linked with his occupational activity for an undertaking in that Member State during that period of just over five years. As far as can be seen, AR would not have moved to Poland at all if he had not taken up employment there. Similarly, his foreseeable departure from Poland will, to all appearances, be accompanied by the cessation of that same occupational activity. (9)
31. Both for tax issues connected with the entry of a worker for the purpose of taking up employment and for those connected with the worker’s exit on the cessation of that employment, free movement of workers (Article 45 TFEU) is the relevant fundamental freedom. Free movement of Union citizens (Article 21 TFEU), as the subsidiary norm, gives way to Article 45.
32. The three questions referred, therefore, are to be answered from the perspective of free movement of workers (Article 45 TFEU) and not from that of free movement of Union citizens (Article 21 TFEU). However, as several parties to the proceedings have rightly observed, the points to be taken into consideration in that context regarding Article 45 TFEU could easily be transposed to Article 21 TFEU if necessary. (10)
B. Levying of exit tax on unrealised gains arising before the start of national tax liability (first question referred)
33. By its first question, the referring court essentially seeks to ascertain whether free movement of workers (Article 45 TFEU) prohibits levying an exit tax on capital gains on assets where those gains accrued abroad at a time when the taxpayer was not yet resident for tax purposes in the national territory.
34. The background to that question is the fact that, in the present case, the unrealised capital gains in question on certain shares held by AR accrued outside Poland and before his move to Poland, that is to say, at a time when AR was not yet resident for tax purposes in Poland and so was not subject to unlimited tax liability there. The only reason why the Polish tax authorities would tax those capital gains is because AR has subsequently established his tax residence in Poland.
35. There is no consensus on that matter among the parties to the proceedings: while AR and the Commission consider the regime at issue to be contrary to EU law, the Polish and German Governments take the opposite view.
1. Restriction of free movement of workers
36. For as long as the exit taxation of individuals is not harmonised in EU law, (11) it falls, like direct taxation in general, within the competence of the Member States, although they are required to exercise that competence consistently with EU law and in particular with the fundamental freedoms guaranteed by the FEU Treaty. (12) Under Article 45 TFEU, the said fundamental freedoms include free movement of workers.
37. It is settled case-law that exit taxation has a restrictive effect on the fundamental freedoms of free movement of persons, (13) including the free movement of workers. (14)
38. First, the fact that a taxpayer who wishes to transfer his or her tax residence to another Member State is subjected to an exit tax on unrealised capital gains on certain assets makes moving away less attractive to that person, since he or she is thereby placed at a not inconsiderable disadvantage in terms of cash flow compared with a taxpayer remaining in the national territory. (15) In the worst case, the transferring taxpayer must pay the exit tax immediately, even though at that time he or she has not yet realised the taxed capital gains by disposing of the assets concerned, that is to say, he has not yet ‘cashed them in’. In the best case, that taxpayer must at least assume an additional administrative burden, comply with documentation requirements, provide guarantees and/or hold reserves where appropriate, so that he or she can pay the exit tax at a later date following the expiry of any deferment period.
39. Second, an inherent aspect of exit taxation is that it is levied specifically on cross-border processes, namely moving away from a country, as opposed to purely internal processes. (16) In that context, a taxpayer who wishes to transfer his or her tax residence to another Member State is treated less favourably than a taxpayer who does not do that and who, at most, moves within one and the same Member State; the first is taxable, on account of his or her move, on latent, that is to say, unrealised, capital gains on certain assets, whereas the second is taxable only on capital gains actually realised, and only if and to the extent that he or she actually disposes of the assets concerned.
40. In the preliminary ruling proceedings, the Court examined whether there might nevertheless be no restriction, and therefore no infringement of free movement of workers were to be assumed, if national law ensured that the calculation of exit tax was based on the exact same criteria as the calculation of ordinary income tax on capital gains actually realised by taxpayers who retain their tax residence in the national territory.
41. In response to a request for clarification made by the Court as part of that examination, the referring court confirmed that, under Polish law, the calculation of the exit tax at issue in the main proceedings is exactly the same, as regards the consideration of unrealised gains accruing abroad in the past, as the calculation of ordinary income tax on gains in share prices which a taxpayer remaining in Poland would earn by disposing of his or her shares there.
