Introduction
On 17 September 2026, the Court of Justice of the European Union (First Chamber) delivered its judgment in Case C-223/25, BT and CY v Finanzamt Siegburg. The case reached the Court by way of a reference for a preliminary ruling and concerns the intersection of national income tax law, the deductibility of household-related expenses, and the obligations arising from the Agreement between the European Union and the Swiss Confederation on the free movement of persons.
At its core, the dispute raises the question of whether a national rule that limits the deductibility of certain expenses incurred by a taxpayer in relation to his or her household — restricting that benefit exclusively to households situated in a Member State of the European Union or in a state party to the Agreement on the European Economic Area (EEA) — is compatible with the principles of equal treatment and non-discrimination on grounds of nationality and residence enshrined in the EU-Switzerland Agreement. The judgment is therefore of direct relevance to taxpayers, tax authorities, and practitioners operating at the intersection of Swiss and EU legal frameworks.
Legal and factual background
The case was referred to the Court of Justice as a preliminary ruling, meaning that a national court or tribunal had identified a question of EU law — or, in this context, a question concerning an agreement forming part of the EU legal order — that required authoritative interpretation before the domestic proceedings could be resolved. The referring court sought guidance on how the EU-Switzerland Agreement on the Free Movement of Persons should be applied to the tax situation of the applicants, BT and CY.
The national measure under scrutiny is a provision of income tax law that allows taxpayers to deduct from their taxable income certain expenses connected to their household. However, the deduction is conditional: it applies only where the household in question is located either in an EU Member State or in a state that is party to the EEA Agreement. Households situated in Switzerland — a country that is neither an EU Member State nor an EEA party — are therefore excluded from the scope of this tax advantage under the national rule as written.
The applicants, BT and CY, appear to have incurred expenses relating to a household situated in Switzerland and sought to benefit from the deduction available under national law. The Finanzamt Siegburg, the competent German tax authority, refused to grant the deduction on the basis that the household did not meet the geographic eligibility criterion. This refusal gave rise to the dispute that ultimately led to the preliminary reference.
The EU-Switzerland Agreement on the free movement of persons
The Agreement between the European Union and the Swiss Confederation on the free movement of persons is a bilateral instrument that forms part of a broader set of sectoral agreements between the EU and Switzerland. Although Switzerland is not a member of the EU or the EEA, this Agreement creates specific rights and obligations in the field of free movement, including provisions on equal treatment and non-discrimination.
The judgment identifies equal treatment and non-discrimination on grounds of nationality and residence as the central principles engaged in this case. These principles, as they appear in the EU-Switzerland Agreement, are intended to ensure that nationals of the contracting parties who exercise free movement rights are not placed at a disadvantage compared with nationals of the host state in comparable situations. The application of these principles to direct taxation — a field that remains primarily within the competence of Member States — has been a recurring source of litigation before the Court of Justice.
The preliminary ruling procedure in this case required the Court to determine the precise scope of the equal treatment obligation under the Agreement and to assess whether the geographic restriction in the national tax rule constitutes a form of discrimination based on nationality or residence that is prohibited by the Agreement's terms.
The restriction and its justification
The national rule at issue creates a distinction between taxpayers whose households are located within the EU or EEA and those whose households are located in Switzerland. Taxpayers in the former category may benefit from the deduction of certain household-related expenses; those in the latter category cannot. The judgment frames this as a potential restriction on the rights guaranteed by the EU-Switzerland Agreement, specifically in the context of equal treatment and the prohibition of discrimination based on nationality and residence.
A central element of the Court's analysis concerns whether such a restriction can be justified. In EU internal market law, restrictions on fundamental freedoms may be permissible if they pursue a legitimate objective and are proportionate to that objective. The judgment addresses the question of justification in the context of the EU-Switzerland Agreement, examining whether the geographic limitation of the tax advantage to EU and EEA households can be defended on grounds recognised under the Agreement.
The document identifies justification as a distinct analytical step, indicating that the Court considered arguments that might support the compatibility of the national measure with the Agreement's requirements. The outcome of that analysis — and whether the Court found the restriction to be justified or unjustified — is the determinative legal conclusion of the judgment, with direct consequences for how national tax authorities must treat taxpayers in comparable cross-border situations involving Switzerland.
Significance for taxpayers and tax authorities
The judgment in BT and CY v Finanzamt Siegburg carries practical significance for individuals who are subject to income tax in an EU Member State and who maintain a household in Switzerland. If the Court found the geographic restriction to be incompatible with the EU-Switzerland Agreement, national tax authorities would be required to extend the household expense deduction to taxpayers whose households are situated in Switzerland, on the same terms as those applicable to households in EU or EEA states.
For tax authorities such as the Finanzamt Siegburg, the judgment provides authoritative guidance on the limits of permissible geographic distinctions in the design of tax advantages. National legislators and administrators must take account of the obligations arising from the EU-Switzerland Agreement when crafting or applying rules that condition tax benefits on the location of the taxpayer's household or other personal circumstances.
The case also illustrates the broader principle that bilateral agreements concluded by the EU with third countries can have direct implications for national tax law, even in areas — such as direct taxation — where Member States retain primary legislative competence. The preliminary ruling mechanism ensures that such implications are interpreted uniformly across the EU, providing legal certainty for taxpayers and authorities alike.
Conclusion
The judgment of the Court of Justice (First Chamber) of 17 September 2026 in Case C-223/25, BT and CY v Finanzamt Siegburg, addresses a significant question at the intersection of national income tax law and the EU-Switzerland Agreement on the Free Movement of Persons. By examining whether a national rule restricting household expense deductions to households in EU or EEA states is compatible with the Agreement's equal treatment and non-discrimination provisions, the Court has provided guidance that is relevant to taxpayers, national tax authorities, and legislators across the European Union.
The case underscores the importance of the EU-Switzerland Agreement as a source of legally enforceable rights in the field of taxation and confirms that geographic restrictions on tax advantages may be subject to scrutiny under that Agreement where they affect persons exercising free movement rights between the EU and Switzerland. Practitioners and institutions dealing with cross-border tax matters involving Switzerland should take careful note of the Court's reasoning and conclusions.
This article is for educational and informational purposes only and does not constitute legal advice.
Sources consulted
Published by Synojus International
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