C-107/94

ASSCHER ν STAATSSECRETARIS VAN FINANCIËN

OPINION OF ADVOCATE GENERAL LÉGER delivered on 15 February 1996

1. The Hoge Raad der Nederlanden is ask­ 3. Those laws were amended by laws of 6 ing the Court to fill in a further detail in the 27 April 1989 5 and 28 December 1989, picture it is gradually building up of the tax which came into effect on 1 January 1990. situation of a non-resident taxpayer in a Under that reform, wages tax and national Member State. This case follows on from the insurance contributions are now collected Court's recent judgments in Finanzamt together, so that taxation in the first band of Köln-Altstadt ν Schumacker 1 and Wielockx ν income comprises a tax element and a social 2 Inspecteur der Directe Belastingen. security contribution element. The basis of taxation has been broadened because national insurance contributions are no longer deductible and certain other deduc­ tions have also been abolished. To offset this, the tax rate on the first band of income has The proceedings before the national court been lowered for residents and certain non­ residents treated as residents, and the rate for the third band has been lowered for all tax­ payers.

Legislation applicable in the main proceed­ ings

4. The wages tax is an income tax deducted at source from employees' earnings.

2. In the Netherlands, direct taxation of nat­ ural persons is governed by the Wet op de Inkomstenbelasting 1964 ('the Income Tax Law') 3 and the Wet op de Loonbelasting 4 5. A director with a large shareholding in a 1964 ('the Wages Tax Law'). private limited company is treated as an employee as regards his earnings, which are subject to wages tax. He is also treated as an language:: French * Original language French.. employee for national insurance purposes. 1 — Case C-279 C-279//93 [ 1995 1995]] ECR 1-225 1-225.. 2 — Case C-80 C-80//94 [1995 1995]] ECR 1-2493 1-2493.. 3 — Law of 16 December 1964 1964,, Staatsblad 1964 1964,, 519 519,, and — as 1990,, 103 since amended — Staatsblad 1990 103.. 1964,, Staatsblad 1964 4 — Law of 18 December 1964 1964,, 521 521,, and — as 1989,, 122 5 — Staatsblad 1989 122,, 123 and 129 129.. 1990,, 104 since amended — Staatsblad 1990 104.. 1989,, 611 6 — Staatsblad 1989 611..

11. In 1990, national insurance contributions 7 — Sec the Commission's account of the national case-law at point 5 of its written observations. were levied concurrently with tax at a rate of 8 — Moniteur Belge, 25 September 1971. 22.10% in the first tax band alone.

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12. An employee making national insurance 16. In June 1990, he received a gross salary contributions and paying wages tax in the of HFL 16 250, from which HFL 7 891.17 Netherlands therefore had a total of 35.10% was deducted pursuant to Article 20b of the — 13% and 22.10% — deducted at source. Wages Tax Law.

Facts of the case 17. He lodged an objection to that deduc­ tion with the competent tax inspector, but his objection was rejected.

13. Mr P. H . Asscher, a Netherlands national, has been resident in Belgium since May 1986. He is director of a private limited 18. He then challenged that rejection in pro­ company established in the Netherlands and ceedings before the Gerechtshof (Regional works in that capacity in the Netherlands. Court of Appeal), Amsterdam, which dis­ He is also director of a company governed missed his action on 13 April 1992. by Belgian law, established in Belgium, and works in that capacity in Belgium.

21. First of all, however, I wish to examine whether a situation such as that in the present case might fall under Article 52, rather than Article 48, of the Treaty. I shall 2. If not, is such difference in treatment then deal with the national court's questions, nevertheless permitted if less than 90% beginning with the last. of the employee's worldwide income, calculated according to the criteria of the State of employment, consists of income which may be taken into account for income tax purposes by the State of employment in the case of non­ Applicability of Article 52 of the Treaty residents?

22. The national court refers only to Article 3. Is it permissible to take account, by 48 of the Treaty, concerning freedom of means of a different rate of taxation, of movement for workers. Under national tax the fact that the employee is not law, the applicant in the main proceedings is required to pay contributions to the regarded as an employee. national insurance scheme operated in the State of employment?

23. From the point of view of the Treaty, since freedom of movement for workers 4. Is it relevant in that regard whether the constitutes one of the fundamental principles employee must pay contributions for of the Community, the term 'worker' in

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Article 48 may not be interpreted differently 26. The Kingdom of the Netherlands hopes according to the law of each Member State that the Court will explicitly define the situ­ but has a Community meaning. ation of a company director under Commu­ 12 nity law. It does not rule out the possibil­ ity that the cross-border activities of a company director of Community nationality may fall under Article 52 rather than Article 48 of the Treaty.

