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OPINION OF ADVOCATE GENERAL LA PERGOLA delivered on 7 September 1999 *

I — Subject-matter of the proceedings of the Regulation, are not subject to French social security legislation; and

1. By two separate applications, lodged on 12 February 1998 (Case C-34/98) and 7 May 1998 (Case C-169/98), the Com- mission of the European Communities has (2) by applying the 'contribution sociale asked the Court of Justice to declare, on the généralisée' (general social contribu- basis of Article 169 of the EC Treaty (now tion; hereinafter 'the CSG') to the Article 226 EC), that the French Republic employment income and substitute has failed to fulfil its obligations under income of employed and self-employed Articles 48 and 52 of the EC Treaty (now, persons resident in France who, by after amendment, Articles 39 EC and 43 virtue of the Regulation, are not sub- EC) and Article 13 of Regulation (EEC) ject to French social security legisla- No 1408/71, 1 tion.

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revenue from taxation on the other. 2In the ject — or have been subject — to the course of a debate that began in the 1970s, (social security) legislation of one or more a number of reasons have been suggested Member States. for the increasing use of revenue from taxation (direct taxation, whether general or specific taxation, and indirect taxation): the need to meet increasing levels of social security spending (a gradually ageing popu- lation combined with a reduction in the length of working life and an increase in social security benefits)3 and the need to make the methods of funding more equi- table. As we shall see, the two pieces of I I— The relevant Community legislation legislation at issue in these proceedings are a response to those problems. In my open- ing remarks, I said that the two cases 'concern' the funding of social security schemes from taxation. That requires clar- ification. These cases do not question the 3. Articles 48 and 52 of the Treaty guar- Member States' freedom to secure that antee freedom of movement for employees funding using 'fiscal' measures that affect and the self-employed. The Regulation was taxpayers generally. Rather, they concern adopted by the Council on the basis of the freedom to 'tax' only in so far as it Article 51 of the EC Treaty (now, after affects the income of one specific category amendment, Article 42 EC) 4 in order sub- of taxpayer: migrant workers, that is to say, stantially to coordinate social security leg- nationals of one Member State who, in the islation as between the various Member exercise of one of the fundamental free- States and thus reduce as far as possible the doms guaranteed by the Treaty, are sub- obstacles posed by national legislation to the free movement of all workers, both employed and self-employed.5

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State statutes, regulations and other provi- (c) old-age benefits; sions and all other implementing measures, present or future, relating to the branches and schemes of social security covered by Article 4(1) and (2)'.

(d) survivor's benefits;

Article 2(1) of the Regulation ('Persons covered') provides that '[t]his Regulation shall apply to employed or self-employed persons who are or have been subject to the (e) benefits in respect of accidents at work legislation of one or more Member States and occupational diseases; and who are nationals of one of the Member States or who are stateless persons or refugees residing within the territory of one of the Member States, as well as to the members of their families and their survi- vors.' (f) death grants;

Article 4(1) of the Regulation ('Matters covered') provides that 'this Regulation shall apply to all legislation concerning (g) unemployment benefits; the following branches of social security:

Lastly, subject to Articles 14 to 17 of the Regulation (governing special cases), Arti- III— The national rules in issue in Case cle 13(2) of the Regulation provides: C-34/98: the CRDS

4. The CRDS was introduced by Arti- cle 14-1 of Order No 96-50 of 24 January 1996 on the repayment of the social debt (hereinafter 'Order No 96-50'). 6All nat- ural persons domiciled in France for '(a) a person employed in the territory of income tax assessment purposes are liable one Member State shall be subject to to pay the CRDS 7 on (and this is the aspect the legislation of that State even if he relevant here) certain employment income resides in the territory of another (wages, for example) and certain substitute Member State or if the registered office or place of business of the undertaking or individual employing him is situated 6 — journal officiel de la République française (Officiai Journal of the French Republic; hereinafter 'JORF) of 25 January in the territory of another Member 1996, p. 1226. State; 7 — See Article 14-I of Order N o 96-50 which refers to Arti- cle L. 136-1 of the Code de la Sécurité sociale (Social Security Code; hereinafter the 'CSS'); the current Arti- cle L. 136-1 of the CSS (formerly Article 127 of Law N o 90- 1168 establishing the CSG — see footnote 20 below) was amended by the amending Finance law for 1993 N o 93-859 of 22 June 1993. Resident in France for tax purposes are those persons who fulfil the conditions laid down in Article 4B of the General Tax Code, that is to say: 'persons whose home or principal place of residence is in France; persons w h o are employed or self-employed in France, unless they prove that that employment is on an ancillary basis; and persons for whom France is the centre of their economic activities'. Like the CSG (see footnote 21 below), therefore, the CRDS is not applied to income from professional or trade activities pursued in France by workers (either employed or self - employed) who, although subject to French social security (b) a person who is self-employed in the legislation, are resident for tax purposes in another Member territory of one Member State shall be State.

income (pensions and unemployment guards, facilitations and penalties. 1 0The allowances, for example). 8 Pursuant to CRDS, the rate of which is set at 0.5% of Article 15-III(1) of Order No 96-50, the taxable income, 11 i s applied to income CRDS is also applied to employment (both national and foreign) received income and substitute income from a between 1 February 1996 and 31 January foreign source which is subject to income 2009. 12 tax in France, subject, naturally, to con- ventions on the avoidance of double taxa-

sociale (Social Debt Redemption Fund; 8 — The income on which the CRDS is levied is broadly the hereinafter 'the CADES'), 13 a public body same as the income subject to the CSG (see the second under the joint supervision of the Minister subparagraph of Article 14-I of Order N o 96-50 which refers to the employment income and substitute income for the Economy and Finance and the cited in Articles L. 1.16-2 to L. 136-4 of the Social Security Code, concerning the CSG. Articles L. 1.16-1 to L. 136-5 of Minister for Social Security. 14 According the Social Security Code incorporate into that Code the to Article 2 of Order No 96-50, the pri- legislative provisions establishing the CSG (sec Article 7 of Law N o 93-936 of 11 July 1993, JORF of 23 July 1993, mary purpose of the CADES is to discharge p. 10374; hereinafter 'Law N o 93-936')). Initially, the CRDS covered a range of income not subject to the social debt of FRF 137 billion 15

Article 15-111 on 1160'), the basis of assessment for the CSG was extended as the CRDS on 'foreign' income in turn refers to Article 15-1. a result of amendments to Article L. 136-1 et seq. of the 11 — Article 19 of Order N o 96-50. Social Security Code. In the case of employment income, the 12 — See Articles 14-1 and 15-11! of Order No 96-50.

