C-55/98

3. The specific procedures for deduction are laid down by administrative practice in circulars from the Tax Administration. As regards expenditure relating to professional training courses attended by employees, a 1996 circular states: 'In the case where a National law professional conference or course is trans- ferred to a foreign country (generally ordinary tourist resorts), this will have the effect of setting aside the right to deduct, unless the travel destination or course 2. The Danish provisions on items deduc- location can as such be treated as being tible from taxable income are to be found justified on professional grounds ... . It is in State Tax Law No 149 of 10 April 1922, thus presumed that the holding of a course as subsequently amended. Article 4 of that in a foreign tourist resort involves such a significant tourist element that the related expenses cannot be regarded as constituting * Original language: Italian. deductible operating costs'.

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9. Mr Vestergaard instituted proceedings against that decision of the Landsskatter- Facts of the case and questions submitted etten before the Vestre Landsret (Western for a preliminary ruling Regional Court), which, by judgment of 3 May 1995, found in his favour, stating by a majority of two judges out of three that the applicant had succeeded in overturning 7. Bent Vestergaard is a Danish national the presumption that the course had a who is a certified company auditor. He is significant tourist element. The Vestre the sole shareholder in the company Bent Landsret therefore ruled that the costs of Vestergaard A/S, which is an auditing DKK 5 516 relating to the course were

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entirely deductible from Mr Vestergaard's The first question referred for a preliminary taxable income. ruling

'(1) Is it in accordance with Articles 6 and 59 of the EC Treaty for Danish case- law (see the judgment of the Højesteret of 19 October 1994, published in the Ugeskrift for Retsvaesen 1994, page 12. First, some clarification is required. 970) to apply a presumption that, in With regard to the reference made by the cases in which a course is held in an national judge to Article 12 (ex Article 6) ordinary tourist resort outside Den- of the EC Treaty, according to case-law mark and the course location cannot, which is now settled, 1this article can be as such, be justified on professional applied independently only in those situa- grounds, the course involves such a tions governed by Community law for significant tourist element that the which there are no specific rules. In matters costs of the course cannot be treated of freedom to provide services, the prohibi- as constituting deductible operating tion of discrimination on grounds of costs ? nationality is stated in Article 49 (ex Arti- cle 59) of the EC Treaty, which therefore represents a specific rule in relation to Article 12 (ex Article 6) of the EC Treaty. Consequently, reference will henceforth be (2) If the answer is in the negative, can the national tax system, as described above... be justified by reference to 1 — See Case 305/87 Commission v Greece [1989] ECR 1461, the case-law of the Court of Justice, in at paragraphs 12 and 13; Case C-419/92 Scholz [1994] ECR 1-505, at paragraph 6; Case C-193/94 Skanam and particular Case C-204/90 Bachmann v Chryssanthakopolous [1996] ECR 1-929, at paragraph 20; Case C-18/93 Corsica Ferries [1994] ECR I-1783; Case Belgium and Case C-250/95 Futura C-379/92 Peralta [1994] ECR 1-3453, at paragraph 18; Participations and Singer v Adminis- Case C-131/96 Mora Romero [1997] ECR I-3659, at paragraph 10; Case C-336/96 Gilly [1998] ECR I-2793, tration des Contributions ?' at paragraph 37.

This means that when, as in this case, the tax rules of a Member State treat taxpayers differently for the purposes of determining the taxable income solely because they receive a service in another Member State, it is necessary to consider whether this practice violates the prohibition of discri- 15. The Netherlands Government, inter- mination stated in Article 49 (ex Arti- vening in the proceedings, agrees with the cle 59) of the EC Treaty, creating an Danish Ministry in considering that the obstacle to the free movement of services. presumption of non-deductibility has the sole effect of placing the burden of proof upon the person concerned in order to obtain the deduction. In its opinion, this simply represents a slight increase in the burden of proof which, in principle, applies 14. According to the Danish Ministry of to all taxpayers and requires them to Fiscal Affairs, there is no discriminatory demonstrate their entitlement to deduct element in the practice followed by the tax expenses from their taxable income. This administration since, in principle, profes- slightly heavier burden, in this case, is sional training organised in Denmark or in justified by the fact that the presumption another Member State has the same fiscal concerns only courses taking place in advantages and affords the same possibili- tourist locations of particular renown and which certainly have tourist appeal. 2 — Case C-118/96 Safir [1998] ECR I-1897, at paragraph 21. See also Case C-279/93 Schumacker [1995] ECR I-225, at paragraph 21, and Case C-175/88 Biehl [1990] ECR 3 —Case C-80/94 Wielockx [1995] ECR I-2493, at para- I-1779, at paragraph 12. graph 17.

