C-87/99

ZURSTRASSEN

OPINION OF ADVOCATE GENERAL RUIZ-JARABO COLOMER delivered on 27 January 2000 *

1. The Tribunal Administratif of the Grand ted most of his studies in Belgium, the Duchy of Luxembourg has, pursuant to country in which he worked and resided Article 177 of the EC Treaty (now Arti- until he was offered his current employ- cle 234 EC), referred a question to the ment in Luxembourg. In order to accept- Court for a preliminary ruling on the that job he had to move to Luxembourg but interpretation of Article 48 of the EC his wife and children, for reasons to do Treaty (now, after amendment, Article 39 with schooling, continued to live in Bel- EC) and a number of provisions of Regula- gium. tion (EEC) No 1612/68. 1

Almost the entire income of the household The basic question is whether a worker derives from Mr Zurstrassen's earned who is a national of a Member State can be income in Luxembourg. Mrs Zurstrassen obliged by another Member State, in which lives in Battice (Belgium), to which he resides and obtains almost all the Mr Zurstrassen travels at weekends; she income of his household, to pay income does not pursue any economic activity, has tax as a single person because his spouse, no income of her own and is not subject to from whom he is not separated, and his tax in that country. 2 children do not reside in the same State.

Mr Zurstrassen lodged complaints against the income tax notices with the Director of Administration des Contributions Directes.

III. The national legislation

5. In the case of natural persons, income II. The question referred for a preliminary tax is governed by the law of 1967, as ruling amended in 1990. 5 Article 2(1) states that natural persons are considered to be resi- dent taxpayers or non-resident taxpayers according to whether or not they have their 4. Since that department of the tax autho- residence for tax purposes or their usual rity made no decision on the complaints, abode in the Grand Duchy. Article 3, which Mr Zurstrassen brought proceedings regulates the joint assessment to tax of before the Tribunal Administratif which, married couples, includes spouses who, before giving judgment on the substance, throughout the tax year that corresponds decided to stay proceedings and refer the to the calendar year, have been resident following question to the Court for a taxpayers, provided that they are not living preliminary ruling: apart by virtue of a dispensation of law or a judicial decision.

'Do Article 48 of the Treaty on European Union and Article 1(1) of Regulation (EEC) 6. For the purposes of applying the sliding No 1612/68 of 15 October 1968 4 preclude scale for calculation of the tax, taxpayers national rules which subject the joint are divided into tax brackets. Bracket 1 assessment to tax of two spouses and their covers single persons without children and, classification in tax bracket 2, which allows in certain circumstances, separated and the spouses a lighter tax burden under divorced persons without children. Bracket certain circumstances than that imposed on 2 is reserved for married couples who are them if taxed individually, to the condition 5 — Loi concernant l'impôt sur le revenu (LIR), as amended, of 4 December 1967 (Mémorial A 79 of 6 December 1967) as 4 — Cited in footnote 1 above. amended by the law of 6 December 1990.

7. The advantages attaching to joint assess- ment to tax are not, however, limited to resident married couples. Article 157a of the Income Tax Law provides that non- resident taxpayers who are married and 'Any national of a Member State shall, who do not in fact live apart are, if they so irrespective of his place of residence, have request, to be classified in tax bracket 2, provided that more than 50% of the earned 7 — The representative of the Luxembourg Government has indicated, in reply to the question 1 put to him at the hearing, that for a non-resident married couple to he able to pay tax on income generated and liable to tax in Luxem- 6 — LIR Circular 3/1 of 19 August 1991 on the joint assessment bourg, it is sufficient if one of the spouses earns more than to tax of spouses. 50% of the couple's earned income.

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the right to take up an activity as an V. The proceedings before the Court of employed person, and to pursue such Justice activity within the territory of another Member State in accordance with the provisions laid down by law, regulation or administrative action governing the 10. The plaintiff in the main proceedings, employment of nationals of that State'. the Luxembourg Government, the Spanish Government and the Commission, have all submitted written observations in these proceedings within the period prescribed for that purpose by Article 20 of the EC Statute of the Court of Justice.