29. A manager of a company or firm engaged in business for profit, irrespective of 53// 81 Levin 9 — Case 53 1982]] Staatssecretaris van Justitie [1982 ECR 1035 and Case 66 /85 Lawrie-Blum 66/ Land Baden- 1986]] ECR 2121 Württemberg [1986 2121,, paragraph 16 16.. Lawrie-Blum,, 10 — Lawrie-Blum paragraph 17 (emphasis added ). added). observations.. 11 — At point 20 of its written observations observations.. 12 — Point 28 of its written observations

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the classification under national law of his 32. That question raises the problem of what legal relationship with that company or firm, is commonly referred to as 'reverse discrimi­ must therefore be regarded as self-employed nation'. for the purposes of Article 52 of the Treaty even if over a certain period he performs remunerated services for that company or firm when, under the allocation of control made by statute or the articles of association, he is not under the direction of any other per- son or of any body which he does not himself 33. The Belgian, French and Netherlands control. It is for the national court to decide Governments consider that Mr Asscher's sit­ whether there is such subordination in the uation is purely internal inasmuch as he is a light of the considerations of fact and law in national of, and pursues a professional activ­ each particular case. ity in, the Kingdom of the Netherlands.

34. The French and Netherlands Govern­ 30. In the present case, therefore, the ments refer to Werner ν Finanzamt Aachen- 13 national court must analyse the situation in Innenstadt, in which the Court held that: the light of the national law applicable to the organization of Mr Asscher's company in order to determine whether he falls under Article 48 or Article 52 of the Treaty.

'Until the adoption on 28 June 1990 of the Council directives relating to the right of 37. In Scholz ν Opera Universitaria di residence, which make that right more 15 Cagliari and Cinzia Porcedda, the Court widely available, the free movement of per­ held, very generally, that: sons within the Community was determined — and delimited — by the economic charac­ 16 ter of the Treaty.'

'Any Community national who, irrespective of his place of residence and his nationality, 17 has exercised the right to freedom of move­ 40. As those directives were inapplicable ment for workers and who has been at the material time in the Werner case, employed in another Member State, falls Advocate General Darmon concluded that: within the scope of [the provisions of Com­ munity law relating to freedom of movement for workers] .'

'It follows that the freedom of movement granted to Community nationals is deemed

41. I think it likely that the Court will in future have to rule on discrimination suf­ 46. The fact that he was already working fered by nationals of a Member State who with the Belgian company before moving his have exercised their freedom of movement 19 residence to Belgium is irrelevant. The free­ only under, say, Directive 90/364, which dom of movement enshrined in Articles now recognizes a general right of residence 48 and 52 of the Treaty covers both the subject to certain conditions, regardless of taking-up and the pursuit of an activity as an any economic activity. 20 employed or self-employed person. It encompasses in particular a change of resi­ dence in the pursuit of an activity already taken up, subject to a State's legitimate right to prevent a fraudulent evasion of legal 21 42. In Mr Asscher's case, no such question provisions. arises.

47. Mr Asscher is thus, with regard to his 43. Directive 90/364 was not applicable in State of origin, in a situation which may be June 1990, when the contested amount was assimilated to that of any other persons deducted from his wages. enjoying the rights and liberties guaranteed by the Treaty, within the meaning of the Kraus judgment, cited above. As in the case of those other persons, there may be no discrimination against him.

44. In any event, Mr Asscher had moved his residence to Belgium in 1986 in order to carry on an economic activity in a Belgian company set up prior to that date. 48. In my view, therefore, the answer to the fifth question should be that a national of a Member State pursuing an economic activity in another Member State in which he resides 45. Regardless of whether that activity in Belgium is as an employed or self-employed 20 — Sec the fifth recital in the preamble to to,, and Title II of of,, EEC)) No 1612 Regulation ( EEC 1612//68 of the Council of 15 Octo- ber 1968 on freedom of movement for workers within the Community (OJ OJ,, English Special Edition 1968 (II ), p. 475 II), ), 475), 30.. 18 — Point 30 Treaty.. and the second paragraph of Article 52 of the Treaty above,, note 17 19 — Cited above 17.. Knoors,, cited above 21 — Knoors above,, paragraph 25 25.. -