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(National Sickness and Maternity Fund for Self-Employed Workers in Non-Agricul- tural Occupations; hereinafter 'the CANAM') in order to clear (in part at 6. The CSG was introduced by Article 127 least) the debt existing at 31 December of the 1991 Finance Law, Law No 90-1168 1995 and to fund the anticipated deficit for of 29 December 1990. 20 As in the case of 1996 (see Article 4-II). The resources which the CRDS, all natural persons resident in France for income tax assessment purposes the CADES uses to make those payments are not restricted to the CRDS on employ- ment income and on substitute income 19 — For detailed information on CADES resources and expen- (that is to say the levy at issue in these diture, see Articles 9 and 10 of Decree N o 96-353.

sectors). According to the report to the President of the Republic on that order, 'the reform of social protection tabled by the Government includes structural measures 16 — See Article 4-1 of Order N o 96-50. The CDC is a national designed to secure, on sound bases, the future equilibrium public body with a special status: originally the — of the social security schemes. That equilibrium is an 'statutory, sole and compulsory' — depositary and man- absolute prerequisite if those schemes are to survive and be ager of private funds, it was subsequently given responsi- socially and economically effective' (JORF of 25 January bility, on its own behalf and on behalf of other bodies, for 1996, p. 1229). the management and administration of a whole range of funds whose protection is considered to be in the public 20 —JORF of 30 December 1990 (Article 127 is on page interest (savings, provident, retirement, social and notarial 16387); hereinafter 'Law N o 90-1168'. After the contri- funds, among others; see M . Pomey, Le régime juridique bution was introduced, the legislative provisions on the de la Caisse des dépôts et consignations, in La Revue CSG were introduced into the CSS (Article L. 136-I et Administrative, 1974, N o 157, p. 18). The CDC is also seq.), in accordance with Law N o 93-936 (see footnote 8). responsible for the direct disbursement of certain social O n two occasions, the Conseil constitutionnel (body welfare benefits (see Case 157/84 Frascogna I [1985] monitoring the constitutionality of, among other things, ECR 1 7 3 9 , and Case 2 5 6 / 8 6 Frascogna II [1987] legislative acts of the French Republic) has confirmed, on ECR 3431. the basis of French national law, that the CSG is purely fiscal in nature (see Decision N o 90-285 of 28 December 17 — Approximately EUR 1.9 billion; see Article 4-III of Order 1990 (JORF of 30 December 1990, p. 16609), and

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are liable to pay the CSG. 21 The CSG came possible to apply the provisions on the CSG into effect on 1 February 1991 (see Arti- to workers not registered with the French cle 127 of Law No 90-1168) and is payable social security scheme because they pursue (and this is the aspect relevant here) on all an occupation in another Member State, the employment income and substitute those workers were asked to register with income (including income from a foreign the agencies of the Union de recouvrement source or that received abroad) referred to des cotisations de sécurité sociale et d'allo- in Article L. 136-2 et seq. of the Social cations familiales (Union for the Collection Security Code (formerly Article 128 et seq. of Social Security and Family Allowance of Law No 90-1168): that means that, C o n t r i b u t i o n s ; hereinafter ' t h e URS- following the extension of the basis of SAF'). 23However, problems in collecting assessment under Law No 96-1160 (see the CSG and the need to improve collection footnote 8), the basis of assessment for the procedures prompted the French Republic CSG is now more or less the same as for the unilaterally to suspend, on 28 November CRDS. Naturally, the income on which the 1994, the imposition of the CSG on persons CSG is payable is income taxable in France, in receipt of employment income or sub- subject, in the case of income received stitute income from a foreign source. 2 4 abroad, to the relevant international con- ventions on the avoidance of double taxa- tion.

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from the CSG were paid into the Caisse obligation to provide funding: '(through nationale des allocations familiales the CSG), the State has sought to enhance (National Family Allowances Fund; here- the redistributive nature of the scheme'. 29 inafter 'the CNAF'). 2 6 Under Article L. Based on the principle that the same level of 136-8 (IV) of the CSS, 1.1% of the contribution must be paid on the same level proceeds from the CSG on (employment of income, the CSG therefore provides a or substitute) income is now paid to the mechanism by which the methods of finan- CNAF, 1.3% to the Fonds de solidarité cing social security may be adapted to vieillesse (Old-age Solidarity Fund; herein- reflect a new conception of solidarity, now after 'the FSV') 27 and 5.1% (CSG on defined as 'universal', which underpins the employment income) or 3.8% (CSG on French social security scheme. Thus the substitute income) to the compulsory sick- CSG partly replaces those social security ness insurance schemes. Under the Finance contributions which placed an excessive Law for 1997, the CSG on employment burden on lower incomes and, at the same income and substitute income became par- time, boosts the revenue earmarked for tially deductible from taxable income. 28 social security spending. 30 Moreover, the progressive nature of the CSG means that it is possible to lower the levels of social security contributions. 31 As the French Government has pointed out, the CSG is the first stage in the move towards partially funding social security from taxation; it

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10. Let me now summarise the essential collected by the tax authorities, in accor- characteristics of the CRDS and the CSG. dance with the procedures and applying the Under French law, both are taxes. They are penalties laid down in relation to income both 'direct' taxes, just like the tax on the tax, the CSG is deducted directly by the income of natural persons, and are 'hypo- social security bodies, in accordance with thecated', since the revenue thereby raised the procedures and applying the penalties is allocated to a specific purpose. Both the laid down in relation to compulsory con- CRDS and the CSG are used, albeit in tributions. That particular feature has not, different ways, to 'fund' the French social however, prevented the Conseil constitu- security system: the CRDS in general terms, tionnel from considering the CSG, on several occasions, to be a genuine tax.

