C-333/88

OPINION OF MR JACOBS —CASE C-333/88

OPINION OF MR ADVOCATE GENERAL JACOBS delivered on 8 February 1990 *

My Lords, Bont, Cydweli in Dyfed, Wales. For that purpose, he obtained a State-subsidized loan known as an option mortgage from Llanelli Borough Council of UKL 9 000. In August 1978, Mr Tither entered the service of the Commission. Under Article 13 of the Protocol, he thereupon became liable to a tax for the benefit of the Communities on 1. This case comes before the Court by way emoluments paid to him by the of a reference for a preliminary ruling from Communities, but enjoyed exemption from a United Kingdom tax tribunal, the Special national taxes on those emoluments. In Commissioners of Income Tax. In the main 1982, Mr Tither decided to make some action, Mr Tither is challenging the refusal improvements to The Old Steam Bakery of the Commissioners of Inland Revenue and arranged a building society loan which ('the Board') to enable him to take would have brought the total amount of his advantage of a scheme known as Miras borrowing up to UKL 25 000. As I shall (mortgage interest relief at source) when explain, this was then the limit on the paying interest on a loan he wished to amount of a loan for which tax relief could obtain to make improvements to his house. be claimed. However, he was unable to Mr Tither was at the material time an obtain the Board's authority to operate the official of the Commission of the European Miras scheme and did not therefore take Communities and the case turns on the up the loan, with the result that the proper construction of Article 13 of the improvements have not been made. Protocol on the Privileges and Immunities Mr Tither appealed to the Special Commis­ of the European Communities ('the sioners against the Board's refusal to allow Protocol'). the Miras scheme to be operated and on 15 November 1988 the Special Commis­ sioners made a reference to this Court under Article 177 of the EEC Treaty. The questions referred are as follows:

(1) Is 3. In order to answer the questions referred, it is necessary to consider the basic features of the United Kingdom income tax (a) Article 13 of the Protocol on the system and the way it treats interest on Privileges and Immunities of the loans taken out for the purpose of European Communities, or purchasing or, until recently, improving a home.

(b) Article 5, or

(c) Article 7 of the Treaty establishing the European Economic Commun­ 4. Income tax is a tax on the income of ity, or individuals, partners and trustees. An indi­ vidual taxpayer is normally exempt from tax on the first slice of his income. Thereafter, he becomes liable to tax at the basic rate. If (d) any other provision of Community his income exceeds a certain figure, he also law becomes liable to pay income tax on the excess at a higher rate.

6. In order to obtain full relief under these arrangements, the borrower needed to have 8. The Finance Act 1982 introduced a new sufficient taxable income to cover the system for granting assistance to people mortgage interest. Before the introduction wishing to buy a home. That system is of the Miras system, an alternative for a commonly known as Miras and it is the borrower whose taxable income was insuf­ Board's refusal to allow Mr Tither to ficient to cover the mortgage interest was to operate it which lies at the heart of these take out a form of subsidized loan known proceedings. The statutory provisions as an option mortgage under a scheme dealing with Miras were at the material time introduced by the Housing Subsidies Act contained in the 1982 Act. They are now to 1967 and operated by the government in be found in the Income and Corporation conjunction with local authorities and Taxes Act 1988, but their essence has not certain lenders. changed.

scheme does not depend upon the borrower or employment in respect of the emoluments having sufficient taxable income to cover of which he was not chargeable to income the mortgage interest. It is available to all tax by reason of 'some special exemption or qualifying borrowers, regardless of their tax immunity' was not a qualifying borrower. It position. will be observed that the 1982 Act therefore excluded from the Miras scheme certain individuals who were able to obtain option mortgages under the Housing Subsidies Act 1967 but for whom the subsidy paid by the government under that Act had not been intended. 10. It should be noted that the Miras scheme only permits the deduction of sums equivalent to income tax at the basic rate. If the borrower is subject to income tax at the higher rate, relief on the difference between 12. The Board took the view that the two rates is only available under the old Mr Tither was covered by paragraph 13(2) arrangements for the deduction of interest of Schedule 7 to the Finance Act 1982 as a from the borrower's taxable income through result of Article 13 of the Protocol. This the PAYE system or through an assessment provides : made by the Inland Revenue. Moreover, as with the old system, there is a statutory limit on the amount of loan for which the advantages of Miras are available. That limit is currently UKL 30 000, having been 'Officials and other servants of the increased with effect from the tax Communities shall be liable to a tax for the year 1984/85 from UKL 25 000. benefit of the Communities on salaries, wages and emoluments paid to them by the Communities ...

