C-263/91
ECLI:EU:C:1992:462
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KRISTOFFERSEN v SKATTEMINISTERIET
OPINION OF ADVOCATE GENERAL JACOBS delivered on 26 November 1992 *
My Lords, subject to Danish income tax and is not sub- ject to the Community tax referred to in the first paragraph of Article 13 of the Protocol.
1. In this case the Østre Landsret has requested a preliminary ruling on the inter- pretation of Article 13, second paragraph, and Article 14, first paragraph, of the Proto- 3. It is to be noted that only Mr Kristoffer- col on the Privileges and Immunities of the sen's Community salary is exempt from European Communities (hereafter 'the Pro- national taxation. Any other income that he tocol'). may have is not exempt from national taxa- tion. Article 14, first paragraph, of the Proto- col provides:
2. The plaintiff in the main proceedings, Mr Niels Kristoffersen, is a Danish national who, since 1 April 1976, has been an official 'In the application of income tax, wealth tax at the secretariat of the European Parliament and death duties and in the application of in Luxembourg. His wife is a teacher at the conventions on the avoidance of double tax- European School in Luxembourg. As an offi- ation concluded between Member States of cial of the European Communities Mr Krist- the Communities, officials and other servants offersen is subject to the Protocol. The sec- of the Communities who, solely by reason of ond paragraph of Article 13 of the Protocol the performance of their duties in the service exempts his Community salary from of the Communities, establish their residence national taxes; instead, that salary is subject in the territory of a Member State other than to a 'tax for the benefit of the Communities', their country of domicile for tax purposes at as provided for in the first paragraph of Arti- the time of entering the service of the Com- cle 13. Mrs Kristoffersen, as a teacher at a munities, shall be considered, both in the European School, is not covered by the Pro- country of their actual residence and in the tocol. The complex tax arrangements appli- country of domicile for tax purposes, as hav- cable to teachers at the European Schools are ing maintained their domicile in the latter familiar to the Court from Case 44/84 Hurd country provided that it is a member of the v Jones [1986] ECR 29 and I shall not Communities. This provision shall also describe them in detail. It is sufficient to apply to a spouse, to the extent that the latter observe that Mrs Kristoffersen's salary is is not separately engaged in a gainful occupa- tion, and to children dependent on and in the care of the persons referred to in this Arti- * Original language: English. cle.'
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4. It seems to be common ground that, as a The construction of the house had been result of that provision, Mr Kristoffersen is financed with a loan, the interest on which liable to pay Danish income tax on any amounted to DKR 138 804 in 1983 and income (except his Community salary) that DKR 153 604 in 1984. Thus, in income tax accrues to him in Denmark, Luxembourg or years 1983 and 1984, the interest payments elsewhere. (Mrs Kristoffersen, although 'sep- made by Mr Kristoffersen exceeded the esti- arately engaged in a gainful occupation', is mated rental value of his home. His taxable also liable to Danish income tax by virtue of income was therefore negative. Under Dan- the special arrangements governing the ish tax law negative taxable income can be teachers at the European School.) used to reduce the spouse's taxable income. That is what was done in Mr Kristoffersen's case in the income tax years 1983 and 1984, but the amount of negative income that Mr Kristoffersen could transfer to Mrs Kristof- fersen for the purpose of reducing her tax- able income was of course much less than it 5. Under Article 4(b) of the Statsskattelov would have been if the rental value of the (the Danish Tax Law), the rental value of a house had not been treated as income. home owned by the taxpayer is taken into M r Kristoffersen argued before the national account as part of his income, even if he uses courts that by treating the rental value of his it solely as his residence. Although Article home as taxable income the Danish tax 4(b) of the Statsskattelov states that the authorities infringed Articles 13 and 14 of rental value is assessed as the amount which the Protocol. could be obtained in rent if the house or apartment were let, it appears that the rental value is in fact based on the capital value of the property in accordance with rules laid down in Articles 15B to 15H of the Lign- ingslov [Law on the Basis of Assessment] Under Article 6(1)(e) of the Statsskattelov all the taxpayer's interest payments are deduct- 7. The Østre Landsret has referred the fol- ible from taxable income. That provision lowing questions to the Court: does not seem to be confined to interest pay- ments in connection with a loan taken out for the purpose of financing the purchase of the house, but it is only such interest pay- ments which are in issue in the present case.