42. In those circumstances, one might indeed conclude at first glance that there is no restriction and hence no breach of free movement of workers, simply because the method of calculating exit tax on latent, unrealised gains in share prices does not differ from the method used to calculate ordinary income tax on capital gains actually realised on shares.
43. On closer inspection, however, mere equal treatment, specifically with regard to the calculation of tax payable in both situations, is not sufficient to rule out entirely the existence of a restriction on freedom of movement. Interestingly, most, if not all, of the cases of exit taxation assessed by the Court to date – as far as can be ascertained – have been characterised precisely by the fact that the exit tax on unrealised capital gains on assets of a taxpayer who transfers his or her tax residence abroad was calculated in the same way as the tax (ordinary income tax or corporation tax) on capital gains actually realised in the event of a disposal of assets by a taxpayer remaining in the national territory. That has not prevented the Court from assuming, in each of those cases, the existence of a restriction on the relevant fundamental freedom.
44. The decisive factor in assuming a restriction on the fundamental freedoms comprising free movement of persons does not lie in any differences in the calculation of exit tax on unrealised capital gains compared with ordinary corporation or income tax on actual capital gains realised by means of disposal. On the contrary, the really restrictive element – and the relevant unequal treatment – lies precisely in the fact that the exiting taxpayer is taxed on account of his or her departure on unrealised (latent) gains, whereas the taxpayer remaining in the national territory is taxed only in the event of gains being realised through sale. (17) That specific restriction on the free movement of persons does not cease to apply solely because the mere methods of calculating the two types of tax may be the same.
45. The fact that a restriction on freedom of movement cannot in any way be eliminated by the mere application of identical tax calculation methods is particularly clear, moreover, in Commission v Spain. (18) That case concerned one and the same tax on certain income (already realised), a tax which was calculated and collected in exactly the same way whether the taxpayer moved out of the national territory or stayed within it, the only difference being that liability arose earlier for those who moved than for those who stayed. The Court rightly did not hesitate, in spite – or precisely because – of the perfect alignment of the calculation methods, to classify the tax collected at the time of the transfer of residence as a restriction, and did so for exactly the same reasons as in all other cases of ‘traditional’ exit taxes on unrealised (latent) gains.
46. The implication for the present case is that the restriction on free movement of workers resulting from an exit tax such as the Polish one does not disappear merely because Polish taxpayers who retain their tax residence in the national territory are also required to pay ordinary income tax on gains from increases in share prices where those gains were already realised abroad before the taxpayers moved to Poland. It is precisely because of its connection with transfer of residence and with latent, as yet unrealised, capital gains that exit taxation is inherently restrictive of freedom of movement.
2. Justification
47. Restriction of the free movement of persons in connection with exit taxation can be justified only by overriding reasons in the public interest and is subject to compliance with the requirements arising from the principle of proportionality. (19)
48. The only reason in the public interest which the Court has hitherto recognised as justification for the imposition of an exit tax is the objective of a balanced allocation between Member States of the power to impose taxes. (20)
49. Accordingly, I shall confine myself below to examining whether the legitimate objective of the balanced allocation between Member States of the power to impose taxes is capable of justifying an exit tax such as the Polish one at issue. No other justifications are evident in the present case; in particular, neither the referring court nor the parties to the proceedings – first and foremost the Polish Government – have advanced any.
(a) The question whether the contribution of the tax regime at issue to a balanced allocation between Member States of the power to impose taxes is appropriate
50. To date, the Court has not examined in detail what exactly is meant by a balanced allocation between Member States of the power to impose taxes and what criteria may be applied in such an examination. That is not surprising, given that Member States have a considerable margin of discretion in taxation matters. In the absence of unifying or harmonising measures at EU level, they retain the power to define, by treaty or unilaterally, the criteria for allocating their powers of taxation. (21) However, that discretion of the Member States is not unlimited but must be exercised consistently with EU law, in particular with the fundamental freedoms of the European internal market. (22)
51. In the present case, it is not clear what reasoning the Polish legislature followed when adopting the national exit tax provisions at issue in order to achieve a balanced delimitation of its own powers of taxation in relation to those of other States. Neither the referring court nor the parties, including the Polish Government, provide any specific information on that point.