. . comes from indirect taxes on tobacco, from the revenue from lotteries and from car raxes. In Belgium, a proportion of indirect taxation on tobacco and a 10% additional motor vehicle insurance premium arc paid into the employee social insurance schemes (see Case C-191/94 AGF Belgium [1996] ECR I-1859), while in France agricultural workers benefit from a proportion of the taxes levied on alcoholic beverages' (Sigillò Massara, op. 33 — The same kind of debt clearance is provided for, again in cit, p. 160, footnotes omitted) and, again m France, in general terms, in respect of the CANAM, to which only a 1997, indirect taxes on tobacco and alcohol were intro- minimal portion of CADF1S resources are allocated (see duced to fund the CNAMTS (Caisse nationale de l'assur- point .S aliove). As we shall see, the French Government ance maladie des travailleurs salariés — National sickness rt'iects the claim that the CRDS has to 'sustain' the social insurance fund for employees) and the FSV (see Article 27 security scheme and contends that the proceeds of the et seq. of Law No 96-1160 and the relevant Government contribution go 'via' the CADFS, a financial body, and are report, JORI-; p. 19380). destined, in the final analysis, for the general State budget.

examine them together and to present a they are put. 3 4 As far as their purpose is single Opinion covering both sets of pro- concerned, the Commission points out that ceedings. they are assessed on the basis of (employ- ment or substitute) income, generated as a result of worker mobility within the Com- munity, on which compulsory social insur- ance contributions are already payable in another Member State pursuant to Arti- cle 13 of the Regulation. As regards the use to which they are put, although some distinctions have to be made, both the CRDS and the CSG are specifically inten- V — Summary of the arguments of the ded to fund the social security scheme. parties According to the Commission, the CRDS relates to that scheme as a whole and, therefore, unquestionably benefits the branches listed in Article 4(1) of the Reg- ulation. 35 Although, as the Commission acknowledges, the CSG relates only to certain branches of the French social secur- 11. For the reasons set out above, the two actions brought by the Commission under Article 169 of the EC Treaty (now Arti- 34 — The criterion for interpretation put forward by the Commission is based on that used by the Court to cle 226 EC) and the statements of defence establish whether certain social security benefits fall under submitted by the French Republic have a the matters covered by the Regulation: 'the distinction between benefits excluded from the scope of Regulation number of elements in common, as I shall N o 1408/71 and those which fall within it is based essentially on the constituent element of each particular explain below. benefit, in particular its purpose and the conditions on which it is granted, a n d not on whether a benefit is classified as a social security benefit by national legislation' (see, inter alia, Case 207/78 Even and ONPTS [1979] E C R 2 0 1 9 , paragraph 11; Case 249/83 Hoeckx [1985] ECR 973, paragraph 1 1 ; Case 122/84 Scrivner and Cole [198J] ECR 1027, paragraphs 18 and 19; Case C-45/90 Paletta and Others v Brennet [1992] ECR 1-3423, paragraph 16; Case C-78/91 Hughes [1992] ECR 1-4839, paragraph 14; Case C - l l l / 9 1 Commission v Luxembourg [1993] ECR 1-817, paragraph 2 8 ; Case C-66/92 Acciardi [1993] ECR 1-4567, paragraph 13; Joined Cases C-245/94 and C-312/94 Hoever and Zachów [1996] ECR I-4895, paragraph 17; Case C-160/96 Molenaar [1998] ECR 12. The disagreement between the parties 1-843, paragraph 19).

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procedures laid down for the collection of compulsory contributions. 14. Under Article 13 of the Regulation — the conflict rule used, as the Commission points out, to determine the legislation applicable — workers covered by the Reg- ulation are to be subject only to the legislation of the Member State in which they pursue their occupation (or, in the case of employees, the State in which the registered office or place of business of the undertaking or individual employing them is situated). According to that provi-

According to the covered by the Regulation, and therefore Commission, the levying of the CRD S and of all those workers 'who are or have been the CSG, in addition to the contributions subject to the legislation of one or more Member States and who are nationals of 36 — According to which, '"frontier worker" means any one of the Member States' (Article 2(1) of employed or self-employed person who pursues his the Regulation). Essentially, these are the occupation in the territory of a Member State and resides in the territory of another Member State to which he workers who, although resident in France, returns as a rule daily or at least once a week; however, a frontier worker who is posted elsewhere in the territory of actually obtain their (employment or sub- the same or another Member State by the undertaking to stitute) income from a different Member which he is normally attached, or who engages in the provision of services elsewhere in the territory of the same State in which they are pursuing (or have or another Member State, shall retain the status of frontier worker for a period not exceeding four months, even if he pursued) a professional or trade activity, as is prevented, during that period, from returning daily or at a result of having exercised the freedom of least once a week to the place where he resides'. 37 — Not only is the definition of frontier worker contained in movement guaranteed under the Treaty. these bilateral conventions not uniform, it does not match The Commission goes on to point out that the definition given in Article 1(b) of the Regulation either. By way of illustration, the Commission has pointed out the range of workers covered by the that the convention with the Federal Republic of Germany accords the status of 'frontier worker' to French workers Regulation and affected by the two actions who reside in France at a distance of not more than 20 km that it has brought is certainly not limited from the German border and pursue their occupation in Germany at a distance of not more than 30 km from the to frontier workers, as defined in Arti- French border.

