Klaus Biehl v. Administration des Contributions du Grand-Duche de Luxembourg (Case C-175/88)

Transcription

1 Klaus Biehl v. Administration des Contributions du Grand-Duche de Luxembourg (Case C-175/88) Before the Court of Justice of the European Communities (5th Chamber) ECJ (5th Chamber) (Presiding, Slynn P.C.; Zuleeg P.C.; Joliet, Moitinho de Almeida and Grévisse JJ.) M. Marco Darmon, Advocate General. 8 May 1990 [FN1] Reference from Luxembourg by the Conseil d'etat under Article 177 EEC. Taxation. Income tax. Migrant workers. Discrimination. Pursuant to Article 48(2) EEC, freedom of movement for workers shall entail the abolition of any discrimination based on nationality between workers of member- States, particularly as regards remuneration. That principle would be infringed by discriminatory national provisions concerning income tax, whether they be directly or indirectly discriminatory. Tax rules which apply to both foreigners and nationals alike may nevertheless discriminate against the former if they form a class which is in practice likely to be more frequently affected. Consequently income tax rules which impose a disadvantage on taxpayers who leave or enter the country during the tax year (as opposed to those who remain throughout the year) are likely to have a discriminatory effect on nationals of other member- States and therefore are forbidden under Article 48(2). [11]-[14], [16] & [19] FN1 The judgment and the Advocate General's Opinion in this case have been translated by us. The English wording of the questions put by the national court and of the European Court's ruling is, however, taken from the English text published in the Official Journal.--Ed. *144 The Court interpreted Article 48(2) EEC in the context of Luxembourg tax legislation denying repayment of overpaid income tax to persons (of any nationality, including Luxembourg) who become or cease to be resident taxpayers during the course of a tax year because of change of residence from

2 or to abroad, to the effect that discriminatory taxation can constitute a restriction on free movement of workers, that such discrimination can be indirect, that non- Luxemburgers are likely to be harder hit than Luxemburgers by the nonrepayment rule, that the rule could not be justified by tax fairness or by the limited possibility of derogation from the rule, and therefore that the non-repayment rule for workers who change residence during the year infringed Article 48(2) and was prohibited. Representation Tom Loesch, of the Luxembourg Bar, for the respondent. Jean Claude Séché, Legal Adviser to the E.C. Commission, for the Commission as amicus curiae. The following case was referred to in the judgment: 1. Sotigiu v. Deutsche Bundespost (152/73), 12 February 1974: [1974] E.C.R. 153 Gaz:152/73. The following further cases were referred to by the Advocate General: 2. Van Duyn v. Home Office (41/74), 4 December 1974: [1974] E.C.R. 1337, [1975] 1 C.M.L.R. 1 Gaz:41/ Re French Merchant Seamen: E.C. Commission v. France (167/73), 4 April 1974: [1974] E.C.R. 359, [1974] 2 C.M.L.R. 216 Gaz:167/ Re Freedom of Establishment: E.C. Commission v. Italy (168/85), 15 October 1986: [1986] E.C.R. 2945, [1988] 1 C.M.L.R. 580 Gaz:168/ E.C. Commission v. Greece (305/87), 13 May 1989 Gaz: 305/87: not yet reported. TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE Opinion of the Advocate General (M. Marco Darmon) The question referred to you by the Counseil d'etat of Luxembourg for a preliminary ruling relates in essence to the compatibility with Community law of the following tax provision. The refund of overpayments of income tax is refused if the taxpayer has not resided in the Grand Duchy of Luxembourg for *145 the whole of the tax year in question. Mr. Biehl, a German national who left Luxembourg on 1 November 1983, was consequently refused repayment of amounts of tax in excess of what he should have paid under the scales in force. First of all, it should be pointed out that the principle of equal treatment as between national workers and workers who are nationals of other member- States, as laid down by Article 48(2) of the Treaty and Council Regulation 1612/68, [FN2] requires equal treatment with regard to taxation. On the one hand the Treaty itself, in providing for the abolition of all discrimination as regards employment, remuneration and other conditions of work and employment,