52. In the absence of any further indications, I therefore proceed on the basis that – as in all the cases decided to date on the present issue – the principle of territoriality serves as a criterion for the balanced allocation of powers to levy an exit tax. The Court recognises ‘that, in accordance with the principle of fiscal territoriality linked to a temporal component, namely the taxpayer’s residence for tax purposes within national territory during the period in which the capital gains arise, a Member State is entitled to charge tax on those gains at the time when the taxpayer leaves the country’. (23)
53. It follows, as the Court has also stated, that ‘unrealised capital gains relating to an economic asset are thus taxed in the Member State in which they arose’. (24) Capital gains realised after the transfer of residence are then taxed exclusively in the Member State in which the new tax residence is located, so likewise in the State in which they have arisen. (25) Conversely, it seems logical to me that, if the same criteria are applied consistently, the power to tax unrealised capital gains accruing before entry belongs exclusively to the taxpayer’s State of tax residence at that time.
54. The purpose of exit taxation is, ultimately, to realise the right of each Member State ‘to exercise its powers of taxation in relation to activities carried on within its territory’. (26) To put it another way, under the principle of fiscal territoriality, each Member State should have the right to charge tax on unrealised capital gains (or hidden reserves) ‘generated within its territory’ (27) or, in any event, ‘generated within its tax jurisdiction’. (28) That selfsame interpretation of exit tax is applied by the EU legislature – for undertakings subject to corporation tax – when it states that ‘Exit taxes have the function of ensuring that … a State … taxes the economic value of any capital gain created in its territory …’ (29) All of this, moreover, is entirely consistent with the general considerations which underlie the development of European tax law in other contexts, such as the taxation of dividends. (30)
55. Even if it is acknowledged that there is, to date, no clear and comprehensive definition of the principle of territoriality, (31) it seems simply inconceivable to me that a Member State could reasonably rely on the principle of fiscal territoriality in order to levy an exit tax on unrealised capital gains which were not generated either temporally or geographically within its tax jurisdiction – that is to say, in circumstances in which not only was the taxpayer a non-resident without tax domicile in the national territory, but also the sources of income were located abroad.
56. If a Member State extends its exit taxation to unrealised capital gains accruing abroad and even before the taxpayer’s entry into that State, that clearly does not constitute an appropriate contribution to a balanced allocation between Member States of the power to impose taxes but has the effect of an encroachment on the fiscal jurisdiction of the State or States with which competence actually lies under the principle of territoriality.
57. It is true that behind such extensive exit taxation as the Polish regime at issue in the present case might, at least indirectly, be a desire to generate higher tax revenue or, in any event, to avoid a reduction in tax revenue. However, such an interest cannot, of itself, justify the restriction of a fundamental freedom. (32)
58. All things considered, a regime such as the Polish legislation at issue is therefore by no means appropriate for ensuring a balanced allocation between Member States of the power to impose taxes.
(b) In the alternative: the question whether the tax regime at issue is disproportionate
59. For the sake of completeness, I shall nevertheless examine, in addition, the question whether an exit tax such as the Polish one at issue remains within the bounds of proportionality. Not only must an exit tax, in its specific form, be appropriate for ensuring a balanced allocation between Member States of the power to impose taxes, but it must also not go beyond what is necessary for that purpose. In that regard, the burdens imposed on the taxpayer or the disadvantages caused to him or her must not be disproportionate to the objectives pursued by the legislation in question. (33) In particular, the last aspect, also known as ‘proportionality in the strict sense’, which, admittedly, there is rarely cause to examine separately, merits special attention in a case such as the present one.
60. Unlike all previous cases relating to exit taxation, the present case has the particular feature that, in the course of his working life as an employee, the taxpayer moves several times from one country to another for business reasons and so must naturally transfer his tax residence each time.
61. If each Member State from which a taxpayer moves were always to apply an exit tax to all the unrealised capital gains on that person’s relevant assets, taking into account all unrealised capital gains previously accrued elsewhere, which would involve reaching far back in some instances, the taxpayer would have to pay tax more than once on the same unrealised capital gain, which, in economic terms, could significantly reduce the capital gain – even though it had never been realised through disposal – or might even devour it entirely. (34)
62. Both the referring court (in its order for reference and in its reply to the Court’s request for clarification) and the Commission (in its written observations) have rightly emphasised that such a situation – in which two or more Member States could potentially levy their own exit tax on unrealised capital gains previously accrued elsewhere – would have a considerable deterrent effect on workers seeking to exercise their freedom of movement within the European internal market. Such an extensive regime of exit taxation deters those concerned not only from moving away from a Member State, but above all from moving to such a Member State.