'1. Should the first paragraph of Article 14 of the Protocol on the Privileges and Immunities of the European Communi- ties be interpreted as meaning that offi- 6. In 1982-1983 the Kristoffersens had a cials and other servants of the Commu- house built in the Grand Duchy. They took nities who are covered by that provision up residence in it on 1 May 1983. In the are not liable to pay income tax in their income tax years 1983 and 1984 the rental original country of domicile on the value of the house was fixed at rental value of a home which is owned D K R 42 283 and D K R 70 927 respectively. by them and situated in another
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Member State when all taxpayers who so if the rental value exceeded the interest own their homes are Hable to tax on payments. In my view, there is an important such rental value as personal income difference between positively charging tax on under the tax system in the original notional income from the rental value of an country of domicile? official's home and taking that notional income into account for the purpose of lim- iting the extent to which the official is allowed to set interest payments off against actual income. I shall first deal with the former situation and then consider the spe- 2. Should the second paragraph of Article cific situation that arises in the present case. 13 of the Protocol on the Privileges and Because Articles 13 and 14 are intimately Immunities of the European Communi- bound up with each other, I shall not ties be interpreted as meaning that the attempt to deal separately with questions (1) application of income tax in the original and (2). The essential issue raised by the two country of domicile to officials or other questions is whether and to what extent servants of the Communities on the Articles 13 and 14 of the Protocol allow the rental value of a home which is owned Member State in which the official remained by them and situated in another Mem- fiscally domiciled after entering the service ber State constitutes indirect taxation of of the Community to take account, for salaries, wages and emoluments paid by income tax purposes, of the rental value of the Communities?' his home situated in the Member State in which he is employed.
8. It is important to note that the questions submitted by the Østre Landsret are worded The straightforward situation of the official in a way that does not reflect the precise sit- who is positively charged tax on his uation in which Mr Kristoffersen finds him- notional income self. The Østre Landsret asks in effect whether an official who remained fiscally domiciled in Denmark after entering the ser- vice of the Community may be required to pay Danish income tax on the rental value of his home located in the Member State in which he is employed. But Mr Kristoffersen 9. The situation that I now consider is the is not in fact being charged Danish income straightforward one of an official who has no tax on the rental value of his home in actual income other than his Community Luxembourg; the Danish tax authorities are salary, who owns the house he lives in and simply limiting the amount of tax relief that who makes no interest payments in connec- can be granted to him (and transferred to his tion with that house (or whose interest pay- wife) in respect of his interest payments. It is ments amount to less than the rental value of true that they are limiting that tax relief by the house). Such an official is likely, if he had an amount equal to the rental value of the a tax domicile in Denmark prior to his house, but the fact remains that they are not recruitment, to be presented with a substan- positively charging him income tax on the tial income tax demand by the Danish rental value of the house and would only do authorities.
