C-209/01

'In the application of income tax, wealth tax and death duties and in the application 2. In substance, the national court is asking of conventions on the avoidance of double whether Article 14 of the Protocol or taxation concluded between Member States Article 39 EC preclude the interpretation of the Communities, officials and other of Paragraph 10(1)(8) of the EStG to the servants of the Communities who, solely by effect that a German citizen who has reason of the performance of their duties in moved residence to Luxembourg in order the service of the Communities, establish to work for a Community institution but their residence in the territory of a Member whose tax domicile remains in Germany is State other than their country of domicile not entitled to deduct, for the purposes of for tax purposes at the time of entering the service of the Communities, shall be con- sidered, both in the country of their actual 1 — Original language: Italian. residence and in the country of domicile for

I - 13391

OPINION OF MR TIZZANO — CASE C-209/01

tax purposes, as having maintained their ' 1 . Natural persons who have their perma- domicile in the latter country provided that nent residence or usual abode in Germany it is a member of the Communities. This are subject there to tax on their total provision shall also apply to a spouse, to income.... the extent that the latter is not separately engaged in a gainful occupation, and to children dependent on and in the care of the persons referred to in this Article'.

12. The dispute in the main proceedings involves a claim for the deduction in 9. Finally, it should be noted that under Germany, pursuant to Paragraph 10 of Paragraph 50 of the EStG persons subject the EStG, of the 'special' expenses incurred to income tax on part of their income only by the applicants on employing a house- are not entitled to deduct the special hold assistant who worked for them in expenses referred to in Paragraph 10 of Luxembourg in the years 1991 and 1992. the EStG.

4. If Question 3 is answered in the ' 1 . Is it contrary to the first paragraph of negative: May the principles developed Article 14 of the Protocol on the in t h e j u d g m e n t in Werner Privileges and Immunities of the Euro- (Case-112/91 [1993] ECR I-429, in p e a n C o m m u n i t i e s . . . if G e r m a n particular page 463) be applied to the nationals who work in Luxembourg present case?' as officials of the European Commu- nity and live there may not, in the context of assessment to German income tax, deduct expenditure in respect of a h o u s e h o l d a s s i s t a n t 15. In the ensuing proceedings before the e m p l o y e d in L u x e m b o u r g u n d e r Court, written observations were submitted Paragraph 10(1)(8) of the Einkommen- by M r and Mrs Schilling and by the steuergesetz because the contributions Commission. The Finanzamt did not sub- to the statutory pension insurance mit any written observations of its own scheme for the household assistant but, by letter of 17 July 2 0 0 1 , endorsed the were not paid to the German pension views of the law expressed by the BFH in insurance scheme? the order for reference.

2. If Question 1 is answered in the negative: Is Article 48(4) of the EC Treaty to be interpreted as meaning III — Legal analysis that an EC official may not rely on Article 48 of the EC Treaty?

Preliminary remark

3. If Question 2 is answered in the negative: Is it contrary to Article 48 of the EC Treaty if an EC official living 16. I must first observe that it is not easy to in Luxembourg who is deemed to be set out the parties' respective positions resident in Germany and pays con- since they do not address the questions in

19. I too find that the questions are better taken in a different order to that suggested by the national court. Logically speaking, I 22. I must say, however, that, notwith- believe, one first has to determine whether standing the doubts expressed on the sub- the application of a national rule such as ject by the BFH, it does not seem to me that that at issue in the instant case is contrary there can be any doubt but that the to Article 39 EC (second and third ques- question has to be answered in the affirm- tions), and only then to inquire as to ative. As was correctly observed by the whether such application is contrary to Commission, the only party to deal with Article 14 of the Protocol, within the the point, the Court has always interpreted particular scope of that provision (first the exception under Article 39(4) EC question), before finally going on to the restrictively, limiting its effects to those fourth question, concerning the interpre- posts which involve direct or indirect par- tation of the Werner judgment. ticipation in the exercise of powers con-

I - 13395

OPINION OF M R T I Z Z A N O — CASE C-209/01

ferred by public law and in the discharge of therefore prohibited, regardless of whether functions whose purpose is to safeguard the 'the rules relating to his entry into and general interests of the State or of other residence in the country in which he is public authorities. 2 As it is abundantly employed are specifically governed by an clear that this is not such a case, it follows international agreement'. 3 that the exception does not apply here.

