ECHR ruling on reverse discrimination

The European Court of Human Rights issued its ruling today regarding reverse discrimination in the application of tax deductions based on holding periods for capital gains subject to tax deferral in securities exchange transactions.

In fact, if the transactions fell within the scope of the directive, taxpayers were eligible for tax deductions, unlike in the case of purely domestic transactions.

While the Court acknowledges that there is a difference in treatment, it nevertheless considers that this:

• is justified by the obligation to comply with European Union law, which constitutes“a legitimate interest of considerable weight.”

• It then notes that states have broad discretion in defining general economic or social policies.

• Finally, the Court finds that the justification is objective and reasonable. It notes, in fact, that:

  • the application of the directive merely results in variations in the degree of tax neutrality of transactions;

  • The failure to apply the tax deduction to capital gains carried forward that were realized prior to January 1, 2013, is due to a change in the applicable tax rules;

  • The difference in treatment therefore stems from a change in the rules, and these transitional provisions do not appear to be arbitrary.

The Court therefore finds that there has been no violation of Article 14 or Article 1 of the First Additional Protocol to the ECHR.

The Court’s decision is also noteworthy in that it holds that a taxpayer who has challenged a BOFiP before the Council of State may be considered to have exhausted all domestic remedies.

ECHR, May 22, 2025, No. 45443/21 et al.

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