16. I cannot agree with those views. First, 17. Also with regard to the presumption of as regards the presumption of non-deduct- non-deductibility, we cannot share the ibility, the argument put forward by the opinion of the Netherlands Government, Danish Ministry of Fiscal Affairs on the which, in emphasising the negligible existence of a presumed difference between adverse effect of the practice, appears to courses held in Denmark and those held raise a question of de minimis. In fact, on abroad is not confirmed by the information this point the Court has stated on numer- set out in the order for reference. On the ous occasions that '... the articles of the contrary, the order contains statements EEC Treaty concerning the free movement which lead to the opposite conclusion. In of goods, persons, services and capital are particular, it can be seen from the state- fundamental Community provisions and ments of the head of professional training any restriction, even minor, of that free- of the Danish Association of Lawyers and dom, is prohibited.' 4 Economists that when a course is orga- nised, regardless of where it is to take place, account is always taken of the professional facilities and availability of services such as a sauna and swimming pool and that, usually, hotel complexes are chosen which are situated in known tourist locations. In addition, in this specific case, the organiser of the course in Greece stated that he had asked for estimates from both Danish and foreign tourist operators and that the final 18. Finally, there is another aspect to choice was made solely on the basis of the consider. The Danish Ministry of Fiscal fact that the bid from Crete was the lowest. Affairs argues that, both in the case of courses held abroad and in the case of courses held in Denmark, the possibilities of deduction are in principle the same. This statement does not appear to correspond to reality. As the Danish case-law, cited by the same Ministry, shows, the only case in which a taxpayer succeeded in overturning the presumption of non-deductibility was one involving a professor of classical his- tory who took part in a course in Greece. In that case, the Danish court decided that the deduction should be allowed as there was a professional reason for choosing the loca- tion where the course took place. Also significant on this point is the judgment given by the Højesteret on 19 October We must therefore conclude that no proof 1994 in a case concerning an electrician has been put forward showing substantial who had taken part in a course held in differences between the features of courses Majorca. As one of the judges said, the held abroad and of courses held in Den- mark, so that the two situations differ solely and simply in the location of the 4 — Case C-49/89 Corsica Ferries France I [1989] ECR 4441, at course. paragraph 8.

19. From the above it is clear that over- turning the presumption of non-deductibil- ity is conditional upon demonstrating the existence of a direct link between the choice of the place where a training course takes place and the content of the course. In other words, as Mr Vestergaard argues, in order for the deduction to be allowed, it is 21. As matters stand, there is no doubt necessary for the subject-matter of the that, even though it does not prevent course to be associated with places or taxpayers from participating in courses specific circumstances which concern the organised abroad, the Danish practice has Member State where the course is held. So, a dissuasive effect by inducing taxpayers to the deductibility of expenses incurred on favour courses held in Denmark. This professional courses held abroad depends situation inevitably has repercussions on almost exclusively on a requirement that service-providers who offer these services, does not exist when a course takes place in giving an advantage to those who are Denmark. established in Denmark and putting those established in other Member States at a disadvantage. It therefore constitutes a restriction of the freedom to provide ser- vices.