26. In the event that Article 39 EC is held to apply to Community officials, the BFH 24. Apart from anything else, such a view asks whether that article precludes a would immediately run foul of the Court's national rule such as Paragraph 10(1)(8) case-law, according to which a Community of the EStG as interpreted by the Finanzamt national working in a Member State other and by the Finanzgericht. The referring than his State of origin does not lose his court is in doubt as to whether the fact that status of worker within the meaning of 'internal' situations receive more favour- Article 39 EC through occupying a post able tax treatment than 'international' ones within an international organisation, in this is in fact objectively justified or whether it case the European Communities. Any dis- constitutes discrimination contrary to the criminatory treatment calculated to restrict Treaty. his exercise of his right of free movement is

3 — Case C-411/98 Ferlini [2000] ECR I-8081, paragraph 42. 2 — Of the many judgments in point, see Case 66/85 hawrie- See also the earlier judgments in Joined Cases 389/87 and Blum [1986] ECR 2 1 2 1 , paragraph 27, Case 33/88 Allué 3 9 0 / 8 7 Echternach and Moritz [1989] E C R 7 2 3 , and Coonan [1989] ECR 1591, paragraph 9, Case C-4/91 paragraph 1 1 , and in Case C-310/91 Schmid [1993] ECR Bleis [1991] ECR I-5627, paragraph 7. I-3011, paragraph 20.

I - 13396

SCHILLING AND FLECK-SCHILLING

Arguments of the parties point 68 below). I will therefore return to those objections at the appropriate junc- ture.

28. In the view of Mr and Mrs Schilling, Article 39 EC applies only in cases of direct 31. In so far as it made the entitlement to or i n d i r e c t d i s c r i m i n a t i o n based on deduct the cost of employing a household nationality. Since no such discrimination assistant from taxable income for income exists in this case, they argue, the German tax purposes subject to the condition that rule does not fall to be assessed in the light the relevant social security contributions go of that Treaty provision. Their objections to Paragraph 10(1)(8) therefore relate not to this question but to the first question, 4 — Case C-204/90 [1992] ECR I-249. concerning Article 14 of the Protocol (see 5 — Case C-279/93 [1995] ECR I-225.

I - 13397

OPINION OF M R T I Z Z A N O — CASE C-209/01

to the German national compulsory social 34. I must also note, again as a preliminary security scheme, Paragraph 10(1)(8) of the point, that, contrary to what Mr and Mrs EStG had the effect of increasing the tax Schilling contend, Article 39 EC is entirely b u r d e n on persons moving residence applicable to the case in hand. The prin- abroad without any valid justification for ciple of free movement entails not only the that unfavourable treatment. prohibition of discrimination based directly or indirectly on nationality but more gen- erally outlaws any measure which prevents or simply makes it more difficult for a person resident in the Community to pur- sue an economic activity in a Member State other than the Member State of origin (be it the State of nationality or that of resi- dence). 32. The third question must therefore, in the Commission's view, be answered in the affirmative.

an obstacle to that freedom even if they 38. Turning to the contentious German apply without regard to the nationality of measure, there is no doubt but that it too, the workers concerned'. 8 by providing that the cost of employing a household assistant cannot be deducted from taxable income for income tax pur- poses if the relevant social security con- tributions are paid outside Germany, creates a situation which is economically disadvantageous for a person originally resident in Germany who moves abroad to work but continues to be subject to 36. If therefore the view is taken, as I income tax in Germany. If such a person believe it must, that this case falls within decides to take on a household assistant, the scope of Article 39 EC, it then remains that will necessarily happen in the new t o be a s c e r t a i n e d w h e t h e r or n o t country of residence and it will be there and Paragraph 10 of the EStG constitutes an not in the country of origin that social obstacle to freedom of movement for security c o n t r i b u t i o n s will be p a i d , workers. whereby the benefit of the tax concession will be lost.

of residence may be compatible with Com- the German tax authorities to concede the munity law if the situations to which those same tax advantage to those who pay social provisions apply are different and not security contributions in another Member objectively comparable 1 0 or if, alter- State. natively, a difference in treatment can be justified by overriding reasons in the gen- eral interest and in particular by consider- ations relating to the cohesion of the tax system. 1 1It therefore has to be determined whether those conditions are met in the instant case. 44. Likewise, I do not believe that the difference in the application of the tax concession in question is justifiable as a measure necessary to preserve the cohesion of the tax system concerned.

10 — See, in particular, Scbumacker, paragraph 31 et seq., and C a s e C - 3 5 / 9 8 Verkooijen [2000] ECR I - 4 0 7 1 , 12 — See point 38 above. paragraph 4 3 . 13 — Commission v Belgium, paragraph 15. 11 — See Bachmann, Commission v Belgium, and Verkooijen, 14 — Verkooijen, paragraph 57, and Case C-136/00 Danner paragraph 4 3 . [2002] ECR I-8147, paragraph 36 et seq.