63. Certainly, as the Court has emphasised in its settled case-law, (35) EU law does not guarantee a Union citizen that the exercise of his or her freedom of movement will be neutral as regards taxation. Because of the different regimes of the Member States in that domain, such exercise of freedom of movement may be more or less advantageous or even disadvantageous, depending on the individual case. Similarly, it must be accepted that the fundamental freedoms of the European internal market do not altogether prohibit double taxation as EU law currently stands (36) and that Member States are not obliged to adapt their own tax systems to the different systems of tax of the other Member States in order, inter alia, to eliminate the double taxation arising from the exercise in parallel by those Member States of their fiscal sovereignty. (37)
64. However, the burdens arising from exit taxes, such as the Polish one at issue in the present case, go far beyond the inconveniences which Union citizens, and workers in particular, can reasonably be expected to endure when they exercise their freedom of movement and transfer their residence from one Member State to another in connection with their occupational activity.
65. In other words, the burdens to which an exit tax structured in that way subjects taxpayers when exercising their freedom of movement are wholly disproportionate to the actual objective of a balanced allocation between Member States of the power to impose taxes.
66. In that regard, it may be noted that AR is by no means a rare isolated case. In today’s working world, multiple changes of workplace and residence, including cross-border moves, are an increasingly common phenomenon. Not only the staff of large international digital corporations, banks and law firms, but also many employees in health and care, IT and many other sectors are now performing duties which can lead, on several occasions during their working lives, to their moving to other Member States of the European Union, or sometimes even to third countries, for longer or shorter periods.
67. Those employees are by no means always relatively comfortable, let alone wealthy, senior executives or top managers. In many companies operating internationally, broad strata of staff benefit nowadays from remuneration systems which provide for part of their salary to be paid in the form of shares or vested share options. For many of the persons concerned, their resulting investments constitute a large part of their personal savings and a key element of their private pension provision. At the same time, remunerating employees at least partly with company shares, in particular for startups and scaleups, is an important means of ensuring sufficiently strong growth, especially in the early stages, as well as a pull factor for highly skilled workers in an increasingly international labour market. That fact, incidentally, is also recognised in the present work of the EU institutions on new draft European legislation. (38)
68. If all those workers had to fear that unrealised gains in the value of shares and other securities acquired in connection with their employment would be taxed in full time and again whenever they transferred their place of residence and work across a border, the advantages of the European internal market, in particular in the modern world of work, would be liable to be very significantly diminished, or even wiped out, for a large number of EU citizens.
3. Interim conclusion
69. The free movement of workers (Article 45 TFEU) thus precludes a national tax regime under which exit tax payable on the transfer abroad of an employee’s tax residence extends to unrealised capital gains on that employee’s assets where those gains accrued abroad at a time when the employee was not yet resident for tax purposes in the national territory.
C. Exclusion from consideration of unrealised loss in value of certain assets (second question referred)
70. By its second question, the referring court essentially seeks to ascertain whether free movement of workers (Article 45 TFEU) prohibits the sole inclusion in the taxable amount for the purposes of exit taxation of income from the taxpayer’s assets which have made an unrealised capital gain to the exclusion of assets which have sustained an unrealised capital loss.
71. The parties are divided on that question too. AR and the Commission argue in favour of taking unrealised losses into consideration, whereas the Polish and German Governments oppose their consideration.
1. Restriction of freedom of movement for workers
72. Behind the second question referred for a preliminary ruling, it appears, is the fact that, in the present case, some of the shares held by AR have risen in price since AR acquired them, while other shares in his possession have decreased in value. For the purposes of calculating the Polish exit tax at issue, however, only gains from shares whose price has increased are taken into consideration in the taxable amount, whereas losses from shares whose price has fallen are not considered, which means that the unrealised gains in value cannot be offset against unrealised capital losses.
73. According to the information provided by the referring court, the situation is totally different when it comes to calculating Polish income tax on the proceeds realised from the sale of shares. If taxpayers sell the shares which they hold, the taxable amount of their income from capital assets comprises not only the price gains which they have realised on the shares disposed of during the tax period but also the price losses which they have sustained on other shares disposed of during the same period, which ultimately means that income realised from increased share prices in the relevant tax period is reduced by any losses incurred as a result of decreases in share prices.
