# C_2007199EN.01001901.xml

| 25.8.2007 | EN | Official Journal of the European Union | C 199/19 |
| --------- | -- | -------------------------------------- | -------- |

---

Action brought on 6 June 2007 — Commission of the European Communities v Federal Republic of Germany

(Case C-269/07)

(2007/C 199/30)

Language of the case: German

Parties

Applicant: Commission of the European Communities (represented by: R. Lyal and W. Mölls, acting as Agents)

Defendant: Federal Republic of Germany

Form of order sought

| — | Declare that the Federal Republic of Germany has failed to fulfil its obligations under Article 39 EC, Article 7 of Council Regulation No 1612/68 of 15 October 1968( 1 ), Article 18 EC and Article 12 EC by introducing and maintaining the provisions for second pillar pensions in Paragraphs 79 to 99 of the Einkommensteuergesetz (Law on Income Tax), in so far as those provisions
(a)
deny cross-border workers (and their spouses) the right to an allowance, unless they are fully liable to tax; (b)
do not permit the capital advanced to be used for an apartment serving as the recipient's own residence in the recipient's own house, unless that house is in Germany; (c)
require the repayment of financial support on termination of liability to unlimited taxation; | (a) | deny cross-border workers (and their spouses) the right to an allowance, unless they are fully liable to tax; | (b) | do not permit the capital advanced to be used for an apartment serving as the recipient's own residence in the recipient's own house, unless that house is in Germany; | (c) | require the repayment of financial support on termination of liability to unlimited taxation; |
| --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------------------------------- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | --------------------------------------------------------------------------------------------- |
| (a) | deny cross-border workers (and their spouses) the right to an allowance, unless they are fully liable to tax; | | | | | | |
| (b) | do not permit the capital advanced to be used for an apartment serving as the recipient's own residence in the recipient's own house, unless that house is in Germany; | | | | | | |
| (c) | require the repayment of financial support on termination of liability to unlimited taxation; | | | | | | |

| — | order the Federal Republic of Germany to pay the costs. |
| - | ------------------------------------------------------- |

Pleas in law and main arguments

In 2001, Germany introduced the ‘supplementary pension allowance’ which was intended to encourage the building up of second pillar pensions to compensate for the reduction in the level of the state pension. However, that allowance is granted only if the person concerned is fully liable to tax in Germany, which, certainly as far as cross-border workers are concerned (who are liable to be taxed by the State of residence under a double taxation convention, and who do not therefore pay taxes in Germany), deprives them of the benefit of the allowance. In addition, it is possible to use part of the accumulated capital for the purchase of residential property, but only of property that is situated in Germany, not property that is near the border but abroad. Finally, the allowance is repayable if the person concerned ceases to be fully liable to tax.

In the Commission's opinion, those provisions infringe Community law prohibiting discrimination based on nationality and Community law on the free movement of workers, or rather, on the equal treatment — in terms of social and tax advantages — of workers from other Member States. The prohibition on discrimination against workers from other Member States based on nationality includes not only overt discrimination based on nationality, but also covert forms of discrimination which would in fact produce the same result if other distinguishing criteria were applied. Furthermore, it is clear from the case-law of the Court of Justice that cross-border workers too are entitled to social advantages under Article 7(2) of Regulation No 1612/68.

Since the supplementary pension allowance is within the definition of a ‘social advantage’, it should also be granted where cross-border workers and/or their spouses are not subject to taxation in Germany at all, because the advantage attaches to the objective status of the persons concerned as employed persons. The state pension, which is being reduced and the supplementation of which is therefore being promoted, primarily applies to employed persons, although it may apply incidentally to other categories of persons also. Furthermore, ‘social advantage’ also covers advantages which are bestowed upon recipients merely by virtue of the fact that their place of residence is within the country. It is clear therefore that frontier workers are, as a rule, in the same position as resident employees; both categories are affected by falling pension rates in the German system to which they are linked and to which they have paid contributions. Both have an interest in building up an additional pension during their active working lives to counteract falling pension rates. The German legislation, which precludes frontier workers whose income is subject to taxation by the State of residence under a double taxation convention from claiming the advantage, thus amounts to covert discrimination and, accordingly, infringes Article 39(2) EC and Article 7(2) of Regulation No 1612/68. Whether the supplementary pension allowance is categorised as a ‘tax’ or ‘social’ advantage is ultimately unimportant, since cross-border workers are entitled to equal treatment in respect of ‘tax’ advantages too.

The notion that what is at issue is a social advantage applies equally to the prohibition on spending the capital advanced on an apartment serving as the recipient's own residence in the recipient's own house (unless it is in Germany). Even if it were not a tax advantage, the freedom of movement for workers would still be infringed, since the opportunity to avail oneself of a social advantage is restricted by that requirement. It makes it impossible for cross-border workers to spend the capital saved on an apartment that is situated nearby but abroad, as such employees would normally be expected to do. A typical frontier worker has less flexibility than domestic employees in the use of the allowance when a contractual pension comes to be paid out. The value of that allowance as a social advantage is thereby reduced. Putting frontier workers at a disadvantage in this way also, therefore, represents covert discrimination based on nationality, which is an infringement of Article 39(2) EC and Article 7(2) of Regulation No 1612/68.

The repayment obligation on termination of liability to unlimited taxation that is provided for under German legislation primarily affects foreigners, since the number of foreigners returning to their country of origin after the end of their working lives is much higher than the number of German pensioners moving abroad. Furthermore, the repayment obligation deters those concerned from changing their place of residence to another Member State. Moreover, the legislation at issue here can reduce the value of the allowance for migrant workers from the outset, as against domestic employees, and thus entail covert discrimination at the very point at which the advantage is granted. That applies to those cases in which a migrant worker wishes from the outset to avoid repayment and consequently does not even apply for the allowance. There appears to be no justification for that either. As regards fiscal cohesion, that is already assured by the provisions of double taxation conventions. The repayment obligation on termination of liability to unlimited taxation also therefore represents covert discrimination based on nationality, and consequently infringes Article 39 EC, Article 7(2) of Regulation No 1612/68 and Articles 12 EC and 18 EC.

---

( 1 )  OJ, English Special Edition I 1968(II), p. 475.

---