already paid in another Member State using absence of Community harmonising mea- the same basis of assessment, 38 prejudices sures (and, according to the French Gov- the coordination achieved brought about ernment, the same thing applies to taxa- by Article 13 of the Regulation, because it tion). As currently structured, that coordi- amounts to a double 'contributory' levy nation leaves in being substantial differ- and is thus incompatible with the principle, ences between the various schemes of established in Article 13, that the legisla- national legislation. In that connection, tion of a single Member State only is to the French Republic points out that the apply. Basically, by making the 'foreign' Regulation provides definitions of the mat- income of 'migrant' workers subject to the ters and persons covered by the coordina- 'contributory' levy, the French Republic is tion of the various national social security exercising a power which it does not schemes, but contains no definition of the possess (see Article 13(2) of the Regula- term 'social security contributions'. Given tion). Finally, the effect of arbitrarily that 'Article 51 leaves in being [substantive applying the same provisions to indivi- and procedural] differences between the duals — French residents who are not Member States' social security systems', 39 migrant workers and French residents who are pursuing or have pursued an the omission just pointed out is significant, occupation in another Member State — according to the French Government, who are in objectively different situations because it demonstrates that, when adopt- in terms of the social security legislation ing the Regulation, the Council did not applicable (which includes the provisions wish to intervene in the choice of arrange- on contributory levies) constitutes, accord- ments for financing such schemes, as it ing to the Commission, discrimination in would otherwise have had to make a whole breach of Articles 48 and 52 of the Treaty. series of fiscal provisions subject to the Regulation. It has therefore of necessity to be concluded that the provisions in issue, which are exclusively fiscal in nature, although they are used to finance, in the broad sense, a social security scheme, do not fall within the scope of the Regulation, but remain a matter for the Member States themselves. The French Government is thus arguing that the CRDS and CSG are strictly fiscal in nature and therefore not covered 15. The French Government points out by the social security branches listed in that the Regulation, adopted on the basis Article 4 of the Regulation, and it points of Article 51 of the Treaty, merely provides out that liability for the contributions is for the coordination of national legislation based solely on residence for tax purposes, on social security and does not deprive the regardless of whether the taxpayers have Member States of the freedom of organisa- the status of 'workers' and of whether they tion which they possess in this area in the belong to (or are registered with) the

French social security scheme. 40 As regards their low levels, particularly in the case of the CRDS in particular, not only is it paid the CRDS. Finally, as regards the 'persons in accordance with the procedures laid covered' by the levies in issue, the French down for ordinary income tax, it does not Government docs not accept that the CRDS give entitlement to any consideration and the CSG affect all migrant workers (which is usually a feature of compulsory who have maintained their residence for contributions), since not only is the revenue tax purposes in France (as the Commission generated merely intended to defray the claims), because the majority of them at social debt in general (so that it does not any rate avoid French taxes (including the contribute to specific funding for any CRDS and the CSG) on income from particular social security branch with a foreign sources on the basis of the general view to the payment of social security principle, laid down in the conventions for benefits), it is, in the final analysis, paid the avoidance of double taxation, accord- into the State budget after having simply ing to which the State of taxation is the gone 'via' the CADES. Furthermore, the State of employment. Consequently, if my CADES, to which the CRDS is initially understanding is correct, the fiscal legisla- channelled, is not a social security body, tion applicable is the same, generally coin- but a financial institution whose purpose is ciding with that provided for by Article 13 certainly not to disburse benefits of any of the Regulation. Only exceptionally, and,

16. The French Republic also maintains confirms that they are purely fiscal and not that the effect of the levies in question on contributory in nature. Finally, the CRDS the movement of persons is minimal, given and CSG are not discriminatory, even though they affect both 'resident' and 'migrant' workers, since they are levied on 40 — In that connection, as further proof that the CRDS ant! CSG are fiscal and not contributory in nature, the French the basis of an objective factor common to Government points out that there is an exemption for workers who, although pursuing an occupation in France, all those required to pay them, namely arc resident for tax purposes m another Member State. residence for tax purposes in French terri- That appears to be significant inasmuch as these charges arc clearly treated differently from compulsory contribu- tions which, according to the French Government, are the only contributions that have to be compatible with the principles laid down in Article 13(1) and (2) of the Regulation (stipulating that the contributions are to be paid in the State of employment) because they fall within

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tory (the factor that gives rise to the tax), direct effect. That would perpetuate an regardless of the taxpayer's nationality. 41 ambiguous state of affairs which leaves individuals in a state of uncertainty as to the possibilities for them of relying on Community law. 42I would further observe that the French Government explained its decision to suspend collection of the CSG on the ground that it intended to establish new CSG collection procedures (implying VI — Legal assessment that the levy will in any case be applied sooner or later), and not on the ground that it was persuaded that the Commission's observations, which moreover it firmly rejects in the pleadings submitted in these proceedings, were well-founded. Further- A — The fact that the French authorities more, in its rejoinder, the French Republic have suspended collection of the CSG is again confirmed that the real reason for irrelevant continuing to suspend collection of the CSG for the past five years has been that it is awaiting the Court's judgment in this matter. That suspension, which was deci- ded in 1994, is neither intended to, nor 17. I should like to make a preliminary capable of, meeting the Commission's observation on an aspect which, although complaints. mentioned by the Commission, does not appear in the French Government's plead- ings, in relation to the CSG. These pro- ceedings were brought under Article 169 of the Treaty, and it is quite irrelevant that the Member State concerned should have uni- laterally taken the decision to suspend collection of the CSG from 'frontier' work- ers (see point 7 above) on the day after it received the Commission's letter of formal notice initiating the pre-litigation proce- B — CRDS and CSG: direct taxes or social dure in Case C-169/98. Suspending the security contributions? That question is fiscal levy is not sufficient to remedy any irrelevant. failure of the Member State concerned to fulfil its obligations if there remains within its legal system legislation incompatible with provisions of Community law, having