74. That gives rise to inequality of treatment, as regards the taxable amount, between taxpayers who, by reason of the transfer of their residence abroad, are subject to an exit tax on unrealised capital gains on certain assets and taxpayers who, while retaining their tax residence in the national territory, have simply disposed of a number of assets, thereby realising capital gains on some and capital losses on others.
75. It is true, as discussed above, (39) that such a difference in treatment, in particular as regards the calculation of the taxable amount, is not an essential prerequisite for finding that free movement of workers is being restricted. However, it does reinforce the already restrictive effect of any exit tax. It is a known fact that taxpayers moving away suffer a cash-flow disadvantage, because, unlike taxpayers remaining in the national territory, they are taxed specifically on unrealised capital gains and not on capital gains actually realised on their assets. That same cash-flow disadvantage is further increased if unrealised capital losses are not taken into consideration in exit taxation, but can be taken into account in the assessment of ordinary income tax on the proceeds from disposals. In simplified terms, the exit tax tends to be higher if only unrealised capital gains are considered in its calculation but not unrealised losses from the selfsame securities portfolio.
76. It follows that disregarding unrealised capital losses in the calculation of an exit tax such as the Polish one at issue constitutes a restriction on the free movement of workers.
2. Justification
77. As above in the context of the first question referred, the foremost potential justification for such restriction is the balanced allocation between Member States of the power to impose taxes (see, in that regard, section (a) below). In addition, a brief examination of the desire to avoid double counting of losses must be undertaken (see section (b) below).
(a) Balanced allocation of the power to impose taxes
78. If it is assumed, first of all, that exit taxation is intended to achieve the legitimate objective of a balanced allocation between Member States of the power to impose taxes, it would be necessary to examine whether, in particular, disregarding unrealised losses in the value of the taxpayer’s assets is an appropriate means of ensuring the achievement of that objective.
79. In that context, it should be emphasised that a measure can be regarded as appropriate for securing attainment of the objective pursued only if it genuinely reflects a concern to attain that objective in a consistent and systematic manner. (40)
80. Just such a consistent and systematic approach is lacking in a tax regime such as the Polish one at issue, where capital losses sustained by the taxpayer must be disregarded in the calculation of exit tax in the event of transfer of his or her tax residence but certainly may be taken into consideration when it comes to assessing his or her ordinary income tax in the event of their being realised by way of asset disposal. If the change in the value of shares is to be determined for the purpose of taxation, taxpayers who wish to move abroad and taxpayers who retain their residence in the national territory are in a comparable situation. (41) Consequently, consistency of approach demands that the same method must actually be used to calculate the taxable amount in both cases.
81. The referring court surmises that, when adopting the national exit taxation regime, the Polish legislature might have assumed that the typical taxpayer will always seek to realise gains but will be reluctant to sustain losses. This could be a possible reason for taking unrealised capital gains into consideration for the purposes of exit tax but disregarding unrealised capital losses.
82. Even if it is supposed that the Polish legislature was actually guided by such considerations, that nevertheless fails to reflect a consistent and systematic approach, since the model of such a ‘loss-shy investor’ translates – if at all – only into the rules on exit tax, and not into those relating to ordinary income tax on price gains and losses realised by selling assets.
83. That said, a coherent and systematic approach to the allocation between Member States of the power to impose taxes requires, in my view, that the Member State which collects an exit tax should include in the relevant taxable amount both the unrealised capital gains made by the taxpayer and the unrealised capital losses sustained by the taxpayer, at least to the same extent as it would recognise, in the assessment of ordinary income tax, the capital losses incurred by residents in the event of their actually disposing of the assets concerned in the national territory.
84. That precise view, moreover, is already indicated by the existing case-law on exit taxation. The Court appears to proceed automatically on the understanding that the Member State responsible for taxing capital gains must not disregard any capital losses. (42) Naturally, only those capital losses which fall outside its own power of taxation must be disregarded when determining the taxable amount for the assessment of exit tax. (43)
85. I would add that any exit tax is necessarily accompanied by a snapshot statement of the taxpayer’s assets which are relevant for tax purposes at a particular reference date. If privately held securities, in particular shares, are subject to an exit tax, the taxpayer is ultimately deemed to have dissolved his or her entire portfolio of securities at the time of transfer of his or her tax residence abroad and thus to have disposed not only of individual securities but of all of them, some with price gains but others with price losses. In those circumstances, a consistent and systematic approach cannot be limited to focusing solely on the capital gains in the prices of particular securities to the exclusion of the capital losses sustained on other securities.
