Opinion of Mr Advocate General Mischo
Mr President,
Members of the Court,
1. Cases C-204/90 and C-300/90 both concern the compatibility with Community law of Belgian tax law provisions pursuant to which the deductibility for income tax purposes of certain insurance contributions is conditional on those contributions being paid in Belgium, either to a Belgian undertaking or to the Belgian establishment of a foreign undertaking. For that reason, I propose to deal with them both in a single opinion, notwithstanding that they do not concern precisely the same provisions of national legislation, which have been amended over the course of time, and despite the fact that the provisions of Community law to which reference is made by the national court and by the Commission respectively are only partially the same.
2. As is apparent from the judgment of the Belgian Cour de Cassation making the preliminary reference in Case C-204/90 Bachmann v Belgium, Article 54 of the Belgian Code des Impôts sur les Revenus (Income Tax Code, hereinafter referred to as the CIR) provided, in the version thereof applying to the main proceedings, as follows:
3. The Commission's action for infringement of the Treaty (Case C-300/90) is directed solely against Article 54(2)(a) and (b) of the CIR and Anieles 45 and 33e of the Royal Decree implementing it. Paragraph 1 of the latter provision stipulates that
Infringement of Artide 48 of die Treaty
4. It should be noted, first of all, that the legislation in question applies to all persons liable to income tax in Belgium. There is thus no discrimination based directly on nationality.
5. As regards the place of employment of workers of Belgian nationality, however, I hesitate to adopt the stance of the Commission in relying on the Stanton judgment in support of its assertion that even as regards Belgian workers, the measures complained of are contrary to the fundamental principle of the free movement of persons, in that they constitute a restriction on the freedom of any national of a Member State to carry on an occupation in any Member State (see paragraph 7 of the Commission's observations in Case C-204/90). It is true that in paragraph 13 of that judgment the Court declared that
6. I now turn to the other arguments upon which the Belgian Government relies in contesting the existence of any indirect discrimination (see paragraph II.1.2.(a) to (d) of the Report for the Hearing in Case C-204/90). The Belgian Government asserts, first of all, that the Belgian tax system will not deter a national of a Member State who likewise does not enjoy the benefit of the tax deductibility in question in his country of origin from accepting employment in Belgium. That is certainly true, but in order to assess whether the Belgian legislation is or is not indirectly discriminatory, h is not appropriate to take into account the fact that workers have or have not been able to deduct their contributions under the laws of another country. Furthermore, h is possible in that regard to adopt the same reasoning as that applied by the Court in paragraph 16 of the Biehl judgment, cited above, and to find that
7. That latter observation applies equally to the other argument relied upon in that context by the Belgian Government, to the effect that a Community national who enjoys in his Member Sute of origin the benefit of tax deductibility in respect of the contributions concerned may continue to deduct those contributions from his occupational income in his Member State of origin after accepting employment in Belgium: that could only be the case as regards those foreign workers who continue, after accepting employment in Belgium, to receive sufficient income in their country of origin to give rise to a tax liability.
8. As regards the argument that the (Belgian) legislation does not provide ... that the contributions have to be paid to a Belgian undertaking, it would be just about feasible to show that the measure at issue is not such as to favour insurance undertakings having their registered office in Belgium to the detriment of agencies and branches of undertakings having their registered office in other Member States (direct discrimination between companies). However, that argument does not disprove the assertion of the Commission and Mr Bachmann that the inability to deduct insurance premiums paid outside Belgium from taxable income operates in the main to the disadvantage of nationals of other Member States who work in Belgium.
9. Lastly, the Belgian Government asserts that even though a Community national may not be able to deduct insurance contributions which are not paid in Belgium, nevertheless, as regards voluntary sickness and invalidity insurance contracts, he can always terminate contracts concluded in his country of origin and conclude new ones in Belgium. Furthermore, as regards life assurance, the non-deduction of contributions is compensated for by the fact that the capital or income created is not liable to tax, so that the contested rule has no direct or indirect financial effect which is generally more disadvantageous to nationals of other Member States than to Belgian nationals.
10. The Belgian Government (like the German Government, which has submitted observations in Case C-204/90) also seeks to argue its case on the basis of the absence of fiscal harmonization in the matter. It is certainly correct in stating that a Community national, in exercising his right to freedom of movement, will take into account the tax system in the Member State in which he wishes to take up employment and that the tax system to which he will be subject may easily dissuade a worker from accepting an offer of a job in another Member State (see paragraph II. B.l of Belgium's defence in Case C-300/90). In reality, however, that argument relates to the disparity which may exist between the tax laws of two or more Member States, and it ignores the point that the present case concerns only the laws of a single Member State. The fact that a person was unable to deduct his contributions whilst working in his country of origin cannot justify a similar refusal of that advantage by Belgium if, at the same time, it grants it to its own nationals. For the same reasons, the German Government's statement that a person leaving Sute A to go to Sute B has to accept the loss of certain tax advantages granted by State A but not by State B is irrelevant: the point at issue in this case is not the loss of certain tax advantages granted by State A but discrimination in State B.