Article 7, which in my opinion will be useful for answering the question referred for a preliminary ruling, provides: The representatives of Mr Zurstrassen, the Luxembourg Government and the Spanish Government and the Agent of the Commis- sion appeared and presented oral submis- sions at the hearing on 14 December 1999.

12. The Luxembourg Government points own, the resulting tax liability is lower than out in its written observations that joint if they had each been taxed separately. assessment to tax is compulsory for resi- dent taxpayers and that its aim is to simplify the basis of assessment and the collection of tax. When applying this method of assessment the tax authority makes a joint determination without exam- ining the household's financial regime, and the collector can call on either spouse, '13. The Spanish Government maintains without distinction, to discharge the full that there can be no question of discrimi- amount owing by way of tax. If one of the nation where the law of a Member State spouses is not resident, that option is not subjects to joint taxation married couples available. At the hearing, however, the who reside in its territory and are not- Government's representative admitted, in separated, but does not extend that fiscal reply to the question put to him, that, advantage to couples who reside in differ- where Article 157a of the Income Tax Law ent Member States, since the two situations (which allows the joint assessment to tax of are different. In its submission, the Luxem- non-resident couples if more than 50% of bourg Income Tax Law, which applies their earned income is liable to tax in irrespective of the nationality of the tax- Luxembourg) was applied, the joint and payer, does not treat Mr Zurstrassen, who several liability of the spouses in respect of has availed himself of his right of freedom the tax debt constituted, in practice, a of movement as a worker, less favourably problem of fiscal administration but that for tax purposes than a Luxembourg this technical advantage was granted to national whose spouse is living in another non-residents because this was required by Member State. Community law.

The paradox embodied in Article 157a of dom of movement for workers and freedom the Luxembourg Law is thus evident; that of establishment. provision allows non-resident couples to be taxed jointly if more than 50% of their earned income is liable to tax in Luxem- bourg but denies this possibility to a couple in the situation of Mr and Mrs Zurstras- sen, 100% of whose income is actually 16. Of the judgments delivered on this obtained in that State and in which, subject, seven refer to personal income furthermore, the recipient of that income tax. In two of those judgments the Court resides. had to decide whether national legislation complied with the principle of equal treat- ment in the area of the right of establish- ment, 8 and in the remaining five it ruled on the application of that same principle in the context of the free movement of workers. 9 The Commission concludes its observations by stating that it can see no possible justification for this discrimination and that it would be consistent with the 1970 Convention between Luxembourg and Bel- gium on the avoidance of double taxation to equate taxpayers in Mr Zurstrassen's Since Mr Zurstrassen is a worker who position with a taxpayer who resides in moved to Luxembourg to pursue an eco- Luxembourg and whose spouse, from nomic activity as an employee, I shall whom he or she is not legally separated, examine only the five judgments of the has a separate residence in the Grand Court of Justice which interpret Article 48 Duchy. of the Treaty in relation to national rules governing personal income tax.