performance of their duties in the service of have been liable to United Kingdom income the Communities, establish their residence in tax on emoluments paid to him by the the territory of a Member State other than Commission had it not been for Article 13 their country of domicile for tax purposes at of the Protocol. It follows that, in the the time of entering the service of the absence of the exemption from national Communities, shall be considered, both in taxes which that provision confers, the country of their actual residence and in Mr Tither would have been entitled to the country of domicile for tax purposes, as operate the Miras scheme. Moreover, if having maintained their domicile in the Mr Tither had sufficient taxable income in latter country provided that it is a member the United Kingdom falling outside of the Communities.' Article 13 of the Protocol, he would be able to obtain tax relief under the arrangements which were in force before Miras was introduced by setting against that income the interest payable on the loan he wished to obtain. The arrangements for deducting interest from a borrower's taxable income 13. For the sake of completeness, I should still exist alongside the new system, add that 'relevant loan interest' is interest although they cannot be operated to the paid on a loan for the purchase of inter alia extent that the Miras scheme is applicable. land in the United Kingdom used as the only or main residence by the borrower or a dependent relative or former or separated spouse of his. At the material time, it also extended to loans taken out to finance a range of home improvements. The expression 'qualifying lender' covers a The Court's case-law number of bodies, the most important of which are building societies, local auth­ orities and certain insurance companies. It is not disputed that interest paid on the loan which Mr Tither was proposing to take out would have constituted 'relevant loan interest', nor that the institution from which 15. The Court has examined on a number he had arranged to borrow the money was a of occasions the scope of the exemption 'qualifying lender'. from national taxes granted to officials and other servants of the Communities. In Case 6/60 Humblet v Belgium [1960] ECR 559, it was asked to consider a personal surtax levied under Belgian law on a person's income in addition to ordinary income tax. The surtax was levied on the 14. The issue raised by this reference is aggregate income of a husband and wife essentially whether the Board's refusal to and the rate increased with successive bands allow Mr Tither to operate the Miras of income. Mr Humblet was an official of scheme is compatible with Article 13 of the the ECSC and a Belgian national. In the Protocol. Before the Commissioners, the disputed assessment of liability to tax, the case is proceeding on the basis that at all Belgian tax authorities had added his net material times Mr Tither was resident and remuneration from the Community to the ordinarily resident (i.e. fiscally domiciled) in income of his spouse. The result was that the United Kingdom and that he would the latter income was liable to tax at a

substantially higher rate than would have case) of a school levy payable under Dutch been the case had Mr Humblet's emol­ law. The amount of the levy varied uments been disregarded. according to the parent's income tax liability. Where a parent was wholly or partly exempt from income tax, however, he became liable to the maximum levy unless he could prove that, if the exemption did not apply, he would be liable to pay a lesser sum. 16. The Court held that this was incom­ patible with Article 11(b) of the Protocol on the Privileges and Immunities of the ECSC, which was in basically the same terms as the provision at issue in this case. The Court said that Article 11 indicated 18. The Court held that Article 12 covered 'clearly and unambiguously exemption from all national taxes on salaries, 'no matter any fiscal charge based directly or indirectly what form such taxes take or whatever they on the exempted remuneration' (p. 574). It are called' (p. 48). However, it did not went on to examine in some detail the extend to 'charges and dues required as a purpose of that exemption. The Court said consideration for a given service supplied by that it was necessary for the Community to public authorities'. This was so even where have the power to fix the net income of its 'the amount of the charge to be paid is officials because only in this way could the determined by reference to the income of institutions evaluate the services of their the person concerned' (ibid). The Dutch officials and officials assess the posts offered authorities were therefore entitled to take to them. Moreover, exemption from account of the salary paid to an EEC national taxes was indispensable if equality official in calculating his liability to pay the of remuneration for officials of equivalent levy. rank but different nationality was to be guaranteed. 'The essential comparison', said the Court, ' ... must be between Community officials of different nationalities receiving the same gross remuneration and having also in their respective countries equal amounts of other taxable income' (p. 580). 19. The most recent case of relevance in As a result, 'any taxation, direct or indirect, these proceedings is Case 260/86 of income which is not within the juris­ Commission v Belgium [1988] ECR 955, diction of the Member States' was excluded which concerned the compatibility with the (p. 578). Protocol of a Belgian law imposing a tax on income from real property situated in Belgium. The tax was payable by the owner of the property but the rate could be reduced according to the social circum­ stances of the occupant. The occupant was entitled to deduct an appropriate amount 17. In Case 32/67 Van Leeuwen from the rent. However, no reduction was v Rotterdam [1968] ECR 43, the Court was applicable where the property was occupied asked to consider the compatibility with 'by a tenant who, either himself or on Article 12 of the Protocol on Privileges and account of his spouse, is exempt from the Immunities annexed to the EEC Treaty (the tax on natural persons by virtue of inter­ forerunner of the provision at issue in this national conventions'. Accordingly, no

