C-208/80

JUDGMENT OF 15. 9. 1981 — CASE 208/80

States are entitled to charge such remun- European Parliament to its Members eration to national income tax. from Community funds by way of reimbursement of travel and subsistence expenses, unless it can be shown in Consequently Community law prohibits accordance with Community law that the imposition of national tax on such lump-such reimbursement consti- lump-sum payments made by the tutes in part remuneration.

In Case 208/80

REFERENCE to the Court under Article 177 of the EEC Treaty and Article 30 of the Treaty establishing a Single Council and a Single Commission of the European Communities by the Commissioners for the special purposes of the Income Tax Acts ("the Special Commissioners") for a preliminary ruling in the case pending before that tribunal between

THE R T H O N . LORD BRUCE OF DONINGTON

and

LORD BRUCE OF DONINGTON v ASPDEN

JUDGMENT

Facts and Issues

The facts of the case, the course of the chapter of the expenditure of the Par- procedure, the observations submitted liament relating to members of the pursuant to Article 20 of the Protocol on institution (Official Journal 1975, L 54, the Statute of the Court of Justice of pp. 1 and 62; Official Journal 1976 the EEC and the information supplied L 66, pp. 1 and 64). pursuant to Article 21 of that Protocol may be summarized as follows :

JUDGMENT OF 15. 9. 1981 — CASE 208/80

LORD BRUCE OF DONINGTON v ASPDEN

JUDGMENT OF 15. 9. 1981 — CASE 208/80

The President of the Parliament directly to his home after a session of the confirmed moreover in a letter to Lord Parliament, the whole of his travel Bruce that since 1952 no Member State allowance is taxable with the result that had ever charged national income tax on such a Member must bear a substantial the allowances. part of the travel costs himself.

Secondly, Lord Bruce bases his If the taxation of the allowances were arguments on the privileges and permitted, expenses which the Par- immunities enjoyed by the Communities liament has decided to authorize and pay by virtue of the first paragraph of Article would not be deductible in the United 28 of the Treaty establishing a Single Kingdom. Council and a Single Commission of the European Communities and by virtue of the Protocol on the Privileges and The incidence of tax liability could Immunities of the European Communi- moreover be particularly severe and rise ties annexed to that Treaty, in particular to a tax rate of 83 % for a taxpayer with the first paragraph of Article 8 which other sources of income. prohibits any administrative or other restriction on the free movement of Members of the Assembly travelling to The requirement of proving that the or from the place of meeting of the actual expenses were necessary would Assembly. The principle of the indepen- impose a formidable administrative dence of the Community vis-à-vis the burden on Members of the Parliament. authorities of the Member States They would be required, in particular, to precludes a Member of the Parliament satisfy the revenue authorities of the from being obliged to make a claim for necessity of every part of every journey the deduction of expenses actually made and of each item of subsistence. incurred and to account for them to the The revenue authorities could thus tax authorities or to prove that those decide that certain expenses, for example expenses were wholly, exclusively and newspapers, periodicals, books, news necessarily incurred in the performance cutting services, etc. were not necessary of his duties. and therefore not allowable.

(EEC, Euratom, ECSC) N o 260/68 of importance of the sovereign right of the Council of 29 February 1968 laying States to impose taxes and with the down the conditions and procedure for invariable international practice within applying the tax for the benefit of the Community and in other inter- the European Communities (Official national organizations. Journal, English Special Edition 1968 (I) p. 37), lump-sum allowances compensating for expenses incurred by Article 142 of the EEC Treaty is officials and servants of the Communities concerned only with procedural rules. in the performance of their duties are not The rules on expenses and allowances subject to any tax, either national or are not of that type. The imposition of Community. It would be anomalous if taxation on allowances does not touch expenses and allowances paid by the upon the sovereignty of the Parliament Parliament to its Members were, unlike and does not subject the relations those paid to officials, subject to tax. between the Parliament and its Members Exemption from national taxation is not to review by the national taxation auth- the corollary of liability to Community orities. taxation, but is a consequence of the nature of the Community itself and is a rule applicable generally to international The Protocol on the Privileges and organizations. Immunities of the European Communi- ties sets out the privileges and immunities to which Members of the Parliament are entitled and which are necessary for the 2. Observations of the United Kingdom performance of their functions. N o Government provision is made there for any exemption from taxes. The necessity in practice to keep records of expenditure on journeys undertaken and other The United Kingdom Government expenditure incurred does not constitute supports the view already defended by a restriction on the free movement of Her Majesty's Inspector of Taxes in Members of the Parliament within the proceedings before the Special Com- meaning of Article 8 of the Protocol missioners that there is nothing which because no permission from the taxation precludes a Member State from taxing so authorities is necessary for a journey by much of the allowances in question as a Member of the European Parliament exceeds the expenditure incurred. and the part of his allowances which the Member of the Parliament expends necessarily in the performance of his The United Kingdom Government functions in any case remains exempt observes first that the question put by the from taxation. Special Commissioners is unnecessarily wide inasmuch as there has never been any question of taxing expenses actually Article 13 of the Protocol on the and necessarily incurred; and conse- Privileges and Immunities of the quently the question should be limited to European Communities does not apply the taxation of any surplus. to Members of the Parliament. The exemption from national tax for certain categories of persons such as officials The need for an express provision of a and servants of the Communities is convention in order to give rise to an the corollary of the imposition of exemption from taxes accords with the Community tax on those persons.