11. Lasdy, I would add, for the sake of completeness, that the reference by the Belgian Government to the field of social security, whereby it maintains that the Court has held restrictions on the free movement of persons arising from disparities between national laws in that field to be compatible with the Treaty, is likewise irrelevant in the present context. The restrictions on the free movement of persons which are at issue in this case do not arise from disparities between the laws of the Member States, and are unconnected with the field of social security. Furthermore, even if any social security issue were involved, the absence of Community harmonization in that field could not absolve the Member Sutes from the obligation to comply with the rule against discrimination on the ground of nationality. This emerges, for example, from paragraph 10 of the judgment of die Court in the case of Stanton, cited above, in which it held, in relation to Article 52 of the Treaty, that with regard to a directly applicable rule of Community law
12. It follows from all the foregoing considerations that the effect of the provision at issue is to place nationals of other Member States at a particular disadvantage. It must therefore be regarded as incompatible with Article 48(2) of the Treaty, unless it is possible to show that such discrimination is objectively justified. I will deal with that question after first examining the compatibility of the measure with Article 59 of the Treaty.
Infringement of Article 59
13. There can be little doubt that the Belgian legislation complained of in this case also involves a restriction on freedom to provide services within the Community, within the meaning of Articles 59 and 60 of the Treaty. As the Court has consistently held, most recently in its judgment in Case C-353/89 Commission v Netherlands,
14. The Belgian Government nevertheless denies that there exists any restriction whatsoever on freedom to provide services, principally on the ground that such freedom has not yet been achieved in the field of insurance.
15. As regards life assurance in particular, the Belgian Government asserts (see paragraphs II. C.l and 2 of its defence in Case C-300/90) that the First Council Directive of 5 March 1979 does not concern freedom to provide services and that it was not until after the complete liberalization of movements of capital effected by Council Directive 88/361/EEC of 24 June 1988 that the Council adopted a second directive to facilitate the effective exercise of freedom to provide services in the field of life assurance.
16. The Commission righdy regards as irrelevant the consideration that the provision of services in the field of life assurance was not liberalized until the Second Directive came into effect, and that the scope of such liberalization was in any case very limited. As the Court held in the aforementioned paragraph 25 of its judgment in Case 205/84,
17. However, the Court also acknowledged in the same judgment the existence, in the field of insurance, of imperative reasons relating to the public interest which may justify restrictions on the freedom to provide services (paragraph 33).
18. It is not easy to answer that question. In acknowledging, in the context of Case 205/84, that freedom to provide services may in exceptional circumstances be restricted by rules which are justified in the public interest, the Court had in mind professional rules governing the exercise of the activities in question by providers of services which are intended to protect policyholders and insured persons and which apply to any person or undertaking exercising such activities within the territory of the State in which the service is provided (see in particular paragraph 27 of the judgment in Case 205/84). Moreover, in order for the requirements imposed on the providers of services by the rules of the State in which they are provided to be regarded as compatible with Anides 59 and 60 of the Treaty, it is not enough to show the existence, in the field in question, of imperative reasons relating to the public interest; it must in addition be established that
19. In the final analysis, therefore, the question to be decided by the Court is whether a restriction on freedom to provide services may also be justified by the need for effective fiscal control and, if so, whether the general and absolute exclusion of contributions paid to providers of services established abroad from the benefit of deductibility goes beyond what is objectively necessary to ensure the protection of that interest.
20. It should be noted, first, that the Court stated in its judgment of 28 January 1986 on the avoir fiscal (tax credit) that
21. It should also be noted that the Court held in paragraph 52 of the insurance judgment cited above (Case 205/84), on the one hand, that the requirement of a permanent establishment for an insurance undertaking in the country in which it provides its services is the very negation of that freedom but added, on the other, that
22. Nor, as regards the present case, am I suggesting that the Court should accept that an insurance company must necessarily operate an establishment in the country in which its services are provided in order for effective fiscal control to be possible.
23. I would add, however, that in the field of sickness and invalidity insurance there can be no question of requiring the companies to which approval is granted to be in the nature of mutual companies. Even though that type of business appears in Belgium to be the province of mutual companies, this is not the case in other Member Sutes. Companies not having that legal form should not be indirectly excluded from freedom to provide services.
24. An additional argument in favour of a subtle approach to the issue emerges from the fact that there exists, in the case of life assurance contracts (see Article 32a of the CIR), a correlation between the non-deduction of premiums and the non-taxability of the capiul built up by means of those premiums. The effect of that correlation is that the Belgian Sute accepts the deduction of premiums only on condition that it is thereafter able, on the normal expiration of the contraa or on the death of the assured, to tax the capiul realized (see Article 93(1)(2)(f) of the CIR). It must therefore be in a position to ensure that the capital is taxed where the premiums have been deducted.