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10. The Danish Government and the Com- for a period of many years of what may be a mission consider that Article 14, first para- highly artificial tax domicile could lead to graph, of the Protocol empowers Denmark anomalous results; and while it is indisput- to charge income tax in such circumstances ably the purpose of the provision to treat and that such a tax cannot be contrary to officials as if they continued to be residents, Article 13, second paragraph. The Danish it seems clear that the terms used by Article Government argues that, since Article 14 should not be given an extensive interpre- 14 does not define the term 'income tax', the tation. content of the term must be determined b y national law; since the tax in question is clas- sified as income tax in Danish law, Denmark is authorized to impose it on anyone who has a fiscal 'domicile' in Denmark within the 12. I would not go so far as to say that the
meaning of Article 14. I do not think that tax at issue cannot be regarded as an income that can be correct; if such a view were tax within the ordinary sense of the term. accepted, the Member State in which the Indeed, a similar tax, also regarded as income official retains his tax domicile under Article tax, is imposed in several, but not all, Mem- 14 would be able to impose any tax on him, ber States. The tax is based on the notion even one that does not display the objective that a person who owns his own home characteristics of an income tax, simply b y enjoys a recurring benefit equal to the rental describing it as such. Hence, the term value of the property. Another factor that 'income tax', even if not capable of a single supports the classification of the tax as an uniform interpretation, must be interpreted income tax is its progressive nature, the rate in the light of the general understanding of of taxation depending on the taxpayer's total the term and in the light of the scheme and income. (However, as the Danish Govern- purpose of Article 14, in conjunction with ment confirmed in reply to a written ques- Article 13. tion put by the Court, the official's salary is not taken into account for this purpose; oth- erwise, there would plainly be an infringe- ment of Article 13: see Case 6/60 Humblet v Belgium [1960] ECR 559.) In two other respects, however, the tax resembles a prop- erty tax; first, the event giving rise to the charge to tax is the mere fact of ownership rather than the generation of actual income; secondly, the amount of the deemed income
11. It should be borne in mind that the (the so-called rental value) is in fact based on effect of Article 14 appears to be to subject the capital value of the property rather than Community officials permanently, for the on its genuine income-earning potential. purpose of income tax, wealth tax and death Thus the tax is really a hybrid — part duties, to the tax regime of the State to income tax, part property tax. whose regime they were subject at the time when they entered the service of the Com- munity, even if they subsequently sever their links with that State. (Indeed, that State might be one in which they had lived for a 13. I question whether a hybrid tax of this relatively short period before entering the nature is encompassed within the expression service of the Community.) The maintenance 'income tax' in Article 14 of the Protocol.
If
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Article 14 were applied to a tax on purely 14, tax actual income from immovable prop- notional income, in particular 'income' rep- erty situated in Luxembourg; if, for example, resented by the use of immovable property Mr Kristoffersen owned a second house in as the official's principal residence, it seems Luxembourg and rented it out, the resulting to me that that would be capable of produc- income would presumably be taxable in ing undesirable consequences in several Denmark. There is certainly nothing inher- respects: ently wrong in one State taxing its actual res- idents on actual income from immovable property situated in another State, and there may be nothing inherently wrong in one State taxing its notional residents (such as First, the State in which the official has his Mr Kristoffersen) on actual income from artificial tax domicile under Article 14 would immovable property situated in another trespass on the tax jurisdiction of the State in State. But it would be wholly anomalous if a which he works and resides. State were to tax its notional residents on notional income based on the value of the house in which they actually reside in another State. I do not think that Article 14 should be construed so as to bring about such anomalous results in the absence of Secondly, the official's salary would in effect very clear wording to that effect. suffer national taxation, contrary to Article 13, second paragraph.
Thirdly, there is a danger that certain persons would be dissuaded from entering the service of the Community or would be induced to quit its service, if they were required to pay such a tax in their State of origin. 15. Moreover, difficulties would arise in rela- tion to double taxation. Since a tax based on the value of a person's residence might be differently classified in different States, there is a serious danger that the official would I shall deal with those points in turn. suffer double taxation, notwithstanding the existence of a double taxation treaty between the two States concerned. Thus, if for exam- ple a Member State in which an official were employed were to impose a substantial tax 14. As regards the first point, the general on immovable property situated in that State rule must, I think, be that taxes based on the and classified it as a property tax, there is a value of immovable property which is used danger that an official who is fiscally domi- as the taxpayer's principal private residence ciled in Denmark under Article 14 would are chargeable only in the State in which the suffer double taxation and would be denied property is situated. I would not go so far as the benefit of a double taxation agreement to say that Denmark cannot, under Article concluded by the two States; since the tax
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paid in the State of employment would not of the Communities by reason of the fact be classified as income tax, the official might that they are in receipt of remuneration paid be given no credit for it when assessed to by the Communities, even if the tax in ques- income tax in Denmark. The example illus- tion is not calculated by reference to the trates the point that the system of double amount of that remuneration' (emphasis taxation agreements is based on a general added): Case 260/86 Commission v Belgium understanding of what constitutes income [1988] ECR 955, paragraph 10.