3 requires this prohibition to be applied to taxation also. Otherwise the principle of equal treatment with regard to remuneration could be infringed by virtue of discriminatory tax provisions. On the other hand, Article 7 of Regulation 1612/68, which concerns equal treatment with regard to tax advantages, is a specific expression of the general principle of non-discrimination in tax matters. FN2 Of 15 October 1968 on freedom of movement for workers within the Community. Secondly, it should be observed that the rule which is the subject of the action before the court making the reference does not involve a criterion based on nationality: it is formally applicable to Luxembourg nationals and Community nationals without differentiation. However, this does not entirely rule out the existence of potential discrimination which is indirect or concealed. According to your case law: the rules for equal treatment in the Treaty and Article 7 of Regulation 1612/68 prohibit not only manifest discrimination based on nationality, but also all concealed forms of discrimination which, by the application of other criteria of differentiation, achieve in fact the same result. You added that: this interpretation, which is necessary to safeguard the effectiveness of one of the Community's basic principles, is expressly recognised by the fifth paragraph of the preamble to Regulation 1612/68, which requires equality of treatment for workers to be ensured 'in fact and in law', and went on: therefore it cannot be ruled out that criteria such as the place of origin or permanent address of a worker may, depending on the circumstances, have a practical effect equivalent to discrimination based on nationality which is prohibited by the Treaty and the Regulation. [FN3] FN3 Case 152/73, Sotgiu: [1974] E.C.R. 153, at Para. [11]. Therefore it is necessary to establish, firstly, whether the legislation which is the subject of the proceedings before the court making the reference, although it applies without distinction, leads *146 in fact to different treatment for Luxembourg nationals and those of other member-states of the Community. On this point it is sufficient to state that use of the criterion of permanent residence in Luxembourg would have the consequence of depriving mainly nonnationals of the Grand Duchy of the refund in question. It is in fact primarily nonnationals who leave the country during the year or take up residence there. However, is the contested rule likely to infringe the principle of equal treatment? Not every difference in treatment is necessarily equivalent to an infringement of the principle of non-discrimination. I am thinking here of the circumstances of your Sotgiu judgment in which employees of the Bundespost residing outside the territory of the Federal Republic of Germany received a separation allowance lower than that received by those residing in German territory. In this connection

4 you observed that: it cannot be found that there is discrimination contrary to the Treaty and the regulation if a comparison of the two systems of allowances as a whole shows that workers retaining their residence abroad are not at a disadvantage in relation to those who reside in national territory. [FN4] FN4 Case 152/73, Sotgiu, cited above, para. [12]. You found that, for employees residing in the Federal Republic, payment of the allowance was temporary and was connected with the obligation to transfer their residence to the place of work, whereas there was no such limit or obligation for workers residing abroad. So far as the present case is concerned, it is important to note that a specific comparison of situations may show that a situation characterised by different treatment does not amount to prohibited discrimination if, in fact, the national concerned is not placed at a disadvantage in relation to nationals of the host member-state. Therefore difference is not necessarily discrimination. It is this principle on which the Luxembourg Government relies in arguing that the provision in question aims to reintroduce a progressive increase clause into the tax of the taxpayer concerned, who would otherwise benefit, by dispersing his income among several States, from his changes of residence which alter the principles of taxation. In other words, what happens to someone who leaves Luxembourg in the course of the year or who takes up residence there is in the final analysis justified because, if he had remained in Luxembourg, his income would have been subject to a higher rate of tax. I am by no means persuaded that this argument is likely to dispose of any objection concerning infringement of the principle of equal treatment to the provision in question. Quite obviously, it is for the member-states alone to lay down rules on income tax: in the present state of Community law, the sphere of direct taxation is outside the ambit of the EEC Treaty. *147 In this connection the objectives of the Luxembourg legislature are not, as such, subject to comparison with the principles of Community law. However, member-states must also observe the limits it marks out. Even if there is no question about the aims of the national legislature in seeking to include the equivalent of a progressive increase clause, the manifestly discriminatory nature of the rule in question appears in all cases where the individual concerned has not received income in the year in question in the member-state of origin or destination. For instance, let us say, in October a Luxembourg firm dismisses its staff, who cannot find new jobs immediately. Therefore employees who are nationals of other member-states return to their country of origin, where they do not find work until the end of the year in question. The Luxembourg nationals remaining in the Grand Duchy do not find jobs in that year either. In such a case, where the income received is exactly the same, the former are deprived of a refund which the latter will obtain. Likewise, a Community national who takes up residence in