86. In another context, it may be appropriate to examine separately the development of the value of particular assets for the purpose of calculating an exit tax, in particular in the case of certain material assets of undertakings (namely buildings, machinery and vehicles), since they may have benefited from specific tax advantages, such as a depreciation allowance, which should be offset by the exit tax. That, however, does not apply to shares held in a private individual’s securities portfolio. In that case, the change in the value of the taxpayer’s assets, and hence the taxable amount for the purposes of any exit tax, becomes fully apparent only from an overall assessment of the portfolio.
87. All things considered, a regime such as the Polish legislation at issue is therefore by no means appropriate for ensuring a balanced allocation between Member States of the power to impose taxes.
(b) Avoidance of double counting of losses
88. In the preliminary ruling proceedings, the referring court also touched on avoidance of double counting of losses as a potential justification. It was argued that losses were liable to be taken into account twice if, initially, the Member State of exit counted unrealised losses on an asset when calculating the exit tax and, in the event of a subsequent disposal of the same asset concerned, the taxpayer could claim in the new host Member State for capital losses which had now been realised.
89. The Court recognises that Member States must be able to prevent the double counting of losses. (44) However, a risk of double counting can only be said to exist if tax relief on one and the same loss is actually claimed in two different Member States. That does not apply in the case of exit taxation for two reasons.
90. First, it is not even the same loss if in one Member State – the State of exit – tax effects arise from an unrealised loss in value and in another Member State – the new host State – from a loss in value actually realised through disposal.
91. Second, under the principle of fiscal territoriality, each of the Member States concerned is required to consider for tax purposes only those losses which are incurred within its fiscal jurisdiction. (45) The new host Member State will ‘in principle take account, at the time when the assets of the undertaking in question are realised, of capital gains and losses realised … after the transfer of [tax residence]’. (46) It is not required to take into account a loss which did not arise at all when the taxpayer was resident in its territory for tax purposes and which, moreover, had already been taken into account by the Member State of exit, normally even in a completely different tax period. (47) The principle of symmetry between the right to tax profits and the possibility of deducting losses must be upheld. (48)
3. Interim conclusion
92. The free movement of workers (Article 45 TFEU) thus precludes a national tax regime under which the taxable amount for the purpose of exit taxation must include only those of the taxpayer’s assets which have made an unrealised capital gain, to the exclusion of assets which have sustained an unrealised capital loss.
D. Extent of any deferment of payable exit tax (third question)
93. By its third question, the referring court essentially seeks to ascertain whether, under free movement of workers (Article 45 TFEU), it is sufficient for exit tax to be deferred for a maximum of five years with payment in instalments or whether the taxpayer must be granted a longer and complete deferment until the effective disposal of his or her relevant assets.
94. The background to that is the fact that the Polish legislation at issue provides, on application, for a deferment, in the form of payment in instalments, for a maximum period of five years from the end of the tax period in which the taxpayer left Poland. As is apparent from the order for reference, the referring court is seising the Court of that question primarily because the development of our case-law in that regard is not free of ambiguity, in particular since the judgment of the Grand Chamber in Wächtler. (49)
95. Against that backdrop, it is not surprising that the views of the parties to the proceedings on the third question referred are likewise divided. While AR and the Commission consider that a full deferment of exit tax until the actual disposal of the relevant assets is necessary, all of the governments concerned hold that a maximum of five years with payment in instalments should be sufficient.
1. Restriction of free movement of workers
96. Any collection of an exit tax before the date of the actual disposal of the taxpayer’s assets, regardless of whether payment in instalments is granted or not, results in a cash-flow disadvantage for the taxpayer and therefore undoubtedly constitutes a restriction on the free movement of workers. (50)
2. Justification
97. As has already been stated above, such a restriction can be justified only by overriding reasons in the public interest and is subject to compliance with the requirements arising from the principle of proportionality. (51) Since no further arguments have been put forward in the preliminary ruling proceedings, I shall address below the two essential justifications for the actual collection (as opposed to the mere assessment) of an exit tax, which are repeatedly discussed in existing case-law. One is the balanced allocation between Member States of the power to impose taxes, and the other is the effective collection of exit tax.