50. By its first question, considered in the light of my earlier conclusions regarding the applicability of Article 52 of the Treaty, the national court seeks in substance to ascertain 53. As Community law now stands, direct whether Articles 48 or 52 of the Treaty allow taxation does not as such fall within the pur­ a Member State in which a national of view of the Community. Article 99 of the another Member State pursues an activity as Treaty explicitly gives the Council powers of an employed or self-employed person, whilst harmonization in the field of indirect taxa­ residing in his State of origin or in another tion alone. Laws relating to direct taxation Member State, to levy a higher rate of tax on may be harmonized, under Article 100 of the the income from that activity than if the per­ Treaty, by the Member States acting unani­ son in question were resident there. mously, where they directly affect the estab­ lishment or functioning of the common mar­ ket. Article 100a(2), however, excludes fiscal provisions from those which may be har­ monized by qualified-majority voting under Article 100a(l) for the purpose of the estab­ 51. From the wording of the second ques­ lishment and functioning of the internal tion — which envisages, if the first question market.

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54. Nevertheless, as the Court has noted, on the basis of their residence, are less 'the powers retained by the Member States favourable to non-residents, are thus liable to must ... be exercised consistently with Com­ operate mainly to the detriment of nationals munity law'. of other Member States, since non-residents 26 are in the majority of cases foreigners.

57. National rules which are applicable 60. In Schumacker, cited above, which con­ regardless of the nationality of the taxpayer cerned the interpretation of Article 48 of the but which, by treating taxpayers differently Treaty, the dispute in the main proceedings involved a national rule which allowed, inter alia, family circumstances to be taken into Sec,, in particular 22 — Sec particular,, Case C-246 C-246// 89 Commission United account and certain social security expendi­ Kingdom 1991]] ECB [1991 ECB.. 1-4585 1-4585,, paragraph 12 12,, and Schu- macker,, cited above macker above,, paragraph 2121.. ture to be deducted only by residents. 23 — Case C-175 /88 Biehl C-175/ Administration des Contributions 1990]] ECR I-1779 [1990 I-1779,, paragraph 12 12.. 24 — Case 270 /83 Commission 270/ 1986]] ECR 273 France [1986 273,, and Case C-330 C-330//91 The Queen Inland Revenue Commission- ers ex parte Commerzhank [1993 1993]] ECR 1-4017 1-4017.. Biehl,, cited above 26 — Biehl above,, paragraph 14 14,, and Schumacker Schumacker,, cited

Sec,, in particular 25 — Sec particular,, Case 152 /73 Sotgiu 152/ Deutsche Bundes- above,, paragraph 28 above 28.. 1974]] ECR 153 post [1974 153,, paragraph 11 11,, and Commerzbank,, Commerzbank Schumacker,, cited above 27 — Schumacker above,, paragraph 29 29.. cited above.. paragraph 14 above 28 — Ibid., paragraph 30 Ibid., 30..

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61. The Court had to consider the situation residence. That criterion was insufficient to of a non-resident employed taxpayer who, justify discrimination. receiving no significant income in the State of his residence and earning most of his tax­ able resources from activity in the State of his employment, is unable to have his per­ sonal and family circumstances taken into account in the State of residence. 31 65. In Wielockx, cited above, the Court took the same approach with regard to Arti­ cle 52 of the Treaty.

29 — Ibid., paragraph 37. 30 — Ibid., paragraph 38. 31 — At paragraphs 20 and 21.

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than if he carried on the same activity but income. In Schumacker, the Court refrained were resident in the State of taxation. Such from referring to any particular percentage. indirect discrimination by reason of nation­ To do so would have been inappropriate in a ality exists whether the difference in treat­ judicial ruling. The threshold corresponding ment takes the form of an inability to take to the Court's analysis in that case was personal and family circumstances into rather the dividing line, variable from one account in the case of a non-resident tax­ Member State to another, between income payer or of an increased rate of taxation. which is and income which is not taxable in the State of residence of a taxpayer who is in addition a non-resident taxpayer in another Member State. For the same reasons, I feel that the Court should not refer to a specific percentage in the present case. The second question

68.. By this question, the national court asks, 68 70. In Schumacker, before dealing specifi­ in substance, whether Articles 48 or 52 of the cally with the case of a non-resident all or Treaty allow a Member State to levy a higher almost all of whose income is received in the rate of tax on a national of another Member State of employment, the Court accepted State than on one of its own resident nation­ that 'in relation to direct taxes, the situations als when that non-national pursues an activ­ of residents and of non-residents are not, as a ity there as an employed or self-employed 33 rule, comparable.' person but resides in his Member State of origin or in another Member State and does not derive all or almost all of his income from that activity.

income and his personal and family circum­ categories of taxpayer are not in a compar­ stances, is more easy to assess at the place able situation.' where his personal and financial interests are centred. In general, that is the place where he has his usual abode. Accordingly, interna­ tional tax law, and in particular the Model Double Taxation Treaty of the Organization for Economic Cooperation and Develop­ 73. It is important to note that that judg­ ment ( OECD ), recognizes that in principle ment did not endorse the view that a differ­ the overall taxation of taxpayers, taking ence in treatment could be based on a differ­ account of their personal and family circum­ ence of any kind whatsoever between the stances, is a matter for the State of residence. situations of residents and non-residents. The Court referred to an 'objective difference between [those] situations ..., such as to 36 justify different treatment'.