I - 13400

SCHILLING AND FLECK-SCHILLING

46. Whatever the merits or otherwise, in compatible with Community law if they the absence of harmonisation of direct apply to situations that are different and taxation, of such a restrictive view of the not objectively comparable. 1 5 justification of cohesion of a national tax regime, requiring taxpayer and tax to be one and the same, it must be concluded that in the instant case the conditions laid down by the case-law are not met.

50. It seems to me, however, that in the case at hand the situations are in fact not the same or comparable.

47. There is clearly not a sufficiently direct link between tax advantage and levy in this case given that neither the taxpayer nor the tax are the same: whereas the tax advan- tage of deducting the costs of employing a h o u s e h o l d a s s i s t a n t a c c r u e s to t h e 51. As the Court explained in Scbumacker, employer, the tax itself is suffered by the '[i]n relation to direct taxes, the situations household assistant, in the first place on the of residents and of non-residents are not, as income from the employment and event- a rule, comparable', 1 6 since '[i]ncome ually on the pension benefit. received in the territory of a Member State by a non-resident is in most cases only a part of his total income, which is concen- trated at his place [and hence his State] of residence'. 1 7

53. That having been said as a general residence (Luxembourg) on which they are proposition the question cannot yet be liable to tax there, and that State is there- considered resolved. According to the fore not in a position to grant them the Court's case-law in the area of tax benefits benefits resulting from the taking into relating to direct taxation, a difference in account of their personal and family cir- treatment based on residence may prove cumstances. What is clear, however, and discriminatory in practice where 'the non- what matters for present purposes, is that resident receives no significant income in the major part of their taxable income does the State of his residence' and obtains the not consist of the income taxed in Germany major part of his taxable income from and that, therefore, according to the case- earnings in another Member State 'with the law cited, it is not a matter for that State to result that the State of his residence is not in take account of the family and personal a position to grant him the benefits result- circumstances of those taxpayers. ing from the taking into account of his personal and family circumstances'. 1 9

54. In such a situation, the Court held, it is 56. It therefore seems to me that the a matter for the State in which the worker situations are not comparable and that the 'obtains the major part of his taxable conditions are therefore met for treating the income' to take account of the taxpayer's measure at issue as objectively justifiable. family and personal circumstances, 2 0 since it would be contrary to Article 39 EC for the national provisions to apply differently in such circumstances on the ground of the taxpayer's foreign residence.

62. For its part, the national court favours the first interpretation. That preference is based in the first place on the fact that the 59. In explaining the reasons that led it to second paragraph of the same article would refer this question, the BFH notes that there otherwise be redundant, providing as it are essentially two possible interpretations does that the movable property of Com- of the provision under Article 14(1) of the munity officials situated in the country Protocol whereby Community officials where they have taken up residence are, who have moved residence to another for the purposes of the assessment of death Member State because of their employment duties, to be considered as being situated in retain a deemed or notional domicile for the country of deemed domicile for tax tax purposes in their State of origin. purposes.

60. According to the first interpretation, the provision would have the limited effects of maintaining a taxpayers' assessability on 63. In the second place, a broad interpre- worldwide income in their State of origin tation would mean Community officials and of determining place of residence for unjustifiably gaining the benefit of a multi- the purposes of double-taxation conven- plicity of tax concessions conceived for tions. 'internal' situations only.

I - 13403

OPINION OF M R T I Z Z A N O — CASE C-209/01

64. Finally, such an interpretation would is objectively justified'. 2 1Applied to the seem all the more indefensible given that instant case, that prohibition required that C o m m u n i t y officials already enjoy a the Community official who, albeit having favourable tax environment as a result of moved residence to Luxembourg for rea- the low level of taxation on their Commu- sons of work, remains domiciled in Ger- nity salaries and therefore have no need of many for tax purposes under the Protocol the added assistance of the German Treas- be treated the same as the official who ury. continues to reside in Germany as well as having tax domicile there. What mattered was that the tax domicile was the same in both cases; but, that being so, it must follow that a difference in tax treatment between the two cases constitutes discrimi- nation.

I - 13404

SCHILLING AND FLECK-SCHILLING

lead to a different result justifying unfa- country-of-origin domicile for the purposes vourable tax treatment in the case of a of the application to Community officials migrant worker who is a Community of national tax legislation and double-tax- official. ation conventions. I believe, in other words, that it does no more than to establish a legal fiction to prevent the application of the default criterion accord- ing to which Community officials would otherwise be assigned to the tax jurisdiction of the State of the institution, an inevitably fortuitous and potentially changeable 70. Having determined that the Protocol assignment. provides no basis for such a conclusion, the Commission points out t h a t , on the contrary, in considering the taxation of the income and wealth of Community officials, the Court has had occasion to affirm that, in so far as they are subject to national taxes, those officials must not be discriminated against by reason of their status as Community officials. In particu- lar, if they satisfy the objective criteria 72. On the other hand, I find unconvincing governing eligibility for particular tax the argument of the applicants in the main advantages under national legislation, they proceedings according to which, in sub- must be accorded those advantages on the stance, the first paragraph of Article 14 of same terms as other taxpayers. 2 2 the Protocol, by maintaining officials' notional tax domicile in the State of origin, is intended to secure for them exactly the same tax treatment as that to which they would been entitled had they not moved residence abroad; a tax treatment, in other words, whereby an expatriate official Discussion would under no circumstances have to pay more tax in the country of origin than an actual resident.

