C-204/90

2. As is apparent from the judgment of the Belgian Cour de Cassation making the preliminary reference in Case C-204/90 (b) in performance of a life assurance Bachmann v Belgium, Article 54 of the contract concluded by him personally; Belgian Code des Impôts sur les Revenus (Income Tax Code, hereinafter referred to as the 'CIR') provided, in the version thereof applying to the main proceedings, as follows: ...'.

The following shall be deducted from the Moreover, Article 45 of the Royal Decree taxpayer's total occupational income: implementing the CIR provided that

* Original language: French.

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'single or periodical premiums paid by the upon the contributions being paid "in taxpayer pursuant to life assurance contracts Belgium" compatible with Articles 48, 59 (in personally concluded by him shall particular the first paragraph thereof), 67 b e . . . deducted from the insured's total and 106 of the Treaty of Rome?' occupational income only where:

1. The contributions must be paid to a life The application of the above provisions has assurance company or pension fund having resulted in a refusal to allow Mr Bachmann its registered office, principal establishment to deduct, in relation to the period from or managerial or administrative head- 1973 to 1976, the contributions paid quarters in Belgium or to an establishment pursuant to voluntary sickness and invalidity maintained in Belgium by such a company insurance contracts and a life assurance or fund having its registered office or contraa which were entered into by him in principal establishment abroad . . . '. 1971 with German insurance companies prior to his taking up residence in Belgium on 16 May 1972. Mr Bachmann's persistent argument before the Belgian Cour de Cassation that such refusal is incompatible With effect from the beginning of the 1990 with Community law has resulted in that tax year, Article 54(2)(a) and (b) of the CIR court referring the following question to the was replaced by Articles 1 2 ( 2 ) ( 1 ) and Court of Justice for a preliminary ruling: 13(1)(1) of the Law of 7 December 1988 (Moniteur belge of 16 December 1988), in which the following provisions appear in Part 7, entitled 'Miscellaneous deductions': 'Are the provisions of Belgian revenue law relating to income tax pursuant to which the deductibility of sickness and invalidity insurance contributions or pension and life '12(2). The following shall be regarded as assurance contributions is made conditional occupational expenses:

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It is apparent, both from Article 54(2Xa) Consequently, if the contested legislation is and (b) of the CIR and from Articles incompatible with Article 48 of the Treaty, 12(2)(1) and 13{1)(1) of the Law of it must also be incompatible with Article 7 December 1988, that in order to be 7(2) of Regulation 1612/68, and vice vena. deductible from the taxpayer's taxable income, the supplementary pension and life assurance contributions must be 'definitively paid in Belgium' and that contributions paid Infringement of Artide 48 of die Treaty to insurance companies esublished in another Member Sute cannot therefore be deducted. That is the position even where the contributions are paid into a bank 4. It should be noted, first of all, that the account opened by the foreign company in legislation in question applies to all persons

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Mr Bachmann and the Commission consider that the criterion at issue in this instance, namely that of the payment of insurance contributions in Belgium, applying as it does to all workers regardless of their nationality, My own view is that, even if the total leads to indirect discrimination based on number, in absolute terms, of 'Belgian nationality. According to them, as with the workers previously employed abroad' and of criterion at issue in the Biehl case, cross-border workers of Belgian nationality who have concluded supplementary insurance contracts outside Belgium were approximately the same as the number of foreigners liable to tax in Belgium who have 'there is a risk that it will work in particular concluded similar contracts abroad, never- against taxpayers who are nationals of other theless in relative terms it would be Member States' (paragraph 14 of the Biehl primarily nationals of other Member States judgment). who would be disadvantaged by the condition complained of. In relation to the proportion of the total working population of Belgium who have concluded supplementary insurance contracts abroad, The Belgian Government denies this, since Belgian nationals certainly represent a far it maintains that Belgian workers are just as smaller percentage than the percentage much affected as workers from other which they constitute of the total working

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5. As regards the place of employment of butions were not paid in the Member State workers of Belgian nationality, however, I in question. The only restrictive effect which hesitate to adopt the stance of the the Belgian legislation complained of in the Commission in relying on the Stanton ' present case may have, particularly on judgment in support of its assertion that 'Belgian workers previously employed 'even as regards Belgian workers, the abroad' who have concluded insurance measures complained of are contrary to the contracts outside Belgium, will be to deter fundamental principle of the free movement them from returning to Belgium.