It asserts that the tax rules applicable to the emoluments of Members of the 4. Observations of the Commission European Parliament fall at the present time within the exclusive legislative responsibilities of the Member States. The Commission supports the argument Even though under Article 13 of the that Member States are free to apply Act concerning the election of the rep- their national taxation provisions to the resentatives of the Assembly by direct allowances in question. universal suffrage the Council might adopt the measures necessary for the implementation of that Act including It submits that the fact that the Protocol arrangements relating to emoluments, on the Privileges and Immunities of the advantage was not taken of that power European Communities, the provisions and Member States retain power to of which are clear and precise, contains adopt rules and regulations concerning no tax exemption in favour of Members the allowances to be paid to Members of of the Parliament is not an oversight. the Parliament and also concerning the The non-payment of national taxes and system of taxation. In support of this the payment of a Community tax on view the French Government refers to salaries and emoluments are inextricably the minutes of the Council meetings on linked. 18 and 19 December 1978. An actual convention supplementing the Protocol Article 142 of the EEC Treaty gives no on the Privileges and Immunities of power to the Parliament to adopt the European Communities would be through its rules of procedure legislative required in order to make Members of provisions binding on the Community the Parliament liable to Community tax and on Member States in matters of or to set up a system of tax exemption. taxation. If the Parliament has an implied power to decide upon the payment of such expenses and allowances that A Community system of tax exemption cannot affect the manner in which the cannot be implied. N o analogy is competent authorities of the Member possible with the tax system applicable States and of the Community deal with to officials and servants of the those allowances for the purposes of Communities. calculating tax due.

ties, particularly as tax is due in the payment of allowances derives from the United Kingdom only on the surplus first paragraph of Article 142 of the EEC over the expenses actually incurred. Treaty, the first paragraph of Article 112 of the EAEC Treaty and the first paragraph of Article 25 of the ECSC Treaty and reflects the principle of the Article 3 (2) of Regulation No 260/68, organizational independence of the Par- which applies to officials, cannot be liament. Those provisions do not relate taken in isolation because that provision solely to procedure in the narrow sense exonerates from Community tax the of the term but to all the matters compensation for expenses, which are inherent in the accomplishment of the themselves regulated by the Staff Regu- tasks of the institution. Under Article 5 lations of Officials, and calculated to of the EEC Treaty the Member States correspond more or less to the actual are obliged to respect this institutional expenses incurred, whereas Lord Bruce's independence. Rules on the payment of thesis would put the expenses and allowances to Members or the Par- allowances, whatever their amount, paid liament are essential to enable individual to the Members of the Parliament Members to participate in the activities outside the scope of any taxation system. of the Parliament without suffering financial loss, regardless of the Member's place of residence or his means or income. It is a fundamental principle of the functioning of the institutions of an 5. Information supplied by the European international organization, in contrast to Parliament the case of an international conference, that those institutions themselves make arrangements to cover the administrative aspects of the performance of the In response to the questions asked by the mandate of their members. Appropriate Court, the European Parliament stated in decisions on the reimbursement of particular that as early as September expenses have been made without any 1952 the Common Assembly of the opposition from the Member States, by European Coal and Steel Community the Council, the Economic and Social decided to grant subsistence allowances Committee and the European Parliament and travel expenses to its Members. The and the necessary funds are provided for present text of the Rules governing the in the budgets or those institutions. payment of expenses and allowances to Members of the European Parliament was adopted on 5 July 1972 by the Enlarged Bureau of the Parliament The flat-rate amounts provided for in the following a resolution relating thereto rules in question were based on the adopted by the Plenary Assembly on 3 average hotel and restaurant costs at the July 1972 and has undergone frequent places at which Members of the Par- modifications to take account of rising liament were required to attend Par- costs. The Parliament has lodged copies liamentary activities and on first class air of minutes and other documents relating fares. to those rules.