(a) Balanced allocation of the power to impose taxes
98. As regards the first possible justification, namely the balanced allocation between Member States of the power to impose taxes, it is common ground that that objective is not sufficient to justify the collection of an exit tax if and as long as the capital gains on the taxpayer’s relevant assets remain unrealised. As the Court has stated, the total deferment of payment of an assessed exit tax until the actual realisation of the taxable capital gains does not undermine the balanced allocation of the power to impose taxes. (52) A deferment of payment for a limited period – for only five years, for example – therefore goes beyond what is necessary for the mere allocation between Member States of the power to impose taxes and is thus disproportionate to the attainment of that first objective.
(b) Effective collection of exit tax
99. Matters are less clear, on the other hand, when it comes to the second possible justification, namely the Member State’s interest in collecting its exit tax effectively.
100. Since the judgment in Wächtler, (53) it has been unclear what weight can still attach to that interest of Member States. That is because, in that judgment, the Court examined the justifications advanced for the assessment and collection of an exit tax together and rejected them – at least in the light of the facts of that case – confining itself, in essence, to considerations which are really only relevant with regard to the balanced allocation between Member States of the power to impose taxes.
(1) Appropriateness
101. However, it does not seem to me that, in the judgment in Wächtler, the Court intended to deny Member States’ legitimate interest in collecting their exit tax effectively. (54) A deferment of payment for a limited period of time is certainly also an appropriate means of achieving that objective. As long as the EU legislature does not harmonise the law in this area, Member States will retain a certain margin of discretion to determine the exact duration of deferments of payment and the procedures for granting them.
(2) Necessity
102. The crux of the justification test, however, is whether a deferment of payment for a limited period of time is too strict, that is to say whether it goes beyond what is necessary to ensure effective collection of the exit tax. Less drastic alternatives should be considered: one would be an extended and complete deferment of the exit tax until the actual disposal of the relevant assets, possibly subject to lodging a guarantee; (55) another would be the exhaustion of all existing scope for cooperation and information-sharing between the tax authorities of the Member State of exit and the new host Member State. (56)
103. Contrary to what the judgment in Wächtler (57) seems to suggest, however, such alternatives – though certainly less drastic – are not, in my view, equally appropriate ways to achieve the objective of collecting exit tax as effectively as possible, for neither the lodging of guarantees by taxpayers nor cooperation and information-sharing with foreign authorities fundamentally alter the fact that, as the time lag since the taxpayer’s exit lengthens, it becomes increasingly difficult and burdensome to trace the assets concerned. (58) The risk of being unable to recover the tax debt constantly increases with the passage of time. (59)
104. Many an asset with unrealised capital gains, moreover, may never be disposed of, with the result that deferment of payment of the exit tax could last for ever, and the tax debt could never be recovered. That would be contrary to the right of the Member State of exit, expressly recognised by the Court, to recover its exit tax even if certain relevant assets are not disposed of after the transfer of residence. (60)
105. In the light of the foregoing, a deferment of exit taxation for a limited period – five years, for example – may be deemed entirely necessary for the actual achievement of the legitimate objective of effective collection of exit tax, even with due consideration to the margin of appreciation left to Member States.
(3) Proportionality in the strict sense
106. Finally, it remains to be examined whether deferment of exit tax for a limited period – and not simply until the latent capital gains on the relevant assets are actually realised through their effective disposal – is liable to impose on the taxpayer charges or disadvantages which are wholly disproportionate to the objective pursued, namely the effective collection of that tax (‘proportionality in the strict sense’).
107. Considered in isolation, taxpayers’ interests would undoubtedly be best served if they were granted the longest possible suspension of payment, that is to say, full deferment, with no obligation to pay in instalments, until the date of effective disposal of the relevant assets. Since exit tax, by its very nature, always relates to latent (as yet unrealised) capital gains, the taxpayer, at the time of assessment of that tax, will not necessarily have the liquid funds to pay the said tax and would then be compelled to dispose of some of his or her assets in order to monetise them.
108. However, the legitimate interests of the taxpayer must be weighed against the equally legitimate interest of the Member State of exit in effectively collecting exit tax with a view to striking a fair balance. Contrary to what the judgment in Wächtler (61) may suggest, the aim of that balancing exercise cannot really be complete ‘elimination’ of the cash-flow disadvantage suffered by taxpayers as a result of the exit tax. If an exit tax is considered justified in principle, (62) taxpayers must accept a certain number of disadvantages in connection with that tax, provided that those disadvantages can be made tolerable for them.