The situation of a resident is different in so far as the major part of his income is nor­ mally concentrated in the State of residence. 74. I think it should be added that the differ­ Moreover, that State generally has available ence in situation must be fiscally relevant, all the information needed to assess the tax­ that is to say that it must be sufficiently payer's overall ability to pay, taking account closely linked to the field of taxation in issue. 34 of his personal and family circumstances.'

75. When the Court accepted that a non­ resident taxpayer's personal and family cir­ 72. It concluded: cumstances might not be taken into account in the State of employment, it was on the ground that they would in principle already have been taken into account in the State of residence, under international tax law, in respect of the taxpayer's worldwide income. That is an objective and fiscally relevant dif­ ference in situation. In the hypothesis under 'Consequently, the fact that a Member State consideration, the difference in treatment has does not grant to a non-resident certain tax the legitimate aim of preventing the benefits which it grants to a resident is not, as a rule, discriminatory since those two

80. I do not think that, as the Netherlands 37 Government maintains, 'an adequate sys­ tem of taxation makes it possible to offset the exemption from social security contribu­ 77. In my view, therefore, the answer to the tions enjoyed by certain taxpayers and the second question should be that Articles 48 or effect of that exemption on their ability to 52 of the Treaty allow a Member State in pay'. principle to levy a higher rate of tax on a national of another Member State than on one of its own resident nationals when that non-national pursues an activity there as an employed or self-employed person but resides in his Member State of origin or in another Member State and does not derive 81. Nor do I believe that, as the French all or almost all of his income from that Government submits in very similar activity. The difference in treatment must, however, be based on an objective and fis­ cally relevant difference in situation. 37 — At point 13 of its observations.

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terms, 'that exemption is offset under the 84. The mere fact that, for technical reasons, Netherlands rules by means of a higher tax a State finds it preferable to levy direct taxes rate on income in the first band for non­ and social security contributions jointly on a residents than for residents' and that such a single basis of taxation in no way affects that solution ensures 'the cohesion of the Nether­ position. lands tax system' within the meaning of the 39 judgment in Bachmann ν Belgium.

85. Such socio-economic factors as the 82. Direct taxation and social security con­ amount of social security contributions are tributions belong to fundamentally different taken into account in the same way as any categories of levy, which are not in any way other factor — the burden of indirect taxa­ directly related. The payment of social secu­ tion, for example — in the economic and tax rity contributions forms part of an insurance policy which the State pursues within its scheme: it bestows entitlement to specific territory. benefits. The payment of taxes, however, which is unconnected with any insurance transaction, does not give rise to any benefits as such.

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88. When the State decides to levy more tax 90. In any event, a situation such as that on such a category, either which the national court has to consider in no way falls within the justification accepted in Bachmann, cited above.

— it inflicts an unjustified disadvantage on non-resident taxpayers who pay social security contributions in their State of residence 91. In that case, deduction of contributions paid to companies established in Belgium entailed an actual loss of tax revenue, which was then offset, in Belgium, by taxing the sums paid out by those companies. In addi­ tion, the amounts deducted at the earlier stage and those taxed at the later stage related to the same contract. or

— with regard to non-residents not insured 92. In the present case, there has been no and thus not paying contributions in deduction of contributions in the Nether­ either State, it oversteps the bounds of its lands by the non-residents concerned, fiscal sovereignty by assessing the overall whether before or after 1 January 1990. ability of those non-residents to pay, and There is thus no loss of tax revenue directly thus the desired progressivity of the tax related to contributions. The higher rate of which they have to pay, although under tax is applied, moreover, not to amounts paid international tax law these in principle in respect of the contributions but to the tax­ are matters for their State of residence as payer's professional earnings. regards their worldwide income.

40 93. The Netherlands Government submits that, since 1 January 1990, residents may no 89. In the present case, under Article longer deduct from their taxable income the 24(2)(1) of the bilateral convention, it is for amount of the social security contributions the Kingdom of Belgium to assess overall tax they have paid. Since non-residents who are progressivity, since it has the right to take not insured in the Netherlands were already account, in order to fix its rate of taxation, of income which is received and taxable in the Netherlands and thus exempted from tax in Belgium pursuant to the convention. 40 — At point 11 of its written observations.