actual expenses would entail for the pursuant to Article 5 of the EEC Treaty. institution and its Members. Neither the National taxation provisions are not Court of Auditors nor, previously, the applicable to these payments. The Control Committee have questioned consequence of a decision to the either the amount or the method of contrary would be unjustifiable discrimi- calculation of the allowances when nation between the Members of the Par- reviewing the Parliament's expenditure. liament. Neither Community nor national tax were taken into account in calculating the flat-rate allowances. National taxes imposed by certain Member States would 6. Information supplied by the Council have to be offset by an increase in the expenses of the Members affected because the Parliament is required to ensure that all its Members are treated The Council, at the request of the Court, uniformly as regards the performance of produced an extract from the minutes of their duties. Furthermore, the principle the meeting of the Council on 19 of flat-rate allowances is applied by the December 1978 and a letter of 15 majority of the parliaments of the December 1978 annexed thereto from Member States. the President of the Council to the President of the Parliament, to which documents the French Government referred in its written observations. By As regards the practice followed in the the letter of 15 December 1978 the Member States as to the imposition of President of the Council had informed national taxes on allowances paid by the the President of the Parliament that it European Parliament, the Parliament had not been possible to achieve states that this is the first instance which agreement before the election of the has come to the knowledge of the Par- Parliament by direct universal suffrage liament since 1952 where a Member on the latter's proposals for the basis of State has attempted to impose national the measures governing the allowances taxation-on such allowances. and reimbursement of expenses and a certain number of other matters, that, consequently, the Council was pro- The Parliament takes the view that if a ceeding on the assumption that the Member State is of the opinion that the competent bodies in the Member States payments are too high or have no legal would introduce measures on the basis, that Member State should make allowances to be paid to the directly- use of the due forms of Community law elected Members and that the same in order to change the Parliament's would hold true for taxation; that, practice. Measures acting to the moreover, the Council shared the Par- detriment of Members of the Parliament liament's view that the reimbursement of adopted by one particular Member State expenses would be a matter for the Par- are inadmissible. liament and that accounting problems involved in the event of reimbursement for expenditure overlapping with national provisions would be handled by In conclusion, the Parliament expresses the competent bodies in the Member the view that the payment of the States. It is clear from the minutes allowances is necessary for the mentioned above that the Council had functioning of the institution and must adopted the conclusions set out in that be respected by the Member States letter.

ι In accordance with a decision of 5 November 1979, notification of which was received at the Court on 23 October 1980, the Commissioners for the special purposes of the United Kingdom Income Tax Acts (hereinafter referred to as the "Special Commissioners") referred to the Court for a pre­ liminary ruling under Article 177 of the EEC Treaty and Article 30 of the Treaty establishing a Single Council and a Single Commission of the European Communities a question on the interpretation of several provisions of Community law, and in particular Article 142 of the EEC Treaty and Article 8 of the Protocol on the Privileges and Immunities of the European Communities annexed to the Treaty establishing a Single Council and a Single Commission of the European Communities in order to determine the compatibility with Community law of the taxation by national revenue auth­ orities of travel and subsistence allowances paid by the European Parliament to its Members.

2 That question was raised in the course of appeal proceedings brought by the Rt Hon. Lord Bruce of Donington, who was designated as a Member of the European Parliament by the House of Lords of the United Kingdom from 30 July 1975 until the election of the Parliament by direct universal suffrage, against one of H e r Majesty's Inspectors of Taxes, who are responsible for making assessments to income tax in the United Kingdom. The appeal was brought against an assessment to income tax made in respect of travel and subsistence allowances paid by the European Parliament to Lord Bruce during the fiscal year 1975/76 to cover the expenses resulting from his attendance at meetings and participation in the work of the Parliament and its organs and for other journeys made in the interests of the Parliament.

7 The United Kingdom Government, the French Government and the Commission maintained that in the absence of express provisions in the Protocol on the Privileges and Immunities of the European Communities conferring exemption from national taxes, there is nothing which precludes a Member State from charging such payments by the Parliament to national tax, since a tax exemption cannot be implied.

LORD BRUCE OF DONINGTON v ASPDEN

8 Lord Bruce takes the view that by virtue of the principle that Parliament is sovereign in matters of procedure and in its internal relations with its Members, a principle enshrined in the first paragraph of Article 142 of the EEC Treaty, and by virtue of the first paragraph of Article 8 of the Protocol on the Privileges and Immunities of the European Communities which guarantees the free movement of Members of the Assembly, the authorities of the Member States are precluded from reviewing the performance by a Member of the European Parliament of his duties, his travel in connection with those duties and his related expenditure. The Member States may not therefore tax payments made by the Parliament in respect thereof. It would, moreover, be illogical if income tax were charged on these allowances whilst those paid to officials and servants of the Communities, including those employed by the Parliament, are exempt pursuant to Article 13 of the Protocol on the Privileges and Immunities of the European Communities and Article 3 (1) of Regulation No 260/68 of the Council of 29 February 1968 laying down the conditions and procedure for applying the tax for the benefit of the European Communities (Official Journal, English Special Edition 1968 (I), p. 37).