44 — C a s e C-311/97 Roy.!/ Bank of Scotland [1999] ECR 1-2651, paragraph 19; see also Clase C-246/89 Commis- sion v United Kingdom [1991] ECR I-4585, paragraph 12; Case C-279/93 Schumacher [199S] ECR I-225, para­ graph 2 1 ; Case C-80/94 Wielockx [1995] ECR I - 2 4 9 3 , paragraph 16; Clase C-107/94 Asscber 11996| F.CR 1-3089, paragraph 36; Case C-250/95 hitina Varttctžiatums and Singer | 1 9 9 7 | F.CR 1-2471, paragraph 19; Case C-118/96 Safir 119981 FCR 1-1897, paragraph 2 1 ; Case C-264/96 19. Firstly, the approach taken by the /Ci 119981 FCR 1-4695, paragraph 19. French Government does not appear to 45 — S e e , for example. Case 275/81 Kolb | 1 9 8 2 | FCR 3013, me to be correct. Naturally, I am aware of paragraph 10; Case 276/81 Kuimers | I 9 8 2 | FCR 3027, paragraph 14; Case 302/84 Ten I hilder 11986| FCR 1821, the principle whereby 'Community law paragraph 2 1 ; Case 60/85 1.miten | l 9 8 6 ļ FCR 2365, paragraph 14; Case C-120/9S, cued in footnote 43 ahove, does not detract from the powers of the paragraph 23 and Case CM 58/96, cited in footnote 43 Member States to organise their social ahove, paragraph 19, as well as the Opinions in those cases of Advocate General Tesauro (points 17 to 25); Case security systems'. 43 I have, however, to C-18/95 Terhoeve | 1 9 9 9 | ECR I-345, paragraph 34. See also Case 43/86 De Rijke [1987] ECR 3 6 1 1 , para­ draw attention to the settled case-law of the graph 12; Case C-245/88 Daahmeijer | 1 9 9 l | ECR I - 5 5 5 , Court of Justice, according to which paragraph 15; Case C-340/94 De Jaeck [1997| ECR I - 4 6 1 , paragraph 36, and Case C-20/96 Snares | 1 9 9 7 | ECR 'although direct taxation is a matter for 1-6057, paragraph 45, in which the Court explained that the powers of the Meniher States in the field of social the Member States, they must nevertheless security must he exercised in such a way as not to give rise exercise their direct taxation powers con­ to discrimination between nationals and citizens of other Member States, that is to sav in compliance with one of the fundamental principles of tile Community legal ortler, laid down i n Article 6 of the FC Treaty (now, after amend­ ment, Article 12 FC) and Article Ì of the regulation. 43 — Case C-158/96 Kohll [1998] ECR I-1931, paragraph 17, 46 — With the exception, in the case of direct taxation, of and Case C-120/95 Decker [1998] ECR I - 1 8 3 1 , para­ Council Directive 90/434/FFC of 23 July 1990 on the graph 2 1 ; see also Case 266/78 Brunori [1979] ECR 2705; common system of taxation applicable to mergers, divi- Case 238/82 Duphar and Others [1984] ECR 523. sions, transfers of assets and exchanges of shares concern- p a r a g r a p h 16; C a s e C-186/90 Durighello [1991] ing companies of different Member States (O) 1990 1. 225, ECR I-5773, paragraph 14; Joined Cases C-159/91 and p.l) and Directive 90/435/FFC of 23 July" 1990 on the C-160/91 Poucet and Pistre [1993] ECR I-637, para­ common system of taxation applicable in the case of graph 6; Case C-70/95 Sodemare and Others [1997] parent companies and subsidiaries of different Member ECR I-3395, paragraph 27. States (OJ 1990 1. 225, p.6).

49 — Having said that, I cannot agree with the French Govern- ment's argument that the Council took a conscious decision not to intervene in the financing of the social security schemes (see point 15 above). Even when the Regulation was adopted, use of fiscal instruments was quite widespread and subsequently became more promi- nent (see point 2 above); moreover, that is illustrated by the case-law of the Court of Justice which has had on several occasions to consider cases relating to the social security sector and involving public funding (see below, in

particular. In Case C-57/90 Commission v France [1992] specific elements from the Regulation, it did so explicitly: ECR I-75, Advocate General Lenz firmly rejected the see, for example, the last part of Article 1(j) and Arti- defendant's argument that the Regulation does not concern cle 4(2b)). the methods of financing social security schemes in so far as it provides merely for coordination of the national rules. The judgments in which the Court has had occasion to That argument (very similar to that put forward by the consider social security benefits (held to fall under the French Government in these cases) was based on the matters covered by the Regulation) funded from tax failure of the Regulation to provide any definition of the revenue include:

Advocate General above. See also Poucet and Pistre, in which the Court Lenz agreed with the Commission's argument concerning considered two social security schemes — partly financed the rule that the legislation of a single Member State is to by 'small percentages of various taxes' or 'a contribution apply and the principle that contributions and benefits from the State, the amount of which is fixed in the Finance parallel each other (see paragraphs 18 and 19 of the Law' (see the Opinion of Advocate General Tesauro, at Report for the Hearing and point 22 of the Opinion of point 4, fifth indent and point 5, fourth indent) — in order 19 September 1991 respectively). The Court did not give a to assess the possible status of 'undertaking' within the ruling on that point because it considered that the early meaning of Articles 85 and 86 of the EC Treaty (now retirement and retirement pensions that formed the Articles 81 EC and 82 EC respectively), and Duphar and subject-matter of the financing were not covered by the Others concerning a social security scheme in part funded Regulation, and that the provisions of Title II of the by 'financing from the public authorities' (paragraph 16). Regulation could not therefore be applied to them Finally, I would point out that in Case 295/84 Rousseau (paragraph 14 of the judgment). Wilmot [1985] ECR 3759, the Court was asked to 48 — S e e Case C-10/90 Masgio [1991] ECR I-1119, para- consider a parafiscal charge introduced specifically for the purpose of financing social security funds.