97. Prior to 1990, income in the first tax 100. It thus becomes apparent that a reform band was taxed at the same rate of 14% for which was fiscally neutral for residents both residents and non-residents, who were introduced a difference of 12% between the thus treated equally. The difference in situa­ tax rates on residents and non-residents, to tion at that time, which preceded the applica­ the detriment of the latter. tion of that rate and derived from the fact that contributions paid by residents were deductible whereas non-residents could not, by definition, deduct contributions which 41 — Ibid.

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103. Where the tax rate is the same, the tax pressure remains the same, regardless of whether or not a particular taxpayer must also pay social security contributions. 106. If non-residents do in fact enjoy a basic deduction in both States, that can only be as a result of the agreement between them. The OECD Model Convention applies, as between the Kingdom of Belgium and the Kingdom of the Netherlands, only in so far as its terms are reproduced in the convention actually concluded. But the bilateral conven­ 104. The Kingdom of the Netherlands tion does not contain any provision exoner­ 43 states that since 1 January 1990 both resi­ ating each of the contracting parties from dents and non-residents are entitled to the allowing non-residents the personal allow­ basic allowance corresponding to the ances, reliefs and deductions granted to resi­ dents. On the contrary, Article 25(3) explic­ itly provides that the residents of one State 42 — At point 12 of its written observations. are to enjoy such allowances, reliefs and 43 — At point 14 of its written observations. deductions in the other State.

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107. The Netherlands Government speci­ 111. The Kingdom of the Netherlands 44 46 fies that it also took account, when fixing states, finally, that if the rate applicable to the rate applicable to non-residents at 25 %, non-residents who were not insured had of the tax rates in force in neighbouring been the same as that applicable to residents, countries, which it says are generally higher that lower rate could have had a 'suction than the rate applied to Netherlands resi­ effect'. Non-residents might have been dents, so that the ability to pay of non­ tempted to acquire a portion of their income residents is relatively higher than that of in the Netherlands solely on account of the residents. more favourable tax regime.

116. In general, States seek to protect them­ policy, public security or public health' selves against tax evasion. Taxpayers arrange referred to in Articles 48(3) and 52(1) of the their affairs in such a way as to be subject to Treaty. the — ex hypothesi less harsh — tax regime of a State other than that in which they should be taxed. The damage to the State 'suffering' the evasion is obvious: a loss of tax revenue. 120. If the slightest doubt remained, it would be dissipated in the light of certain observations made by the applicant in the main proceedings and by the Commission, 49 who rightly observe that the discrimi­ 117. The State to which such a taxpayer nation is clearly revealed by a comparison deliberately makes his affairs subject, on the between the situation of a non-resident taxed other hand, far from suffering any loss, gains at 25 % and that of a taxpayer resident in the tax revenue which it would normally not Netherlands who enjoys the lower rate of have been able to receive. 13 % even if he does not receive all or almost all of his taxable income there and does not pay social security contributions there.

118. It should be noted that in its judgment 47 in Commission ν France, cited above, the Court considered that Article 52 of the 121. In conclusion, a difference in treatment Treaty does not allow any derogation from such as that in issue in the main proceedings the fundamental principle of freedom of must be regarded as constituting indirect dis­ establishment even for reasons related to a 48 crimination by reason of nationality. risk of tax evasion.

(2) A national of a Member State pursuing an economic activity in another Mem­ ber State in which he resides may rely on Article 48 or 52 of the Treaty, as the case may be, as against his State of origin in connection with another activity which he pursues as an employed or self-employed person in that State.

(3) Articles 48 and 52 of the Treaty should be interpreted as not allowing a Mem­ ber State to levy a higher rate of tax on a national of another Member State pursuing an activity as an employed or self-employed person in the first State, deriving all or almost all of his income from that activity, but residing in his State of origin or in another Member State, than if he carried on the same activity but were resident in the State of taxation. Such indirect discrimination by reason of nationality exists whether the difference in treatment takes the form of an inability to take personal and family circumstances into account in the case of a non-resident taxpayer or of an increased rate of taxation.

(4) Articles 48 or 52 of the Treaty allow a Member State in principle to levy a higher rate of tax on a national of another Member State than on one of its

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own resident nationals when that non-national pursues an activity there as an employed or self-employed person but resides in his Member State of origin or in another Member State and does not derive all or almost all of his income from that activity. The difference in treatment must, however, be based on an objective and fiscally relevant difference in situation.