76. As regards the observations of the Commission, finally, it seems to me that it 74. As regards Mr and Mrs Schilling's is correct in pointing out that if Commu- claim that they suffered discrimination by nity officials satisfy the objective criteria being treated less favourably than a hypo- governing eligibility for particular tax thetical official who had continued actually advantages under national legislation, they to reside in Germany, I would first of all must be accorded those advantages on the observe that, according to settled case-law, same terms as other taxpayers. 'the first paragraph of Article 6 of the Treaty [now Article 12 EC], which lays down as a general principle the prohibition of discrimination on grounds of national- ity, applies independently only to situations governed by Community law for which the 77. In the instant case, however, the fact of Treaty lays down no specific rules pro- the matter is that Mr and Mrs Schilling do hibiting discrimination'. 2 4 not meet the objective criteria which the German legislation requires to be met in order for social security contributions paid in respect of a household assistant to be deductible, and that those criteria are, as set out in response to the third question, objectively justified and non-discrimina- 75. In the case of freedom of movement for tory. workers, that principle has been given effect by Article 39 EC. That being so, however, since the German rules at issue do not, as we have seen, constitute discrimi- nation prohibited by Article 39 EC, they 78. As I have observed in that regard, the preponderance of the taxable income of the 23 — Which provides, it will be recalled, that '[m]ovable property belonging to persons referred to in the first applicants in the main proceedings does not paragraph and situated in the territory of the country consist of their income taxed in Germany where they are staying shall be exempt from death duties in that country; such property shall, for the assessment of but of their earnings as Community offi- such duty, be considered as being in the country of domicile for tax purposes...'. cials, which means that, in line with 24 — See, inter alia, Case C-179/90 Merci Convenzionali Porto Schumacher, it is not a matter for the di Genova v Siderurgica Gabrielli [1991] ECR I-5889, paragraph 11, Case C-379/92 Peralta [1994] ECR I-3453, German State to take account of the family paragraph 18, Case C-176/96 Lehtonen and Castors and personal circumstances of those tax- Braine v FRBSB [2000] ECR I-2681, paragraph 37, and Ferlini, paragraph 39. payers.

80. Since that regime does in fact provide a series of financial benefits for families, in particular families with children, by which The fourth question 1 refer to the family allowances provided for under Articles 62 and 67 of the Staff Regulations of Officials of the European Communities, consisting of a household allowance, a dependent child allowance and an education allowance, the rules governing which are set out in Articles 1, 82. By the fourth question, the national 2 and 3 of Annex VII to the Staff Regu- court asks, essentially, whether the judg- lations, it must be presumed, in the absence ment in Case C-112/91 Werner contains of proof to the contrary, that the regime in principles relevant to the resolution of the question does effectively take account of instant case. the family and personal needs of taxpayers. In those circumstances, it seems to me, to interpret Article 14 of the Protocol in the manner suggested by the applicants would not be to eliminate any discrimination against them but rather to secure for them an economic benefit for which there is no objective justification. 83. I believe it is sufficient in this regard to observe that, as the Commission has also noted, the Court in Werner did no more than to uphold the principle according to which Community law does not apply to situations in which the key elements are purely internal to a Member State. 2 5 81. I therefore propose that the Court should answer the first question referred to the effect that Article 14 of the Protocol 25 — See, in particular, paragraph 16.

(2) Article 39 EC does not preclude the application of Paragraph 10(1)(8) of the EStG, under which the cost of employing a household assistant whose social

I - 13408

SCHILLING AND FLECK-SCHILLING

security contributions are paid outside Germany cannot be deducted from the taxable income for income tax purposes of taxpayers not actually resident in Germany and not deriving the preponderance of their taxable income there.

(3) Article 14 of the Protocol on the Privileges and Immunities of the European Communities does not preclude the application of a national provision such as Paragraph 10(1)(8) of the EStG to taxpayers not residing in Germany and not deriving the preponderance of their income there, even though the taxpayers in question are Community officials and, as such, have retained their domicile for tax purposes in that State.

(4) The judgment in Case C-112/91 Werner [1993] ECR I-429 does not contain any principle relevant to the resolution of the dispute pending before the national court.