109. Accordingly, the judgment in Wächtler – which concerned the particular case of a national regime with no provision at all for automatic deferment (63) – should not be generalised; on the contrary, that judgment should be read as part of a fairly abundant continuum of case-law on exit taxation which has been amassed over more than 20 years. A common denominator which may be derived from that case-law is that, while the immediate collection of an assessed exit tax is disproportionate, (64) deferment of payment for a limited period of time may well still be compatible with the fundamental freedoms, (65) provided that the deferment of payment does not only apply by way of exception, in cases of hardship or subject to special conditions, but is automatically available to any person liable for exit tax. (66)
110. In particular, the Court has recognised that a five-year deferment of payment is perfectly capable of satisfying the proportionality requirements. (67) The EU legislature, moreover, now provides for a five-year deferment of exit tax as the norm, albeit only for undertakings subject to corporate tax. (68) A shadow would be cast over that legislation if, in the present case, the Court were to consider that a deferment of payment limited to five years is disproportionate.
111. Against that backdrop, a maximum five-year deferment of exit tax, combined with payment in instalments, does not seem in any way disproportionate.
(4) Additional observations on equal treatment of undertakings and natural persons
112. Admittedly, at the present time neither EU legislation nor case-law allows any hard and fast conclusions to be drawn with specific regard to exit tax payable by an employee or, more generally, by a private individual. Although some preliminary ruling proceedings concerning exit tax have related to natural persons, those persons – as far as can be ascertained – have generally been concerned in their capacity as entrepreneurs or at least as major shareholders of undertakings. (69)
113. Nevertheless, the Court has expressly recognised, in the context of infringement proceedings, that there is ‘no objective reason for distinguishing … between the exit taxation of natural persons and that of legal persons in respect of unrealised capital gains’. (70)
114. In practice, it is not always easy, in point of fact, to draw the dividing line between an entrepreneur and a private individual with significant holdings, in particular shares, in undertakings, for even a private individual participates in economic life by investing his or her savings in the stock market and provides undertakings with at least indirect support for their activities.
115. Both companies and private individuals ultimately face the same cash-flow problem in relation to exit taxation, which is that they have to pay a tax debt when they have not yet realised the latent taxable gains on their assets by way of disposal, which means that, in order to settle the tax debt, they may have to eat into the substance of their assets.
116. And both undertakings and private individuals are rightly reluctant to raid the very substance of their assets to settle debts. From the perspective of an undertaking, such an approach may have the effect of weakening its market position and possibly leading to a loss of jobs; for private individuals, it can lead to painful depletions of their savings and potentially even compromise their pension provision.
117. The imposition of an exit tax may therefore have downright drastic effects for both undertakings and private individuals. That, however, has to do with the nature of the exit tax, which is always levied on unrealised capital gains on certain assets and does not ensue from their actual disposal.
118. In short, I consider that a maximum deferment of the exit tax by five years, together with payment in instalments, even in a case such as the present one, which concerns not an undertaking but a worker, satisfies the requirements of proportionality.
3. Interim conclusion
119. The free movement of workers (Article 45 TFEU) therefore does not preclude national tax legislation under which an exit tax may be deferred on request in such a way that it is payable wholly or partly in instalments within a maximum period of five years with no need to await the actual disposal of the relevant assets.
VI. Conclusion
120. In the light of the foregoing considerations, I propose that the Court answer the request for a preliminary ruling from the Wojewódzki Sąd Administracyjny w Warszawie (Provincial Administrative Court, Warsaw, Poland) as follows:
Article 45 TFEU must be interpreted as follows:
1. It precludes a national tax regime under which exit tax payable on the transfer abroad of an employee’s tax residence extends to unrealised capital gains on that employee’s assets where those gains accrued abroad at a time when the employee was not yet resident for tax purposes in the national territory.
2. It precludes a national tax regime under which the taxable amount for the purpose of exit taxation must include only those of the taxpayer’s assets which have made an unrealised capital gain, to the exclusion of assets which have sustained an unrealised capital loss.
3. It does not preclude a national tax regime under which an exit tax may be deferred on request in such a way that it is payable wholly or partly in instalments within a maximum period of five years with no need to await the actual disposal of the relevant assets.