20. These observations lead to the conclu- sion that, in Denmark, taxpayers who decide to take part in a professional course abroad are at a disadvantage compared with those who choose to take part in courses held in Denmark, for at least two reasons. First, owning to the presumption of non-deductibility, in order to gain the 22. Here, I would recall that the Court has right to deduction, taxpayers must undergo held that '... that freedom likewise pre- much more onerous procedures. Secondly, cludes the application of any national given that the granting of the deduction is legislation which has the effect of making subject to more restrictive assessment cri- the provision of services between Member teria, it is therefore less likely that it will be States more difficult than the provision of

services purely within one Member State.' 5 densome administrative procedures should The Court has stated on several occasions be considered liable to be a deterrent with that when a Member State treats taxpayers regard to recipients of services. This case who use services abroad less favourably in concerned the compatibility with the regard to taxation, creating a deterrent Treaty of Swedish tax provisions under effect which discourages them from using which natural or legal persons domiciled or service-providers established in another resident in Sweden who had taken out life Member State, the State in question is assurance with companies not established causing those providers a restriction of in that State had to pay tax on premiums their freedom to provide services, which is paid and be registered with a central body incompatible, at least in principle, with to which payments had to be declared. At Article 49 (ex Article 59) of the EC Treaty. the request of the policyholder and in The Court reached this conclusion for the particular circumstances, this body could first time in the Bachmann and Commis- grant exemption from payment of the tax sion v Belgium cases. 6In those cases, it or reduce it by half. As far as is relevant to considered a Belgian regulation which the case now under discussion, the Court made it impossible to deduct sickness and invalidity insurance contributions and pen- held: 'First, unlike persons who have taken sion and life assurance contributions from out capital life assurance with companies taxable income when they were paid to established in Sweden, persons so insured companies which were not established in with companies not established in Sweden Belgium was contrary to Article 49 (ex must register themselves and declare pre- Article 59). More specifically, in Bach- mium payments .... It is true that such mann, it stated that 'provisions requiring obligations cannot in themselves be regar- an insurer to be established in a Member ded as being contrary to Community law. State as a condition of the eligibility of However, those obligations, combined with insured persons to benefit from certain tax the need to follow a centralised procedure, deductions in that State operate to deter may dissuade interested persons from tak- those seeking insurance from approaching ing out capital life assurance with compa- insurers established in another Member nies not established in Sweden, since no State, and thus constitute a restriction of particular action on their part would be the latter's freedom to provide services.' 7 called for if they took out such insurance with companies established in Sweden, the tax being levied in this case on the com- pany. ... Third, when a person holding a policy issued by a company not established in Sweden applies for an exemption from or reduction of tax on the premiums, Skattemyndigheten requires precise infor-

25. The Kohll judgment introduced, I think, an important new aspect for con sideration. The Court, in evaluating the negative consequences of the deterrent effect, not only recognises the existence of damage for service providers established in other Member States, but accepts that, from the point of view of recipients also, rules which discourage consultations with 24. Finally, the conclusions reached by the doctors exercising their profession in other Court in the Kohll case are, I think, Member States must be considered to be an particularly relevant, 9 even though that obstacle to the free movement of services. case was not concerned with fiscal provi sions but with a Luxembourg regulation which made reimbursement of the costs of certain medical services provided by spe cialist doctors established in another Mem ber State conditional upon authorisation from the national social security organisa

established . . . . It follows that the freedom to provide to that authorisation. Consequently, such services includes the freedom, for the recipients of services, to go to another Member State in order to receive a service rules deter insured persons from approach there, without being obstructed by restrictions . . . and that ing providers of medical services estab tourists, persons receiving medical treatment and persons travelling for the purpose of education or business are to lished in another Member State and con be regarded as recipients of services' (Joined Cases 286/82 and 26/83 Luisi and Carbone [1984] ECR 377, at stitute, for them and their patients, a paragraphs 10 to 16). In particular with regard to the KohŪ case, the Advocate General stated that the regulation under discussion produced two types of discrimination. The first and main one concerned the different treatment given to patients as recipients of services.