The crucial tax or property tax, at any rate within certain test is whether officials employed by a Com- limits. munity institution outside Denmark are sub- ject to the tax in question 'by reason of the fact that they are in receipt of remuneration paid by the Communities'. It seems to me that that test must be satisfied in the case of an official who works and resides in Luxem- bourg and who is asked to pay tax in Den- 16. As regards the second point, if an official mark on the deemed rental value of his home who had no actual income other than his
in Luxembourg. Denmark would not nor- Community salary were positively charged mally attempt to charge the tax on a foreign income tax on the rental value of his home, resident. Its supposed power to do so is that would in my view amount to indirect founded solely on Article 14 of the Protocol taxation of the official's salary, contrary to the prohibition laid down in Article 13, sec- and hence on the person's status as a servant ond paragraph, of the Protocol. The mere of the Community. It is precisely because he fact that the official would in practice have to is a servant of the Community that such a pay the tax out of his Community salary person might, on the view advocated by the (unless he were to deplete his savings for that Danish tax ministry and the Commission, be purpose) is not of course sufficient to bring presented with a demand for Danish income that prohibition into operation; otherwise tax on the rental value of his home in every indirect tax charged to an official w h o Luxembourg. If he happens to have a Danish had no other source of income would be neighbour who works, for example, in a pri- contrary to Article 13, second paragraph. vate bank in Luxembourg, that neighbour However, where the tax is characterized as will not receive such a demand from the income tax (and would not otherwise be Danish authorities. Thus the link between payable by the official at all), and where it is the charging of the tax and the person's chargeable on purely notional income, that is being in receipt of remuneration paid by the likely to bring the tax within the scope of the Community is at least as strong, in the situ- prohibition. ation described above, as it was in Case 260/86 Commission v Belgium.
It will be remembered that in that case a tax reduction available to taxpayers in general was expressly denied to persons who were exempt from income tax by virtue of an international agreement. In that case the rule 17. That prohibition has been construed b y affected all persons exempt by virtue of an the Court as precluding 'any national tax, international agreement; in the present case, regardless of its nature and the manner in the sole connecting factor is Article 14 of the which it is levied, which is imposed directly Protocol. or indirectly on officials and other servants
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18. It might be objected that the above inter- tion of national tax laws to the salaries paid pretation of Anicie 13, second paragraph, by the Community would ... detrimentally deprives Article 14, first paragraph, of its affect the Community's exclusive power to purpose. Why, it might be asked, should fix the amount of those salaries' and that 'the Article 13 be construed as preventing Den- total exemption from national taxes is indis- mark from charging a tax which Article pensable in order to guarantee the equality 14 apparently authorizes it to charge? The of remuneration for officials of different answer to that is that Article 14 is by no nationalities' (see page 577 in the English means deprived of its purpose by the above version of the law reports). The Court interpretation. Article 14 authorizes Den- stated: 'It would be extremely unjust if two mark to tax Mr Kristoffersen on actual officials, for whom the Community institu- income other than his Community salary; tion had provided the same gross salary, the power to tax actual income does not were to receive different net salaries'. The come into conflict with Article 13 because Court added that: 'The difference in net the tax would not be charged on the official's remuneration could make the recruitment of Community salary. It is only if Article 14 is officials from certain Member States more interpreted as permitting the taxation of difficult, thus creating discrimination in purely notional income that it comes into respect of the real opportunities of access to conflict with Article 13. Community service for nationals of each Member State.'
19. The approach that I have suggested above is based on a coherent interpretation 20. But if Article 14 were interpreted as of the combined provisions of Articles allowing the State of recruitment to tax the 13 and 14 of the Protocol. If that approach is official on the rental value of his home, his followed, neither article interferes with the salary might in effect suffer a heavier tax bur- sphere of application of the other. But if the den than the salary of an official recruited in view advocated by the Danish tax ministry a different State. That can be demonstrated if and the Commission is adopted, there is a we compare the situation of two officials serious danger that Article 14 would under- employed in Luxembourg, one recruited in mine the purpose of Article 13. That provi- Denmark and the other in the United King- sion is clearly intended to ensure that the sal- dom (where no such tax exists). Let us sup- ary paid to officials by the Community is pose, for the sake of argument, that each has subject to a common system of taxation and the same salary, the same personal circum- is not taxed differently depending on the stances, a house of the same value and no State in which the official is employed or on income other than his Community salary. the State from which he was recruited. That The official recruited in Denmark will bear a is confirmed by the Humblet case, cited in heavier tax burden, which can only be met paragraph 12 above, in which the Court from his salary, than the official recruited in stated, with regard to the equivalent provi- the United Kingdom. The mere fact that the sion in the Protocol on the Privileges and two officials resided in different States prior Immunities of the ECSC, that the 'applica- to their recruitment is surely insufficient to
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provide objective justification for that differ- cited at paragraph 19 above from the ence in treatment. I find it difficult to believe Humblet case. that Article 14 of the Protocol was intended to achieve such discriminatory results.