5 Luxembourg at the end of February and obtains work immediately will be refused a refund if the question arises, whereas his colleague who is recruited on the same day but has been a 'resident unemployed' since 1 January, will be refunded any overpayment. Consequently a migrant will, under certain circumstances, be penalised on arrival or on departure. In my opinion, this manifest disadvantage is sufficient to render the provision in question incompatible with the principle of equal treatment. Therefore this provision infringes the principle of non-discrimination with regard to the situation of Community nationals taking up residence in the Grand Duchy or leaving it. However, the situation of all Community nationals, including those of Luxembourg, wishing to exercise their right to seek or take up a job in another member-state may also reveal an infringement of the basic principle of the freedom of movement of persons as laid down by Article 48(1) of the Treaty. In this case, the exercise of that right will automatically deprive them of the right to a refund of the overpaid tax merely by virtue of using the freedom granted by Community law. As I have already said, the member-states alone have power, as matters stand, to determine the rules applying to income tax. However, as I have also pointed out, they cannot encroach upon the freedoms guaranteed by Community law to all the nationals of member-states. The non-repayment of overpaid tax will amount to an obstacle which is in any event unjustified for someone who leaves Luxembourg to seek a job in another member-state where, for example, he does not succeed in finding employment. The same applies to someone who, in the course of the year, arrives in Luxembourg to take up a job which he has not succeeded in *148 finding in another member-state. In these cases there is no fear of evasion of the progressive increase in income tax, but the provision in question automatically deprives a worker exercising his freedom of movement, which was confirmed as having direct effect by your Van Duyn [FN5] judgment, of a refund of overpaid tax. If necessary, therefore, the member-states should use means other than withdrawing the right to a refund of overpaid tax to attain the fiscal objectives at which they aim. FN5 Case 41/74: [1974] E.C.R. 1337, [1975] 1 C.M.L.R. 1. Accordingly I consider that the provision in question is likely to disregard the fundamental principle of freedom of movement of individuals and that of equal treatment which it entails. I wish to make two final observations. Firstly, at the hearing the Luxembourg Government referred to the opportunity offered by a non-contentious appeal procedure for rectifying any discrimination arising from the provision in question. Even on the assumption that such procedure results in every case in allowing individuals to obtain a refund of excess tax, it cannot always remedy the insecurity [FN6] created by the tax provision in question. It will suffice to mention here your settled case law to the effect that:

6 'mere administrative practices'--and a non-contentious appeal is clearly within this category--'which by their nature are alterable at will by the authorities and are not given the appropriate publicity, cannot be regarded as constituting the proper fulfilment of obligations under the Treaty.' [FN7] FN6 Cf. Case 167/73, E.C. Commission v. France: [1974] E.C.R. 359, [1974] 2 C.M.L.R. 246, particularly paras. [46] and [47]. FN7 Case 168/85, E.C. Commission v. Italy: [1986] E.C.R. 2945, [1988] 1 C.M.L.R Therefore the existence of a non-contentious appeal, to which neither the question before the Court nor the judgment of the Conseil d'etat refers, is unlikely to render compatible with the requirements of the freedom of movement of workers a provision which has the consequence of disregarding the fundamental principle of non-discrimination and of constituting an obstacle to the exercise by many private individuals of their basic rights under Community law. Secondly, the court making the reference mentioned the possibility of assessing the provision in question in the light of Article 7 of the Treaty. On this point I would remind you of your judgment of 30 May last in which you stated: [FN8] In this connection it should be observed... that the general principle of nondiscrimination on grounds of nationality laid down by Article 7 of the Treaty has been implemented, in the special fields which they govern, by Articles 48, 52 and 59 of the Treaty. Consequently any measure which is incompatible with those provisions is also incompatible with Article 7... FN8 Case 305/87, E.C. Commission v. Greece *149 : Not Yet Reported. Therefore Article 7 of the Treaty... should be applied independently only in situations governed by Community law for which the Treaty does not lay down specific rules of non-discrimination.' [FN9] FN9 Paras. [12] and [13]. And you did not find a specific failure to comply with Article 7 as the Commission did not refer to situations other than those covered by Articles 48, 52 and 59 of the Treaty. Pursuant to this principle, [FN10] it appears that the non-repayment of tax deductions from the salaries and wages of employed persons, who alone are referred to by the question of the Luxembourg Conseil d'etat and the provision which it has to assess, contravenes Article 48 of the Treaty and Regulation 1612/68 implementing it, and therefore it is unnecessary to find a specific infringement of Article 7 in so far as no reference is made to situations other than those of employed persons who are within the ambit of the national provision in question. FN10 See also the opinion of 13 April 1989 of Jacobs A.G. in Case 305/87, E.C.