State'. (d) of the Report for the Hearing in Case C-204/90). The Belgian Government asserts, first of all, that the Belgian tax system 'will not deter a national of a However, the issue in that judgment and in Member State who likewise does not enjoy the parallel case of Wolf and Others 2 was a the benefit of the tax deductibility in Belgian rule the effect of which was to question in his country of origin from handicap the exercise of occupational acti- accepting employment in Belgium'.

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butions under the laws of another country. branches of undertakings having their Furthermore, h is possible in that regard to registered office in other Member States adopt the same reasoning as that applied by (direct discrimination between companies). the Court in paragraph 16 of the Biehl However, that argument does not disprove judgment, cited above, and to find that the assertion of the Commission and Mr Bachmann that the inability to deduct insurance premiums paid outside Belgium from taxable income operates in the main to 'a national provision such as the one at issue the disadvantage of nationals of other is liable to infringe the principle of equal Member States who work in Belgium. treatment in various situations'.

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10. The Belgian Government (like the of the Member States, and are unconnected German Government, which has submitted with the field of social security. observations in Case C-204/90) also seeks Furthermore, even if any social security to argue its case on the basis of the absence issue were involved, the absence of of fiscal harmonization in the matter. It is Community harmonization in that field certainly correct in stating that 'a could not absolve the Member Sutes from Community national, in exercising his right the obligation to comply with the rule to freedom of movement, will take into against discrimination on the ground of account the tax system in the Member State nationality. This emerges, for example, from in which he wishes to take up employment' paragraph 10 of the judgment of die Court and that 'the tax system to which he will be in the case of Stanton, cited above, in which subject may easily dissuade a worker from it held, in relation to Article 52 of the accepting an offer of a job in another Treaty, that with regard to a directly Member State' (see paragraph II. B.l of applicable rule of Community law Belgium's defence in Case C-300/90).

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12. It follows from all the foregoing undertakings not included therein' (see considerations that the effect of the paragraph 2 of its observations in Case provision at issue is to place nationals of C-204/90), which in this case means other Member States at a particular disad- insurance undertakings established in a vantage. It must therefore be regarded as Member State other than Belgium. The incompatible with Article 48(2) of the additional point may be made, as the Treaty, unless it is possible to show that Commission has stated, that it is apparent such 'discrimination' is objectively justified. from the case-law of the Court, and in I will deal with that question after first particular paragraph 9 of its judgment in examining the compatibility of the measure Case C-49/89 Corsica Ferries France v with Article 59 of the Treaty. Direction générale des douanes [1989] ECR 4441, that a restriction on freedom to provide services may also result 'from national tax measures which affect the trader's exercise of that right'. Lastly, from Infringement of Article 59 the point of view of those to whom the services are provided, as opposed to those providing them, it is appropriate to note, as does the Commission, that the contested measure 'may deter not only nationals of 13. There can be little doubt that the other Member Sutes but also nationals of Belgian legislation complained of in this the Sute in question from taking out case also involves a restriction on freedom supplementary insurance with an insurer to provide services within the Community, established in another Member Sute' (see in within the meaning of Articles 59 and 60 of particular paragraph II.2.3. of the Report the Treaty. As the Court has consistently for the Hearing in Case C-204/90). held, most recently in its judgment in Case C-353/89 Commission v Netherlands,

freedom to provide services and that it was and when freedom of movement in respect not until after the complete liberalization of of services was extended to those contracts movements of capital effected by Council in implementation of Article 59 et seq. of Directive 88/361/EEC of 24 June 1988 • the Treaty", that the Council adopted a second directive to facilitate the effective exercise of freedom to provide services in the field of life assurance.5 It refers in that context to and that Article 61(2) of the Treaty and points out that even the Second Directive, which does not come into force until the end of 1992, 'the rules on movements of capital are will not achieve more than a very modest therefore not of such a nature as to restrict liberalization of life assurance services. the freedom to conclude insurance contracts in the context of the provision of services under Articles 59 and 60'. As regards the reference to Article 61(2) of the Treaty, which provides that 16. The Commission righdy regards as irrelevant the consideration that the provision of services in the field of life 'the liberalization of banking and insurance assurance was not 'liberalized' until the services connected with movements of Second Directive came into effect, and that capital shall be effected in step with the the scope of such 'liberalization' was in any progressive liberalization of movement of case very limited. As the Court held in capital', the aforementioned paragraph 25 of its judgment in Case 205/84,

the Court has already held, in paragraphs 19 and 20 of its aforementioned judgment 'Articles 59 and 60 of the EEC Treaty in Case 205/84, that became directly applicable on the expiry of the transitional period, and their applica- bility was not conditional on the harmo- nization or the coordination of the laws of the Member States'. 'the First Council Directive for the implementation of Article 67 of the Treaty of 11 May 1960 (Official Journal, English Special Edition 1959-1962, p. 49) already This is confirmed by the second recital in provided that Member States were to grant the preamble to the Second Directive, which all foreign exchange authorizations required states: for capital movements in respect of transfers in performance of insurance contracts as