The specific situation in the present case
21. As regards the third and final point, it is clear that if Article 14 of the Protocol were 23. Having dealt so far with the straightfor- applied to notional income from the rental ward situation of an official who has no value of the official's residence, that could income other than his Community salary have a detrimental effect on the functioning and who is charged positive tax on the rental of the Community institutions. As the Court value of his house, I shall now examine .the held in Case C-333/88 Tither [1990] E C R more complicated situation of someone like I-1133 (at paragraph 16), Member States are Mr Kristoffersen. He, it will be remembered, prohibited by Article 5 of the Treaty from does not himself appear to have any income adopting measures which are likely to other than his Community salary, but his impede the functioning of the institutions. In wife has a salary that is taxable in Denmark. Tither the Court observed that the British H e pays interest on a loan to finance the scheme known as 'Miras' (mortgage interest construction of the house they live in. Such relief at source) did not have such an effect payments can normally be deducted from because it was not likely to dissuade persons taxable income. Mr Kristoffersen has no tax- from entering the service of the Communi- able income and so the interest payments can ties or to induce them to quit it. be deducted from his wife's income. This is described in the Danish system as transfer of negative income. The Danish tax ministry has no objection to such a transfer of nega- tive income but takes the view that the amount of negative income should be reduced by the rental value of the house. 22. The same could hardly be said of the tax at issue in the present case. That can be dem- onstrated by taking as an example an official recruited to a post in Luxembourg from Denmark who has sufficient capital to pur- 24. At this point I should perhaps make one chase a house without a loan. Such a person thing clear. When considering what I have would have no interest to set off against the called the straightforward situation, I dis- deemed income based on the rental value of cussed the position of a Community official the house and might receive a substantial who has no income other than his Commu- income tax demand. He might have a strong nity salary and I arrived at the conclusion incentive to leave the service of the Commu- that such a person cannot be taxed in Den- nities (thus terminating his artificial tax mark on the rental value of his home situated domicile in Denmark) and take a job with a in Luxembourg. I do not think that the con- private employer in Luxembourg. That con- clusion should be any different simply sideration, while by no means decisive in because the person concerned (or his spouse) itself, reinforces the argument which I have has other income taxable in Denmark. It
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would be pointless to argue that in such a 27. In particular, I do not see how it can be case the tax on the rental value of the house said that, in the circumstances of the present could be paid out of the other income and case, Mr Kristoffersen's Community salary would not therefore be a tax on the official's suffers national taxation in breach of Article salary. Apart from the fact that the other 13, second paragraph, if the negative income income might not be sufficient to cover the transferred to his wife is reduced by an tax, the crucial point is that that income will amount equal to the rental value of the already have borne Danish income tax at the house. All that happens is that the tax relief rate deemed appropriate by the Danish tax granted to the Kristoffersens in respect of the system. Any additional income tax charged interest payments is curtailed on account of to the person concerned would have to be the rental value of the house. regarded as a burden on his Community sal- ary.