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50 — To confine my analysis to cases concerning social security benefits, and bearing in mind that, according to the Court, 'tile distinction between benefits excluded from the scope of Regulation No 1408/71 and those which fall witbin it is 52 — On all these points, see Case 41/84 Puma, cited in based essentially on the constituent elements of each footnote 39 above, paragraph 20, and Case 3 13/86 Lenoir particular benefit, in particular its purpose and the [1988] ECR 5191, paragraph 13. conditions on which it is granted' (see footnote 34 above), 51 — Moreover, when required to consider whether national I ant thinking of the combined provisions of Article l(t), measures that combine the features of social security and (u) and (v) (definitions of 'benefits', 'pensions', 'family assistance fall within the scone of the Regulation, the benefits', 'family allowances' and 'death grants') and Court itself has acknowledged that, whilst it may seem Article 4 ('Matters covered', which provides a detailed list desirable from the point of view of applying Community of the relevant branches of social security) of the Regula­ social security legislation to establish a clear distinction tion; Article 4, in particular, has frequently been consid­ between legislative schemes that fall respectively within ered crucial by the Court, in its case-law, m determining social security and assistance, one cannot exclude the whether or not a specific benefit is covered by the possibility that by reason of the persons covered, its Regulation (in addition to the case-law cued in foot­ obļectives and its method of application, legislation can note 34, see Franscogna I and Franscogna II in which the come close to both these categories, thus preventing any Court ruled that a benefit constituted assistance rather comprehensive classification (Clase 24/74 Biason [1974] than a social security benefit). ECR 999, paragraph 9, and (Giletti, cited in footnote 49 51 — Cited in footnote 32 above. above, paragraph 9).

5 7 — Sigillò Massara, op. cit, p. 165 (my emphasis), citing P. Mouton, Methods of financing social security in indus- trial countries: an international analysis, in AA.VV., Financing social security: the options. An international analysis, Geneva, ILO, 1984, p. 29. We also read that 'awareness of the increasing interdependency between the different mechanisms for financing social security. . . and

Commenting on 'contributions or taxes of any type or nature which Asscher, Williams has pointed out that Dutch social constitute internal taxation under Community law' (para- security contributions are of two kinds, specific contribu- graph 20; my emphasis). The reference to 'Community tions and general contributions. Whatever the nature of law' must be interpreted as a reference to the Court's case- specific contributions, general contributions are — labels law on the national taxes contemplated by the rules of the apart — part of the general tax system. [Advocate General Treaty, according to which 'the fact that a tax or levy.

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financed solely from compulsory contribu- C —· Scope of the Regulation and, there- tions, 59 has held that the classification of fore, Article 13 an allowance as a social security benefit covered by the Regulation does not depend upon the manner in which it is financed.60

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OPINION OF LA PERGOLA — CASES C-34/98 AND C-169/98

should apply by reference to the 'aims' of 23. The Community rules relied on by the the provisions in question. 62 That being Commission include Article l(j) of the said, I consider it necessary to establish Regulation. That provision includes a gen- whether — regardless of how they are eral definition of the term 'legislation' defined — the two levies in issue may, one which is pivotal to Article 13 (see point 3 way or another, fall within the scope of the above). It means any measure 'relating' to Regulation and, therefore, Article 13. I the branches and schemes of social security would point out that the Regulation (and covered by the Regulation. Moreover, consequently Article 13) does not provide according to the Court '[t]his definition any definition that can help directly in [of legislation] is remarkable for its resolving the dispute between the Commis- breadth... and must be taken to cover all sion and the French Republic, but that does the national measures applicable in this not prevent the Court from considering case'. 64 In addition, again according to the whether the defendant has failed to fulfil an Court's settled case-law, not only are the obligation. 'An action for failure to fulfil provisions of Title II of the Regulation obligations is [in fact] objective in nature (which includes Article 13) intended to and in the context of such an action it is for 'prevent the simultaneous application of a the Court to decide whether or not the number of national legislative systems and Member State in question has failed to the complications which might ensue', 65 fulfil its obligations as alleged', 63 clearly but they also 'constitute a complete system taking account of the specific evidence of conflict rules the effect of which is to furnished by the applicant. divest the legislature of each Member State of the power to determine the ambit and the conditions for the application of its national legislation so far as the persons who are subject thereto and the territory

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66 — Luijten, paragraph 14; see also, for example, Kits van Heijningen, paragraph 12, and De Paep, paragraph 18. 67 — I have said 'any' complication because the Court's settled case-law has established the principle whereby even the smallest obstacle to one of the fundamental freedoms has to be regarded as contrary to the Treaty: in relation to the 68 — For example, the provisions of special Scheines for self- free movement of goods, see Case 103/84 Commission v employed workers, the creation of which is left to the Italy [1986] ECR 1759, paragraph 18, and Joined Cases initiative of the persons concerned. 177/82 and 178/82 Van de Haar [1984 ] ECU 1797, paragraph 13; on freedom of movement for persons, see 69 — See Case C-23/92 Crana-Novoa [1993] ECR I-4505, Case 270/83 Commission v France ('Avoir fiscal·) [1986] paragraph 16, in which the Court ruled that the concept ECR 273, paragraph 2 1 , and Case C-19/92 Kraus [1993] of 'legislation' in Article 1(j) of the Regulation did not ECR I-1663, paragraph 32; on the free movement of include international conventions on social security services, see Case C-76/90 Sager [1991] ECR I-4221, because 'there are specific provisions in the Regulation paragraph 12, and Case C-275/92 Schindler [1994] ECR covering such conventions', such as Article 6 which lays I-1039, paragraph 4 3 ; on the free movement of capital, see down the principle that the Regulation 'is to replace the my Opinion of 24 June 1999 in Case C-35/98 Vcrkooijen provisions of any social security convention binding either [2000] ECR 1-4071, point 17; on the four fundamental two or more Member States exclusively ...' (paragraph 17). freedoms, see Case C-49/89 Corsica Ferries France [1989] 70 — De Jacek, paragraph 30, and Hervem and Hervilher , ECR 4 4 4 1 , paragraph 8. paragraph 20