17. However, the Court also acknowledged The public interest relied on in this case by in the same judgment the existence, in the the Belgian Government, namely the moni- field of insurance, of 'imperative reasons toring by the tax authorities of certificates relating to the public interest which may confirming the payment of insurance contri- justify restrictions on the freedom to butions, which would be impossible in the provide services' (paragraph 33). case of payments made abroad, certainly has no connection with the protection of policy- holders and insured persons. Furthermore, such monitoring, even though it may relate, It is therefore necessary to give further as regards matters of form, to certificates consideration to the question whether the issued by insurance companies, does not Belgian provision can be justified as being in concern the activiries of those companies 'the public interest', as is maintained by the but constitutes in reality the fiscal super- German Government and, in the alternative, vision of taxpayers wishing to deduct their by the Belgian Government. contributions, that is to say, workers. Thus it does not constitute supervision of the compliance by the provider of the services with the professional rules applying in the 18. It is not easy to answer that question. In State in which the services are provided, acknowledging, in the context of Case which was held in Case 205/84 to justify 205/84, that freedom to provide services certain restrictions on freedom to provide may in exceptional circumstances be services. restricted by rules which are justified in the public interest, the Court had in mind professional rules governing the exercise of the activities in question by providers of 19. In the final analysis, therefore, the services which are intended to protect question to be decided by the Court is policy-holders and insured persons and whether a restriction on freedom to provide which apply to any person or undertaking services may also be justified by the need for exercising such activities within the territory effective fiscal control and, if so, whether of the State in which the service is provided the general and absolute exclusion of contri- (see in particular paragraph 27 of the butions paid to providers of services estab- judgment in Case 205/84). Moreover, in lished abroad from the benefit of deducti- order for the requirements imposed on the bility goes beyond what is objectively providers of services by the rules of the necessary to ensure the protection of that State in which they are provided to be interest. regarded as compatible with Anides 59 and 60 of the Treaty, it is not enough to show the existence, 'in the field in question', of imperative reasons relating to the public interest; it must in addition be established 20. It should be noted, first, that the Court that stated in its judgment of 28 January 1986 on the 'avoir fiscal' (tax credit)* that

Thus the Court did not totally exclude the possible existence of circumstances in which Obstacles to movement within the the requirement of a permanent estab- Community resulting from disparities lishment is justified, but simply considered between the national laws relating to the that that necessity had not been demon- marketing of the products in question must strated in the context of Case 205/84. On be accepted in so far as those provisions the other hand, it accepted that Community may be recognized as necessary in order to insurance law, as it stands at present, did satisfy mandatory requirements relating in not preclude the State in which the services particular to the effectiveness of fiscal super- are provided from requiring the assets vision, the protection of public health, the corresponding to the technical reserves or fairness of commercial transactions and the provisions relating to the activities carried defence of the consumer'. out in its territory to be located within that territory.

It is true that in the present case the obstacle to the free movement of persons and services within the Community does not 22. Nor, as regards the present case, am I arise, strictly speaking, from any disparities suggesting that the Court should accept that between national laws. However, the case an insurance company must necessarily operate an establishment in the country in 7 — Judgment in C » 120/78 Rcwe [1979] ECR 649, which its services are provided in order for paragraph 8. effective fiscal control to be possible.

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In accordance with the spirit of that provision, I think that it would be possible for Belgium, first, to make deductibility for What I am suggesting is the retention of the tax purposes conditional on the insurance middle course emerging from the position company being granted approval for the adopted by the Commission in the course of provision of its services within Belgium. the written procedure (but abandoned, it Secondly, it could include in the approval would seem, during the hearing), in the document a requirement obliging the context of the Treaty infringement company periodically to send to it, in proceedings against Belgium (Case addition to the documents referred to by the C-300/90). On page 4 of its reply, the Court in paragraph 55 of the judgment in Commission acknowledged that Belgium Case 205/84, a statement of the contri- could apply the provisions of Article 9(2) of butions paid by Belgian residents to that the proposal for a directive submitted by it company, duly certified, like the other to the Council on 21 December 1979 documents, by the authorities of the concerning the harmonization of income Member Sute from which the services are taxation provisions with respect to freedom provided. of workers within the Community (Official Journal 1980 C 21, p. 6).