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participating in professional courses held in freedom to provide services was evaluated tourist resorts abroad are not deductible in the light of two overriding grounds of from taxable income is capable of restrict- general interest: the effectiveness of fiscal ing the free provision of services, both for supervision and safeguarding the cohesion providers established in another Member of tax systems. More specifically, in Bach- State and for recipients of those services. mann, which concerned a Belgian regula- Therefore, this practice must be considered tion making the possibility of deducting to be incompatible with Article 49 (ex sickness and invalidity contributions or Article 59) of the EC Treaty, at least in pensions from taxable income conditional principle. upon those contributions being paid to companies having their registered office in that State, the Court examined whether the rules in question could be justified in view of the need to guarantee effective fiscal supervision or to protect the cohesion of the Belgian tax system. Futura Participa- tions, however, concerned Luxembourg rules which made the possibility of carrying forward losses incurred by the branch of a non-resident taxpayer subject to the condi- The second question referred for a preli- tion that the losses had to be economically minary ruling linked to the income earned in that State and that the branch had to keep its accounts in accordance with Luxembourg rules. In that case, the provisions in ques- tion were analysed only in the light of the requirement to guarantee effective fiscal supervision. 27. By its second question, the national court asks whether the Danish practice, if it is capable of hindering the freedom to provide services, can be justified on the basis of Community case-law and in parti- cular the judgments in Bachmann and in Futura Participations. 11

However, it is noticeable that, in matters of services, the Court has shown some hesita­ tion in applying this case-law and uses criteria which are not always unambiguous 30. Moreover, for some time now, the to establish whether the national provisions Court has also extended to services its in question were applicable indiscrimi­ case-law on protection of overriding nately or not and, therefore, indirectly or requirements. It has recognised that, where directly discriminatory. While, on one there is no harmonisation of laws, national hand, it considers national regulations rules which are indiscriminately applicable providing for different systems depending to nationals of all the Member States and on the origin of the service as formally which involve a restriction on the freedom discriminatory, 15 it is also true that in to provide services must be considered to Svensson 16 it considered as such a Luxem­ be compatible with Article 49 (ex Arti­ bourg provision which made the granting cle 59) of the EC Treaty if they are justified of a housing benefit, consisting of an by overriding grounds of public interest. 13 interest rate subsidy, subject to the require­ To invoke these grounds, therefore, it is ment that the loans intended to finance the necessary that the national rules refer, at construction, acquisition or improvement least formally, to all Community nationals of the housing were taken out with banks and that the discrimination, in this case relating to the origin of the service, is only 14 —Case C-55/94 Gebhard [1995] ECR 1-4165, at para- graph 37. 15 — See Bond van Adverteerders, cited above, at paragraph 12 — See Case 352/85 Bond van Adverteerders [1988] 32; Case C-211/91 Commission ν Belgium [1992] ECR 2085, at paragraph 34, and Case C-288/89 Gouda ECR I-6757, at paragraph 11; Gouda, cited above, at [1991] ECR I-4007, at paragraph 11. paragraph 11, and Case C-17/92 Federación de Distribui- 13 — Case C-154/89 Commission ν France [1991] ECR 1-659, at dores Cinematográficos [1993] ECR I-2239, at para- paragraphs 14 and 15; Gouda, cited above, at para­ graph 13. graphs 11 and 12; Case C-76/90 Säger [1991] ECR 16 — Case C-484/93 Svensson and Gustavsson [1995] ECR I-4221, at paragraph 15. I-3955, at paragraph 15.

At all events, as regards more specifically the case now before us, even if we were to favour the less rigid interpretation and accept that the Danish practice engenders only indirect discrimination since, from the formal point of view, it covers all taxpayers established or domiciled in the State, where the application or not of the presumption of deductibility depends on the place where they received the service, the conclusion 32. According to the Danish Ministry of which should be reached would not change. Fiscal Affairs, the presumption of non- In fact, this practice is incompatible with deductibility for expenditure incurred on Article 49 (ex Article 59) of the EC Treaty courses held abroad is necessary to prevent since, in my view, the overriding require- holidays taken under the veil of training ments to which the national court refers do courses from being improperly financed by not justify it. the State through deductions. The objective of the presumption, therefore, is to oblige the taxpayer to provide all information necessary to show that any training under- gone abroad has no tourist purposes. The Ministry also emphasises that to achieve this aim the exchange of information between national fiscal authorities, provi- 31. As regards the overriding requirement ded for in Directive 77/799/EEC, is not of the effectiveness of fiscal supervision, the sufficient since the Danish tax administra- tion has to be able to assess the nature of the training carried out abroad and its 17 — In this case, the Court did not reconstruct the conse- duration in relation to that of the entire quences of the rules in question, departing from the deterrent effect it produced with regard to the insured stay in the light of the national regulations persons-recipients of the services (as, however, Advocate and case-law. This means that such an General Elmer did in his Opinion, ECR 1995, I-3955, points 14-18, stating that the Luxembourg regulation implied only indirect discrimination), but considered the existence of discrimination in regard to the establishment sufficient grounds for declaring the regulation justifiable 18 — OJ 1977 L 336, p. 15. This directive was subsequently only in the light of the exceptions stated in Article 46 (ex amended by Council Directives 79/1070/EEC (OJ 1979 Article 56) of the EC Treaty. L 331, p. 8) and 92/12/EEC (OJ 1992 L 76, p. 1).