22. Mr Tither, supported by the 'precludes any national tax, regardless of its Commission, takes the opposite view. He nature and the manner in which it is levied, contends that a fiscal advantage or subsidy which is imposed directly or indirectly on which is generally available, namely the officials and other servants of the Miras scheme, has been withheld from him Communities by reason of the fact that they solely as a result of his employment by the are in receipt of remuneration paid by the Communities. He submits that the with­ Communities, even if the tax in question is drawal of a subsidy which is otherwise not calculated by reference to the amount of generally available constitutes an indirect that remuneration' (paragraph 10). fiscal charge, the legal basis for the impo­ sition of which is the fact that he is in receipt of a salary from the Communities. As a result, he says, the Communities' right to fix his net remuneration has been As the Court explained, the financial burden prejudiced. of the tax was passed on by the landlord of the property to the tenants, as was apparent from the provision that reductions in the tax could be deducted from the rent. Thus, where the tenant or his spouse was a Community official but would otherwise have been entitled to a reduction, they were 23. In my view, the Court's case-law estab­ forced to bear an additional financial charge lishes that the expression 'national taxes' in 'for the precise reason that they are in Article 13 of the Protocol is to be construed receipt of remuneration which is exempt broadly. Be that as it may, it is only where a from national taxes' (paragraph 12). Member State seeks to subject officials and other servants of the Community to some form of fiscal charge on the emoluments paid to them by the Community that Article 13 can bite. It is true, as Commission The questions referred v Belgium, cited above, demonstrates, that the charge need only be indirect. Thus, the denial of a tax relief may fall within the scope of Article 13 because the result will 21. The United Kingdom Government be to increase a person's liability to tax. denies that the refusal to permit Mr Tither However, in the absence of any direct or to operate Miras contravenes Article 13 of indirect charge to tax, I consider Article 13 the Protocol, as his net remuneration from to be inapplicable.

24. How, then, is the Miras scheme to be Miras scheme could only operate to confer characterized for these purposes? The a non-fiscal financial benefit. United Kingdom suggested in its written observations that the scheme has a twofold function: it is part tax relief, part subsidy. In my view it can be regarded in all cases as a subsidy: in all cases, its effect is to subsidize mortgage interest payments. It is right to say, however, that the nature of the subsidy 26. Accordingly, although the Miras is wholly different in the case of taxpayers scheme is administered through the tax and non-taxpayers respectively. This is system, the Board's refusal to allow clearly demonstrated by the worked Mr Tither to operate it cannot be said to examples provided by the United Kingdom, result in the imposition on him, even in­ in response to a request from the Court, directly, of a fiscal charge he would not illustrating the effects of the Miras scheme otherwise have to bear. Although that for borrowers. Those examples show that in refusal was based on Mr Tither's immunity the case of a taxpayer with income subject from national taxes under Article 13 of the to United Kingdom income tax which is Protocol, the effect was simply to exclude sufficient to cover any relevant loan interest him from a form of financial assistance for which he is liable, the Miras scheme has which might otherwise have been payable. It the same effect as deducting the gross is for this reason that the instant case can be amount of the interest from his income distinguished from Commission v Belgium, chargeable to tax. However, in the case of a for there the sums paid by landlords to the person with no income subject to United Belgian tax authorities were indirectly borne Kingdom income tax but who is permitted by their tenants. Broad though Article 13 of to operate the Miras scheme in respect of the Protocol undoubtedly is, it does not in relevant loan interest, the result is that the my view require Member States to grant Inland Revenue receives nothing from the financial assistance in circumstances such as borrower but still pays out money to the those at issue here. lender and therefore suffers a net loss. Thus the scheme is indeed hybrid: it operates, for taxpayers, as a form of tax relief; for non-taxpayers, it confers a non-fiscal financial benefit.

entitled to tax relief if he has sufficient 30. With regard to Article 5 of the Treaty, taxable income to cover the interest on the I do not consider this provision to be of any proposed loan. This is because, as pointed assistance to Mr Tither, since it does not in out above, a person who does not qualify my view add anything to Article 13 of the for the Miras scheme but who has taxable Protocol. The present case may in this income can still obtain tax relief on respect be contrasted with Case 44/84 Hurd mortgage interest outside that scheme by v Jones [1986] ECR 29, where Article 5 setting the interest against that income. In was held, independently of other provisions consequence, whether a person is a taxpayer of Community law, to prohibit Member or not, a refusal to allow him to operate the States from subjecting to domestic taxation Miras scheme does not constitute, under the the salaries paid by the European Schools to legislation in force, the refusal of a tax their teachers, where the burden of such relief. taxation was borne by the Community budget. Even if Article 5 were thought in the present case to go further than Article 13 of the Protocol, it is unlikely that 28. I conclude that Article 13 of the it would produce direct effect in such Protocol does not prevent the Board from circumstances: see the Hurd case, supra, refusing to allow Mr Tither to operate the paragraph 3 of the operative part of the Miras scheme by reason of the fact that, at judgment. the material time, he was exempt from national taxes on his Commission salary.

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