7 Commission v. Greece, cited above. Consequently I propose that the Court should rule as follows: Article 48(1) and (2) of the Treaty and Council Regulation 1612/68 prohibit a member-state from providing in its tax legislation that sums deducted by way of tax from the salaries and wages of employed persons who are nationals of a member-state and are resident taxpayers during part of the year only because they take up residence in a member-state or leave it during the tax year are to remain the property of the Treasury and cannot be refunded. JUDGMENT [1] By judgment of 21 June 1988, received by the Court on 29 June, the Conseil d'etat of the Grand Duchy of Luxembourg requested a preliminary ruling pursuant to Article 177 EEC on a question relating to the interpretation of Articles 7 and 48 of the Treaty. [2] The question has arisen in the context of an action by Mr. Biehl against the Administration des Contributions of the Grand Duchy of Luxembourg concerning the refund of an overpayment of income tax. [3] Mr. Biehl, a German national, resided in the Grand Duchy of Luxembourg from 15 November 1973 to 31 October During that period he was in employment in that member-state. He moved to the Federal Republic of Germany on 1 November 1983, where he is now in regular work. [4] For the period from 1 January 1983 to 31 October 1983 Mr. Biehl's employer in Luxembourg made deductions from his salary *150 in respect of income tax. On the final tax assessment for the 1983 tax year it was found that the total deductions made by the Luxembourg employer were more than the total tax payable by Mr. Biehl. [5] Mr. Biehl applied to the Administration des Contributions of the Grand Duchy of Luxembourg for a refund of the amount of income tax overpaid. The Bureau d'imposition, Luxembourg, refused the application on the basis of section 154(6) of the Income Tax Act [FN11] ('the Act'). His appeal against this decision was dismissed on the same grounds by the Directeur des Contributions. FN11 Mémorial A no. 79, 6 December [6] Section 154(6) of the Act provides that: Deductions from the income of capital which are duly effected shall remain the property of the Treasury and shall not be subject to repayment. The same applies to the deduction of tax from salaries and wages of employees who are resident taxpayers during part of the year only because they take up residence in the country or leave it during the course of the year.' [7] Mr. Biehl challenged the decision of the Directeur des Contributions before the Conseil d'etat of the Grand Duchy of Luxembourg. According to him, section 154(6) of the Act introduces, as among taxpayers, concealed discrimination prohibited by Community law because the section applies mainly to taxpayers