the country. These are the judgments in Treaty precludes a Member State from Biehl v Administration des Contributions providing in its tax legislation that sums du Grand-Duché de Luxembourg and deducted by way of tax from the salaries Commission v Luxembourg. 10 and wages of employed persons who are nationals of a Member State and are resident taxpayers for only part of the year, because they take up residence in the country or leave it during the course of 18. The first judgment arose out of a the tax year, are to remain the property of question referred by the Conseil d'État to the Treasury and are not repayable. 12 enable it to decide a case brought by a German national who was resident in the Grand Duchy between November 1973 and October 1983 and who, when moving to Germany to work, considered that he 19. Noting that by June 1994 the Grand had been the subject of tax discrimination Duchy had not amended its legislation to as compared with workers who were bring it in line with the Biebl judgment, the resident in Luxembourg. When income Commission took the view that that State tax was assessed for 1983, and although was not complying with its obligations the deductions from his salary exceeded by under Article 48(2) of the Treaty and more than 100 000 francs the amount of Article 7(2) of Regulation No 1612/68. his tax liability, the Luxembourg tax The Luxembourg tax legislation continued authority refused a refund. Their reason to provide that in order to obtain a refund for this was a statutory provision that did of overpaid income tax, or régularisation not allow refunds of deductions to workers by means of annual adjustments, the tax- who were resident taxpayers for only part payer had to have been resident throughout of the year. the entire tax period or alternatively to have been employed in Luxembourg for at least nine months. If the taxpayer did not meet these requirements, he had to make an application for review to obtain a refund of The Court observed that even though the the overpaid tax on 'equitable' grounds. criterion of permanent residence in the national territory in connection with obtaining any repayment of an overdeduc- tion of tax applied irrespective of the nationality of the taxpayer concerned, there 20. The Luxembourg Government argued was a risk that it would work in particular that the purpose of its legislation was to against taxpayers who were nationals of ensure application of the principle of pro- other Member States. It is often such gressive taxation by preventing the proce- persons who will, in the course of the year, dure normally followed by the tax office leave the country or take up residence from leading to the grant to temporary there. 11 The reply to the national court residents of repayments of arbitrary was therefore that Article 48(2) of the amounts owing to the lack of information concerning their annual income. Further-

21. The Court held that, although the legislation in question, which required an unbroken period of residence or work in Luxembourg for a certain period of time before the taxpayer could benefit from certain tax advantages accorded to resident 24. The Court of Justice's interpretation is taxpayers, applied irrespective of the that the principle of equal treatment in the nationality of the taxpayer concerned, there area of remuneration would be ineffective was a risk that it would work in particular if it could be breached by provisions of against nationals of other Member States, national law that discriminate in the area of since it was often those persons who, in the income tax. For this reason the Council course of a year, would leave the country or provided in Article 7(2) of Regulation take up residence there. It would also be No 1612/86 that a worker who is a most often those persons who would cease national of a Member State is to enjoy, in working in Luxembourg on the expiry of a the territory of another Member State, the short-term employment contract. 13 same tax advantages as national work- ers. 15

22. I believe that the same line of reasoning will be useful for the purpose of deciding 25. In this case, the provision of national this case, even though the discrimination law in question applies whatever the suffered by Mr Biehl was due to the fact nationality of the taxpayer and therefore that he ceased to be resident in the Grand does not constitute direct discrimination. Duchy, whereas Mr Zurstrassen was a permanent resident in that State through- out the tax years in question. 14 — The plaintiff in the main proceedings states in his observations that the law of 12 November 1986 aban- doned the economic criterion of the common home and replaced it with the requirement that the spouses must 13 — Commission v Luxembourg, cited above in footnote 9, cohabit. paragraphs 15 and 16. 15 — Biehl, cited in footnote 9, paragraph 12.

28. I believe this is more than sufficient 26. It is indisputable that obtaining the reason for holding that a Member State advantage which joint taxation constitutes cannot require of a couple in the position of for married couples is subject to the Mr Zurstrasscn and his wife, as a condition requirement that both taxpayers be resi- for them to be taxed jointly, that they both dents. 17 This is a requirement which Lux- reside in its territory. There arc, however, embourg nationals will be able to satisfy further arguments to support this view more easily than nationals of other Mem- deriving from recent case-law of this Court ber States who have taken up residence in concerning the impact of direct taxation by the Grand Duchy to pursue an economic Member States on freedom of movement activity and it is liable to be prejudicial to a for workers. greater extent to migrant workers, who will have greater difficulty in complying with it.

29. I refer to the judgments in the Scbu- macker and Gscbwind cases concerning the Persons who maintain the residence of their effects of the German Law on Income Tax family in their country of origin will, for when applied to non-resident workers, and the greater part, be migrant workers who to the judgment in G illy.18 I shall consider are nationals of other Member States and these in the order in which I have men- who have moved to Luxembourg in order tioned them. to accept employment, often on the basis of fixed-term contracts, while persons whose families reside in the Grand Duchy will for the most part be Luxembourg nationals.