1 1 Article 13 of the Protocol on the Privileges and Immunities of the European Communities provides that officials and other servants of the Communities "shall be exempt from national taxes on salaries, wages and emoluments paid by the Communities". That provision must be read in the light of the first paragraph of that article which states that those officials "shall be liable to a tax for the benefit of the Communities on salaries, wages and emoluments paid to them by the Communities". Article 13 also applies, by virtue of Articles 20 and 21 of that Protocol, to the Members of the Commission and to the Judges, Advocates General and Registrar of the Court, by virtue of Article 22 of the Protocol, to Members of the organs and staff of the European Investment Bank and to the representatives of the Member States taking part in its activities and, by virtue of Article 206 (1) of the EEC Treaty, Article 180 (10) of the EAEC Treaty and Article 78e (1) of the ECSC Treaty, to the Members of the Court of Auditors.

12 No comparable provision appears amongst the privileges and immunities granted to Members of the Assembly in Chapter III of the abovementioned Protocol. The Members of the European Parliament, who at the time when the relevant events occurred were designated by the national parliaments, received no remuneration from the European Parliament for their activities in the exercise of their mandates. As far as concerns any remuneration for their activities in the exercise of their mandates, their financial arrangements were, apart from the allowances in question here, governed by national law alone. The Community tax provided for by the first paragraph of Article 13 of the abovementioned Protocol and fixed by Regulation No 260/80 of the Council did not apply to them.

15 In this regard it must first be observed that the reimbursement of travel and subsistence expenses incurred by Members of the Parliament in the exercise of their mandates is a measure of internal organization intended to ensure the proper functioning of the institution. It is essential that each Member of the Parliament should at all times be able to attend all the meetings and participate in all the activities of the Parliament and its organs without suffering financial loss, regardless of the Member's place of residence, the location of his constituency and his available financial means. Rules such as those adopted by the Parliament governing subsistence and travel expenses and allowances therefore fall within the scope of measures of internal organization whose adoption is a matter for the Parliament pursuant to the first paragraph of Article 142 of the EEC Treaty, the first paragraph of Article 112 of the EAEC Treaty and the first paragraph of Article 25 of the ECSC Treaty.

16 If and so far as a national tax on the allowances received by Members of the Parliament were to be charged on the whole of the sums received, including the part which is in fact needed in order to cover their actual expenditure, it would form a financial obstacle to the movement of the Members of the Parliament who would then be obliged to bear personally a proportion of their travelling expenses. It should be mentioned that the United Kingdom Government did not maintain that it was possible to tax the proportion of the allowances equal to the actual expenditure incurred.

20 Consequently, the revenue authorities cannot demand from a Member of the European Parliament returns or vouchers for the actual travel and subsistence expenses incurred in the interests of the Parliament and reimbursed by it, as such a demand would be incompatible with this method of lump-sum reimbursement.

21 It must, however, be observed that the allowances fixed in that manner must not exceed reasonable limits consistent with the refund of travel and subsistence expenses. In so far as the lump sum fixed for the allowances is excessive and in reality constitutes in part disguised remuneration and not reimbursement of expenses, the Member States are entitled to charge such

LORD BRUCE OF DONINGTON v ASPDEN

remuneration to national income tax, given that in the present state of Community law the remuneration of Members of the Parliament is a matter of national law and is not the responsibility of the institutions of the Community. However, an assessment of whether the lump sums fixed by the Parliament are excessive, which is, moreover, a matter of Community law alone, was not requested by the national tribunal, before which it was not alleged that at the time the allowances were unreasonably high.

22 Consequently, the reply which must be given to the question put by the Special Commissioners is that Community law prohibits the imposition of national tax on lump-sum payments made by the European Parliament to its Members from Community funds by way of reimbursement of travel and subsistence expenses, unless it can be shown in accordance with Community law that such lump-sum reimbursement constitutes in part remuneration.

OPINION OF SIR GORDON SLYNN — CASE 208/80

Community funds by way of reimbursement of travel and subsistence expenses, unless it can be shown in accordance with Community law that such lump-sum reimbursement constitutes in part remuneration.

Mertens de "Wilmars Pescatore Mackenzie Stuart Koopmans Bosco

Touffait Due Everling Chloros

Delivered in open court in Luxembourg on 15 September 1981.

A. Van Houtte J. Mertens de Wilmars Registrar President