25. The Governments of Denmark and the Netherlands observed at the hearing that in those countries the tax exemption of insurance contributions was inextricably linked to the taxation of the capiul created at the ume when that capiul is paid out. That system is regarded in those countries as a carrying over of liability to tax. The insurance companies are obliged to main the tax at source and to pay it over to the Sute, tO which they are liable to make such payment. Consequently, legislation has been brought into force requiring such tax to be paid even where the policyholder no longer resides in the country at the time when the capital is paid out.
26. The Commission's argument that according to paragraph 25 of the judgment of the Court in Case 270/83 Commission v France [1986] ECR 273 the risk of tax evasion cannot be relied upon by way of derogation from the fundamental principle of freedom of movement of persons cannot be upheld. The issue in Case 270/83 was direct discrimination based on the location of a company's registered office, which, according to the Court, serves as the connecting faaor with the legal system of a particular State, like nationality in the case of natural persons(see paragraph 18 of the judgment), whereas in this case the issue concerns a rule applying without distinction to nationals and non-nationals which is lawful if it is objectively justified, despite the fact that it is principally non-nationals who are disadvantaged by it.
27. Conversely, however, it became apparent at the hearing that in the Netherlands, where similar legislation exists, a person finding himself in Mr Bachmann's situation would be able to deduct his insurance contributions from his income tax. Furthermore, the Belgian Government's agent explained that his country had concluded with France, Luxembourg and the Netherlands agreements whereby contributions could be deducted in respect of group insurance taken out with an undertaking established in one of those countries. In particular, those undertakings have pledged to inforni the Belgian tax authorities of the capital paid out to the persons in question.
28. In those circumstances, I conclude that a provision such as Article 54 of the Belgian income tax code, which makes it completely impossible to deduct contributions paid to insurance companies having no establishment in Belgium, goes beyond what is objectively necessary to achieve its intended aim. It is thus incompatible with Article 59 of the Treaty.
29. Since it has not been objectively justified, it also constitutes a restriction on freedom of movement for workers and is incompatible with Article 48.
Infringement of Articles 67 and 106 of the Treaty
30. Article 67(1) of the Treaty provides that
31. Thus the essence of the reasoning put forward by Mr Bachmann and the Commission is in fact that if the Belgian provision relating to the non-deductibility of insurance contributions did not exist, more people would conclude supplementary insurance contracts with companies established in other Member States, and the flow of capital out of Belgium into the other Member States would be greater than it is at present.
32. As regards Article 106 of the Treaty, I share the Commission's doubts that the reference to that provision has any relevance to the present case. Article 106(1) obliges the Member Sutes to authorize payments connected, inter alia, with the movement of services in the currency of the Member State in which the creditor or the beneficiary resides. The Belgian legislation does not prohibit the payment of insurance contributions to an undertaking established in another Member Sute; what is more, it does not preclude such payment from being made in the currency of the Member Sute in which the insurance undertaking is established.
33. In the light of all the foregoing considerations, I propose that the Court should rule as follows in Case C-204/90:
34. It follows from the foregoing that the Treaty infringement proceedings brought by the Commission are well founded, and it is therefore appropriate to rule as follows in Case C-300/90:
35. There remains the question of the conclusion to be drawn by the Belgian Cour de Cassation from the foregoing considerations as regards the solution to the dispute between Mr Bachmann and the Belgian Sute. On the one hand, I have concluded that the Belgian legislation, as it stands, contains a restriction which is disproportionate to the objective which it seeks to achieve; on the other hand, I recognize that Belgium is entitled to make the deductibility of insurance contributions conditional on the procurement of certain guarantees on the pan of companies established in other Member Sutes, and that those guarantees were not available to it during the period in respect of which Mr Bachmann is claiming the right to deduct his insurance contributions from his total Belgian occupational income.
36. As regards the costs in Case C-204/90, the costs incurred by the German, Danish and Netherlands Governments and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable; since these proceedings are, for the parties to the main proceedings, a step in the action before the national court, the decision on costs is a matter for that court.
1 Original language: French.
2 Judgment in Case 143/87 Santon v inasa [19881 ECK 3877.
3 Judgment in Joined Cases 154/87 and 155/87 RSVZ Wdf ind Other [1988] ECR 3897.
4 Rm Council Directive (79/267/EEC) of 5 March 1979 od the coordmmon of Laws, regulations and administrative provisions relariag to the taking up and pursuit of the business of direct Hfe assurance (Officiel Journal 1979 L 63, p. 1).
5 Council Directive 88/361/EEC of 24 June 19B8 for the implementation of Article 67 of the Treaty (Official journal 1988 L 178, p. 8).
6 Second Council Directive (90/&19/EEC) of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct Gre assurance, laying down provisions to facilitale the effective exercise of fret dot to provide cervices and amending Directive 79/267/EEC (Official Journal 1990 L 330, p. 50).
7 Judgment in Cue 270/83 Commission v Frana [1986] ECK 273, paragraph 19.
8 Judgment in Case 120/78 Rcwe [1979] ECR 649, paragraph 8.