33. Mr Vestergaard and the Commission, however, state that the conditions for 35. First of all, as can now be seen in invoking the overriding requirement of settled case-law, 19 all the information effectiveness of fiscal supervision are not which a Member State may need to assess fulfilled in this case. The Commission, in the taxable income of its own taxpayers particular, states that the order for refer­ and which concerns activities carried out in ence provides no information to justify the other Member States can be obtained from fact that a presumption of non-deductibil- the fiscal authorities of those Member ity for certain types of expenditure could be States on the basis of the system of considered necessary to avoid fiscal abuse. cooperation created by the directive men­ Mr Vestergaard also argues that Danish tioned above. In addition, the Court has law on fiscal supervision allows the tax­ stated that, if this cooperation is not payer who took part in training either in sufficient, national rules such as those Denmark or abroad to be asked for proof now in question could still be considered and that the same law also allows the fiscal to be discriminatory since the fiscal autho­ authorities to request information from the rities could still ask the taxpayers for all the persons organising the training. Finally, proof they think necessary to assess whe­ Mr Vestergaard points out that, in the case ther or not to allow specific fiscal advan­ of courses which take place abroad, all tages. 2 0 Finally, I cannot accept the objec­ relevant information can be requested from tions raised by the Danish Ministry of the competent authorities of other Member Fiscal Affairs concerning the applicability States on the basis of Directive 77/799/ of the directive in question. For example, EEC. information concerning the aims of the course and the presence of any elements of a tourist nature which it considers it must know in order to be able to assess satisfac­ torily the nature of the training undergone abroad by the taxpayer do not present aspects such as would escape the consid­ erations stated in the case-law cited above.

The concept of fiscal cohesion as an over- riding requirement was defined for the first time in the Bachmann judgment. In this regard, the Court recognised that '... there 39. With regard to the case now under exists under the Belgian rules a connection consideration, it is sufficient to say that the between the deductibility of contributions conditions laid down in the case-law I have and the liability to tax of sums payable by just described are not present in any way the insurers under pension and life assur- here. There is no taxation which can be ance contracts ... . It follows that in such a considered to be directly correlated to the tax system, the loss of revenue, resulting deduction provided for in the Danish rules from the deduction of life assurance con- on expenses incurred on professional train- tributions from total taxable income — ing courses. which includes pensions and insurance payable in the event of death — is offset by the taxation of pensions, annuities or 21 — Bachmann, cited above, at paragraphs 21 to 23. capital sums payable by the insurers. Where 22 — Svensson, cited above, at paragraphs 16 to 18. such contributions have not been deducted, 23 —Case C-107/94 Asscher [1996] ECR I-3089, at para- graphs 56 to 60. See also Case C-264/96 ICI [1998] ECR those sums are exempt from tax. The I-4695, at paragraph 29.

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Conclusion

40. In view of the foregoing, I propose that the two questions referred to the Court for a preliminary ruling be answered as follows:

(1) Article 49 (ex Article 59) of the EC Treaty precludes rules such as the Danish rules under which there is a presumption that a professional training course held in an ordinary tourist location abroad, where the choice of this location is not justified on professional grounds, involves such a significant element of tourism that the expenses relating to the training cannot be considered as constituting operating costs deductible from taxable income.