Belgium with his family. It fell to Germany, 32. The possibility, in Germany, of claim- the State in which he worked, to tax the ing joint taxation was very soon the subject income from his work. The German legis- of another question referred to the Court lation provided that, whatever their family for a preliminary ruling. Mr Gschwind, a circumstances, non-resident taxpayers fall Netherlands national, worked in Germany within tax bracket 1, which meant that the and resided with his family in the Nether- 'splitting' method of assessment and the lands where his wife worked and obtained scales applicable under it to tax could not 42% of the family's income. The income be applied to them and they were treated from Mr Gschwind's work, which repre- for tax purposes as if they were single sented 58% of the family's income, was persons. taxed in Germany while that of his wife was taxed in the Netherlands. The German authorities refused to apply the splitting method and the tax scale applicable under it.

20 — The limits were 90% minimum of the spouses' total 19 — Schumacher, cited in footnote 9 above, paragraphs 35 to taxable income in Germany and DEM 24 000 maximum 38. not liable to tax in Germany.

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ZURSTRASSEN

would be taken into account in that State. circumstances were taken into account in Since Mrs Gschwind obtained about 42% France for the purpose of calculating the of the couple's total income in the State of couple's joint tax liability and of granting residence, the latter was able to take various tax rebates and deductions, the account of Mr Gschwind's personal and Court held that the German tax authorities family circumstances in accordance with were not obliged to take account of her the detailed rules laid down by the legisla- personal and family circumstances. 22 tion of that State, because the tax base was sufficient.

For those reasons the Court held that it had 35. As can be seen, these cases related to not been proved that a non-resident mar- the legislation of Member States that ried couple of which one worked in the granted different treatment to income-tax State of taxation, and whose personal and payers according to whether they were family circumstances could be taken into resident or non-resident. account in the State of residence because a sufficient tax base existed in that State was in a situation comparable to that of a resident married couple, even if one of the spouses worked in another Member State. 21

38. The Luxembourg tax authorities, how- 36. Luxembourg legislation also accords ever, consider him to be, for tax purposes, a different treatment to persons who receive single person without dependents even earned income in Luxembourg territory, though he is married with children, because according to whether they are resident or his wife, who has no income of her own non-resident. 2 4 Mr Zurstrassen, like and from whom he is not separated either Mr Biehl, Mr Schumacker and de facto or by virtue of a judicial decision, Mr Gschwind believes he has been a victim continues to reside in another Member of discrimination on grounds of nationality State and has not taken up residence in and asks that the principle of equal treat- Luxembourg. ment enshrined in Article 48(2) of the Treaty and in Article 7(2) of Regulation No 1612/68 be applied to him.

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ZURSTRASSEN

40. I would observe that there is no objec- than 50% of the earned income of the tive difference, from the fiscal viewpoint, couple is liable to tax in Luxembourg. between the position of the Zurstrassens and that of a couple resident in Luxem- bourg who, likewise not separated, have different residences within the Grand Duchy, where one of the spouses receives the entire income of the household. In both cases the couple's income is obtained by only one of the spouses, it arises in 43. In this respect, I also agree with Luxembourg and that State alone can take Mr Zurstrassen that the discrimination into account the couple's personal and created by the legislation at issue cannot family circumstances. be justified by the need to ensure the cohesion of the Luxembourg tax system.

41. The Luxembourg Government has This justification, which has been accepted given no justification for this in its observa- by the Court only in one situation, 26 tions. It merely indicates that joint taxation cannot be valid where it is a question of of the spouses simplifies tax collection by taking into account the personal and family establishing joint and several liability on circumstances of a resident taxpayer whose the part of the tax debtors, so that the spouse resides in another Member State collector may look to either of the spouses and has no income of her own, for the without distinction for payment of the purpose of applying a tax scale to that entire tax debt, a possibility that ceases to taxpayer that is the same as that applied to exist if one of them is not a resident. another resident whose spouse resides in Luxembourg and has no income.

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