25. In the present case, the Commission has adequately demonstrated that there exists between the CSG and the CRDS, on the 26. However, as regards the link between one hand, and the French social security the levies in question and the social security scheme, on the other, a link that brings scheme at issue in this case, the French them fully within French social security Government has drawn a number of dis- 'legislation' within the meaning of Arti- tinctions. While acknowledging, in princi- cle 1(j) of the Regulation. That link essen- ple, that the CSG contributes to the current tially consists in the specific allocation of financial assets of certain branches of social the proceeds of the CSG and CRDS. That security, it has stated that the same cannot allocation is absolutely clear. Precisely be said of the CRDS, since that levy is, in because of their specific purpose, both the the final analysis, hypothecated to the levies can be regarded as 'relating' to general budget for the purpose of dischar- branches of social security covered by the ging the deficit accumulated by the whole Regulation. With a view to the proper of the French social security scheme ('sim- application of the Regulation, moreover, ply a mechanism for discharging a financial the Court itself has referred to the 'objec- debt'). I am not persuaded by the defen- tives' of a specific national provision where dant's argument here. While it is true that that provision cannot be rigidly classified in the CADES is an exclusively financial body a way that allows it to be included with which is not responsible for managing certainty among the provisions subject to social security funds proper and is required the Regulation. 72 As further illustration of to pay over the proceeds of the CRDS to the fact that, when determining whether the State budget annually, the purpose of the Regulation is applicable, the Court those payments is to discharge a financial disregards classifications and focuses on debt of social security bodies or at any rate the nature of the national measures at issue, bodies responsible for managing social it is worth pointing out that it has held that security and pension funds, such as ACOSS

and the CDC, and that debt, transferred by essential because of the deficit accumulated law to the CADES before the CRDS was set during the 1990s. As expressly stated by the up, was incurred, in particular, as a result legislature, this reform, as the Commission of the payment of social security benefits pointed out, made it possible to secure the during the 1990s. In the absence of 'fiscal' 'future equilibrium' and the 'social and funding, that debt would probably have economic effectiveness' of French social had to be met on the basis of 'contributory' protection (see footnote 19): that means financing (an increase in social security that, currently, without structural initia- contributions) or, were the same level of tives such as the introduction of the CRDS, funding retained, by reducing or limiting the French social security system would not the payment of social security benefits. be able to meet its responsibilities properly. Moreover, that is exactly what happened in It seems to me that the result of introducing the case of the CSG: it partly replaced the CRDS — enabling a social security social security contributions (which were scheme to function properly and to con- reduced), thereby covering the growing tinue to disburse the appropriate benefits to financial requirements of the French social those entitled to them — demonstrates the security scheme and, at the same time, direct link that exists between the specific avoiding the need to increase contributions funding instrument in question (a levy with (see point 9 above). In my view therefore, a specific purpose) and the French social the 'stratagem' of transferring to the security system as a whole.

That kind of reorganisation of the instruments for financing a social firmly reject the objection raised by the security scheme continues to be subject to French Government, according to which the general principle of Article 13 of the the CRDS falls outside the scope of the Regulation, which would otherwise be Regulation because it does not relate spe- ineffective. To regard methods of financing cifically to any of the branches referred to such as the CSG and the CRDS as com- in Article 4 but concerns the social security pletely outside the scope of the Regulation scheme as a whole.

It is therefore my opinion that the CRDS and the CSG are in substance and for the 27. It has then to be pointed out that Order No 96-50, which introduced the CRDS, is part of a general reform of the French social security system that had become

purposes of the Regulation 'social security it is true that if the abovementioned contributions' forming part of French financing is 'tax-based', there is no genuine social security 'legislation'. 74 direct consideration for the levy, but that does not mean that a fiscal measure that concerns or 'relates to' the social security scheme as defined above can escape the conflict rules that determine the law applic- able. The Court's case-law, cited by the French Government, according to which only a due constituting consideration for a given service can be regarded as a 'con- D — No direct consideration is received in tribution', cannot be used to support such a return for the CRDS or the CSG conclusion. 75 There are several reasons for

29. As I have already said, the measures structuring a given social security scheme and introduced in order to fund it are also covered by Article 13 of the Regulation, be they specifically fiscal rather than contrib- 75 — See AGF Belgium, paragraphs 25 to 2 8 . 76 — The Court considered whether the charge in issue was in utory in nature or on the borderline the nature of a social security contribution or a tax in between the two. Similarly, whether there another part of the judgment, relating to the first question

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or reductions or limitations in the payment income is used to contribute to social of social security benefits (see point 26 protection for all' — all part of a general above), endorsing the French Government's endeavour to reestablish a scheme of pro- argument would, paradoxically, have the gressive 'contributions' based on an indivi- effect of legitimising the renewed imposi- dual's taxable income ('the same level of tion of 'social charges' on migrant workers contribution is payable on the same level of not registered with the French social secur- income': see point 9 above). 78But if that is ity scheme (that is not required to pay any the case, social protection is decrcasingly contributions in France), with the result characterised by the direct link that the that the migrant workers subject to the French Republic seeks to identify between Regulation could be subject to a levy (with the contributions paid by French workers no consideration) which is generally inten- and the corresponding benefits. 79 ded to reduce the level of contributions (in respect of which there is consideration) payable by French workers resident in France. 77

E — Analysis of the compatibility of the CRDS and the CSG with Article 13 of the regulation

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guaranteed under the Treaty. In Peren- 32. Let me again make the point that to boom, the Court held that '[t]he fact that consider the levies in issue to be outside the a worker is required to pay, in respect of the scope of the Regulation and, therefore, not subject to the requirements of Article 13, same earned income, social charges arising would be to deprive that provision, as under the application of several national interpreted in Perenboom and Noij, of any legislations, although he can be an insured effectiveness. 82 The provisions for deter- person only in respect of one of those mining the law applicable in the field of legislations, involves the worker in pay- social security (including Article 13) 'must ment of contributions twice over, contrary be interpreted in the light of their objective, to the provisions of [Article 13 of the namely to contribute, particularly in the regulation].