8 who are not Luxembourg nationals. [8] The Administration des Contributions replied that different treatment of two separate classes of taxpayers does not constitute discrimination prohibited by Community law if it is justified by objective reasons. Such reasons exist in the present case. Section 154(6) of the Act aims to prevent taxpayers who take up residence abroad from obtaining, under certain circumstances, an advantage which is unjustified in relation to those who continue to reside in the Grand Duchy of Luxembourg. [9] In this situation, the national court stayed the proceedings and referred the following question to the Court: Does Article 7 of the EEC Treaty or any other provision of Community law, in particular Article 48 of the said Treaty guaranteeing freedom of movement for workers, prohibit a member-state from providing in its tax legislation that sums deducted by way of tax from the salaries and wages of employed persons who are nationals of a member-state and resident taxpayers during part of the year simply because they take up residence in the country or leave it during the course of the tax year are to remain the property of the Treasury and are not to be subject to repayment? [10] Reference is made to the Report for the Hearing for a fuller account of the facts, the legislation applicable and the observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court. *151 [11] Firstly it should be observed that, pursuant to Article 48(2) of the Treaty, freedom of movement for workers shall entail the abolition of any discrimination based on nationality between workers of the member-states, particularly as regards remuneration. [12] The principle of equal treatment particularly as regards remuneration would be deprived of effect if it could be infringed by discriminatory national provisions concerning income tax. This is why the Council laid down, in Article 7 of Regulation 1612/68 of 15 October 1968 on freedom of movement for workers within the Community that workers who are nationals of a member-state shall enjoy, in the territory of another member-state, the same tax advantages as national workers. [13] Secondly, it should be pointed out that, according to the Court's case law, the rules for equal treatment prohibit not only manifest discrimination based on nationality, but also all concealed forms of discrimination which, by the application of other criteria of differentiation, achieve in fact the same result (Case 152/73, Sotgiu) [FN12]. FN12 [1974] E.C.R. 153, at para. [11]. [14] In this connection it should be noted that, although the criterion of permanent residence in national territory for obtaining a refund of overpaid tax applies regardless of the nationality of the taxpayer concerned, it may have an adverse effect particularly for taxpayers who are nationals of other member-states, because they in fact often leave the country in the course of the year or take up

9 residence there. [15] To justify the national provision in issue in the main action, the Administration des Contributions contends that the purpose is to safeguard the system of progressive increases in tax. On this point, the Administration states that a taxpayer who takes up residence in the Grand Duchy or who leaves it during the year (hereinafter referred to as 'temporary resident') divides his income, and therefore his tax, among at least two States, viz. the Grand Duchy and the member-state which he has left or in which he takes up residence. This circumstance is said to distort the taxation system. Given an equal annual income, if a temporary resident taxpayer obtained a refund of overpaid tax because he was paid income in two member-states in succession, he would enjoy a more favourable tax rate than that applied to the income of a resident taxpayer who has to declare the whole of his income to the Grand Duchy, whether it is of national origin or not. [16] This justification cannot be accepted. A national provision like that in question is likely to infringe the principle of equality in various situations. This occurs in cases where the temporary resident taxpayer receives no income during the tax year in the country which he has left or in the one where he takes up *152 residence. In this situation, the taxpayer is put at a disadvantage by comparison with resident taxpayers because he will be deprived of the right to a refund of the overpaid tax to which resident taxpayers are always entitled. [17] At the hearing the Administration des Contributions also pointed out that there is, in Luxembourg law, a non-contentious procedure whereby temporary resident taxpayers can obtain a refund of overpaid tax by proving the unfair consequences which the application of section 154(6) of the Act has entailed for them. [18] On this point, even assuming that taxpayers have a right to make a noncontentious application for their situation to be reviewed, it must be stressed that the Luxembourg Government has not referred to any provision which imposes on the Administration des Contributions an obligation to remedy in any event the discriminatory consequences which would result from application from the contested national provision. [19] Therefore the reply to the national court should be that Article 48(2) of the Treaty prohibits a member-state from providing in its tax legislation that sums deducted by way of tax from the salaries and wages of employed persons who are nationals of a member-state and are resident taxpayers during part of the year only because they take up residence in the country or leave it during the course of the tax year are to remain the property of the Treasury and cannot be refunded. Costs [20] The costs incurred by the Commission of the European Communities, which has submitted observation to the Court, are not recoverable. Since these proceedings are, in so far as the parties to the main proceedings are concerned, in the nature of a step in the action pending before the national court, the

10 decision on costs is a matter for that court. Order On those grounds, THE COURT (Fifth Chamber), in reply to the question referred to it by the Conseil d'etat of the Grand Duchy of Luxembourg by order of 21 June 1988, HEREBY RULES: Article 48(2) of the Treaty prohibits a member-state from providing in its tax legislation that sums deducted by way of tax from the salaries and wages of employed persons who are nationals of a member-state and are resident taxpayers during part of the year only because they take up residence in the country or leave it during the course of the tax year are to remain the property of the Treasury and cannot be refunded. (c) Sweet & Maxwell Limited [1990] 3 C.M.L.R. 143 END OF DOCUMENT