25. But the most significant feature of the present case is not that Mr Kristoffersen and his wife have other income in addition to his 28. The Protocol does not of course require Community salary, but rather that he wishes Denmark to grant the Kristoffersens tax to set off against that other income the inter- relief in respect of the interest payments and est payments relating to the construction of I do not see how it can prevent Denmark the house, while at the same time objecting from curtailing that relief in respect of the to any account being taken of the rental rental value of the house, in view of the value of the house. Mr Kristoffersen is obvious relationship in the Danish tax sys- attempting, so to speak, to have the best of tem between the tax relief for interest pay- both worlds. He is claiming the beneficial ments and the taxation of the rental value of part of the Danish tax system but is unwill- the house. It little matters whether the tax ing to take the burdensome part. relief for interest payments is regarded as the counterpart to the taxation of the rental value or vice versa; the essential point is that under the Danish system tax relief for inter- est on a housing loan is, in net terms, granted only in so far as the interest payments exceed the rental value of the house. It is difficult to 26. In my view, the arguments that militate see any justification for granting the Kristof- against allowing Denmark to impose actual fersens far more generous treatment, as tax on notional income cease to be valid in regards the taxation of Mrs Kristoffersen's so far as the notional income resulting from salary, than that available to any other per- ownership and occupation of a house does son subject to Danish income tax. If the not exceed the amount deducted from the Kristoffersens were allowed to claim the full taxpayer's taxable income in respect of inter- tax relief in respect of the interest payments est on a loan used to finance the purchase of and no account were taken of the rental the house. value of the house, the coherence of the
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Danish tax system would be seriously mark will not in fact be charging a tax on the impaired. The importance of maintaining value of immovable property situated in the coherence of national tax systems was another Member State; it will simply be recognized by the Court in its judgments reducing the extent to which it grants tax of 28 January 1992 in Case C-204/90 relief in respect of interest on a loan used to Bachmann [1992] ECR I-249, and Case purchase a property situated in another C-300/90 Commission v Belgium [1992] Member State. As regards the second point, E C R I-305. there will be no incentive for the official to terminate his artificial tax domicile in Den- mark by leaving the service of the Commu- nity, as long as the amount of notional 29. Moreover, if Denmark is simply allowed income does not exceed the amount to take into account the rental value of the deducted from his taxable income in respect official's house up to an amount that does of interest payments. In particular, there will not exceed the amount deducted from his be no incentive for Mr Kristoffersen to taxable income in respect of the interest pay- resign from the European Parliament in ments made in connection with the house, order to sever his fiscal link with Denmark; there is no danger that in doing so Denmark on the contrary, he has every interest in will trespass upon the tax jurisdiction of retaining his tax domicile in Denmark, since Luxembourg or deter persons with a tax it allows him to transfer a substantial amount domicile in Denmark from working for the of negative income to his wife for the pur- Community. As regards the first point, Den- pose of reducing her tax liability.
Conclusion
30. Accordingly, I am of the opinion t h a t the questions referred t o the C o u r t b y the Ø s t r e L a n d s r e t s h o u l d be answered as follows:
W h e r e , p u r s u a n t t o t h e first p a r a g r a p h of Article 14 of the P r o t o c o l o n t h e Privi- leges a n d I m m u n i t i e s of t h e E u r o p e a n C o m m u n i t i e s , a C o m m u n i t y official has r e t a i n e d a d o m i c i l e for tax p u r p o s e s in a M e m b e r State o t h e r t h a n the o n e in w h i c h h e is e m p l o y e d , t h a t p a r a g r a p h , in conjunction w i t h the s e c o n d p a r a g r a p h of A r t i - cle 13 of t h e P r o t o c o l , m u s t b e interpreted as m e a n i n g that the M e m b e r State in w h i c h t h e official retains his domicile f o r tax p u r p o s e s m u s t n o t , b y taxing n o t i o n a l i n c o m e , i m p o s e b y w a y of i n c o m e tax any tax, direct o r indirect, o n his C o m m u - n i t y salary b u t is n o t p r e v e n t e d from t r e a t i n g as taxable i n c o m e t h e rental value of a h o u s e o w n e d a n d o c c u p i e d b y the official in t h e M e m b e r State in w h i c h h e is e m p l o y e d , p r o v i d e d t h a t t h e a m o u n t in q u e s t i o n does n o t exceed t h e a m o u n t d e d u c t e d f r o m t h e official's taxable i n c o m e b y w a y of tax relief in respect of inter- est p a y m e n t s m a d e o n a loan used to p u r c h a s e t h e h o u s e .
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