CIR), a correlation between the Sute, tO which they are liable to make such non-deduction of premiums and the payment. Consequently, legislation has been non-taxability of the capiul built up by brought into force requiring such tax to be means of those premiums. The effect of that paid even where the policy-holder no longer correlation is that the Belgian Sute accepts resides in the country at the time when the the deduction of premiums only on capital is paid out. condition that it is thereafter able, on the normal expiration of the contraa or on the death of the assured, to tax the capiul realized (see Article 93<l)(2)(f) of the CIR). 26. The Commission's argument that It must therefore be in a position to ensure according to paragraph 25 of the judgment that the capital is taxed where the premiums of the Court in Case 270/83 Commission v have been deducted. France [1986] ECR 273 the risk of tax evasion cannot be relied upon by way of derogation from the fundamental principle of freedom of movement of persons cannot In the event that an insurance contraa has be upheld. The issue in Case 270/83 was been concluded with an insurance company direct discrimination based on the location established abroad and the premiums are of a company's registered office, which, consequently paid abroad, it may well find according to the Court, 'serves as the it more difficult to do this. If the capiul connecting faaor with the legal system of a fund created is also realized abroad, as will particular State, like nationality in the case ceruinly be the case where the worker of natural persons' (see paragraph 18 of the concerned has left Belgium and returned to judgment), whereas in this case the issue the country in which he concluded his concerns a rule applying without distinction insurance contraa, it is highly doubtful that to nationals and non-nationals which is it will be possible to tax him in Belgium and lawful if it is objectively justified, despite the that the Belgian Sute will thus be able to fact that it is principally non-nationals who ensure that the deduction of the premiums is are disadvantaged by it. 'compensated' by the taxing of the capiul fund. Where, on the other hand, an insurance company established in Belgium is involved, it will always be open to the Belgian Sute to ensure direaly, by applying There is thus a strong tempution to to that company, that the capiul is uxed, in conclude that the Belgian legislation is particular by means of the retention at objectively justified by the need to prevent source of the tax due. tax evasion.

That demonstrates that it is possible to "During the transitional period and to the devise administrative machinery which is extent necessary to ensure the proper func- able to obviate the risk of tax evasion. tioning of the common market, Member Sutes shall progressively abolish between themselves all restrictions on the movement of capital belonging to persons resident in Nor should it be impossible to discover a Member Sutes and any discrimination solution in respect of countries which based on the nationality or on the place of impose on insurance undertakings the obli- residence of the parties or on the place gation to retain at source the tax on the where such capiul is invested'. capital paid out. Thus a person residing in Denmark who wishes to conclude an insurance contract with a German under- taking could be denied the benefit of the tax deductibility of contributions made in The Commission has not relied on any Denmark if he is unable to provide an infringement of that provision in its direct undertaking on the pan of the insurance action against Belgium (Case C-300/90). company to pay to the Danish tax auth- However, in the context of the reference for orities the tax due under Danish law when a preliminary ruling (Case C-204/90), the the capital is paid out. Commission mainuins that Article 54 of the CIR constitutes discrimination based on 'the place where such capiul is invested'.

28. In those circumstances, I conclude that a provision such as Article 54 of the Belgian income tax code, which makes it completely Mr Bachmann has given no indication of impossible to deduct contributions paid to having experienced the slightest difficulty in insurance companies having no estab- effecting the transfers of capiul corre- lishment in Belgium, goes beyond what is sponding to the payment of his insurance objectively necessary to achieve its intended premiums, and the Commission has not aim. It is thus incompatible with Article 59 cited any such difficulties in the case of of the Treaty. other persons.

'By making the deductibility from a worker's taxable income of supplementary pension or life assurance contributions conditional on the payment of those contri- 32. As regards Article 106 of the Treaty, I butions to an undertaking established in share the Commission's doubts that the Belgium or to the Belgian establishment of a reference to that provision has any relevance foreign undertaking, the Kingdom of to the present case. Article 106(1) obliges Belgium has failed to fulfil its obligations the Member Sutes to authorize payments under Articles 48 and 59 of the EEC Treaty connected, inter alia, with the movement of and under Article 7(2) of Regulation (EEC) services 'in the currency of the Member No 1612/68 of the Council of 15 October State in which the creditor or the 1968.' beneficiary resides'. The Belgian legislation does not prohibit the payment of insurance contributions to an undertaking established in another Member Sute; what is more, it does not preclude such payment from being 35. There remains the question of the made in the currency of the Member Sute conclusion to be drawn by the Belgian Cour in which the insurance undertaking is estab- de Cassation from the foregoing considera- lished. tions as regards the solution to the dispute

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