Incidentally, the Court included in the scope of the Regulation the case of by virtue of his residing in the territory of a workers w h o have definitively ceased to be employed in any way, even though they are not provided for in any of Member State, to pay contributions for the provisions of the Regulation itself (see paragraph 9). Bearing in mind the aim of the Regulation ('to contribute compulsory insurance to cover benefits to the establishment of the fullest possible freedom of movement for migrant workers'), the Court considered it incompatible with that aim that 'a worker could be deprived of part of a pension received under the legislation of one Member State simply because he has gone to reside in another Member State' (paragraph 13). 82 — In Kits van Hìjningen, a very similar consideration was crucial in establishing the incompatibility of a national measure with Article 13(2)(a) of the Regulation (see paragraph 21). 83 — Masgio (paragraph 16; my emphasis); to the same effect, 80 — Case 102/76 Perenboom [1977] ECR 815 (operative part see Case 284/84 Spruyt [1986] ECR 685, paragraphs 18 of the judgment and paragraphs 13 and 14; my emphasis). and 19; see also Noiį, paragraph 13.

trary to Articles 48 and 52 of the Treaty; 84 an occupation outside France, have contin- obviously, that also applies to national ued to be resident in France for tax provisions on the financing of social pro- purposes. In accordance with the model tection. 85 That being said, it seems to me to tax convention drawn up by the Organisa- be incontestable that the levying of 'social tion for Economic Cooperation and Devel- charges' — of whatever kind — by a opment, the international conventions for Member State other than the State in which the avoidance of double taxation concluded the migrant worker is pursuing (or has by the French Republic generally provide pursued) an occupational activity always that income from employment or self- constitutes an obstacle to freedom of move- employment is taxable in the contracting ment for workers, in so far as it discourages State in which that income originates or the workers from taking advantage of their State in which the occupation is pursued rights guaranteed under the Treaty. (see Articles 14 and 15). That means that the income from an occupation pursued in another Member State by workers who have continued to be resident in France for tax purposes cannot be subject to the two levies in question. Only exceptionally do the conventions on taxation which France has concluded with neighbouring Member States provide that the income of a parti- F — Assessment of the effects of the CRDS cular category of migrant taxpayers, and the CSG namely 'frontier workers' (see footnote 37) may be subject to tax in the State of residence and not in the State of employ- ment (see point 13 above). According to the French Government, however, the CRDS and the CSG affect only a tiny 33. According to the French Republic, it is number of workers covered by the Regula- necessary to place in context the effect of tion, implying, if I understand correctly, any obstacle regarded as a consequence of that there can be no objection to the two the application of the two levies in ques- levies. tion. In that connection, the French Repub- lic points to the low rate of the levies (the rate of the CRDS being 0.5%, while that of the CSG, equivalent to either 7.5% or 6.2%, depending on the basis of assess- ment, is far lower than the rate of normal contributions) and the fact that the two levies affect only a minimum number of migrant workers who, although pursuing

freedom of movement for persons, or France for tax purposes, discriminate another of the fundamental freedoms guar- against migrant workers because they fail anteed under the Treaty, does not mean to take account of their objectively differ- that it is not incompatible with Community ent situation. In point of fact, unlike those law (see footnote 65). Secondly, the argu- workers who have not left France to pursue ment based on the provisions of the con- an occupational activity elsewhere, those ventions to which the French Republic is a workers fall within the scope of the Reg- party fail to take account of the difference ulation. It seems to me that the Commis- in treatment reserved, in conventions, for sion is only focusing, in the light of substitute income as opposed to employ- Articles 48 and 52 of the Treaty, on the ment income. Unlike employment income, same infringement as that found in the substitute income is, as a rule, taxable in context of Article 13 of the regulation. the contracting State of residence. That applies to pensions, or any income from other sources (excluding employment) spe- cifically covered in other provisions of the conventions. 86 Consequently, the CRDS and the CSG affect the substitute income of all workers who have continued to be resident in France for tax purposes, and not only 'frontier' workers.

The tenth recital in the preamble to the discriminatory internal taxation (prohib- Regulation is very clear on the substance: ited under Article 95 of the Treaty), may 'with a view to guaranteeing the equality of similarly provide guidance here. 8 7More treatment of all workers occupied in the specifically: while it is true that in the case territory of a Member State as effectively as of both the CRDS and the CSG, the basis of possible, it is appropriate to determine as the levy is objective and the same for all the legislation applicable, as a general rule, French residents, it is also true that to that of the Member State in which the compel migrant workers to contribute to person concerned pursues employment or the financing of a social security scheme self-employment' (my emphasis). The fac- with which they arc not registered has the tor which the Community legislature took effect of discriminating against them as into account for the purpose of determining compared with non-migrant workers, who the legislation applicable was not 'residence are the only workers entitled to the benefits for tax purposes', but the place in which paid under that scheme. the occupational activity is being (or has been) pursued. It is thus clear that the indiscriminate application of the CRDS and the CSG to all workers resident in France for tax purposes, including migrant work- ers who are pursuing an occupation in another Member State, results in discrimi- nation against migrant workers in breach of Article 13 — which prohibits overlap- ping legislation — and, ultimately, Arti- cles 48 and 52 of the Treaty, on which the Regulation, as an instrument implementing them, is based (see Article 51, the legal basis).

(1) by applying the social debt repayment contribution to the employment income and substitute income of employed and self-employed persons resident in France but working in another Member State who, by virtue of the Regulation, are not subject to French social security legislation; and

(2) by applying the general social contribution to the employment income and substitute income of employed and self-employed persons resident in France I - 1026

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who, by virtue of the Regulation, are not subject to French social security legislation;

and

— order the French Republic to pay the costs.