Opinion of the Advocate General — ECLI:EU:C:2006:434
Date: 2006-06-29
Language of the case: French
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Privileges and immunities
Procedure: Action for failure to fulfil obligations - unfounded
Origin: Belgium

summary, it was clear that a legal provision which, without expressly imposing a tax on the Communities, had the object or effect of imposing a tax burden on the Communities indirectly was incompatible with the principle of fiscal immunity. B – The Belgian Government 24. The Belgian Government began by observing that the European Communities were outside the scope of application of the Regional Order in that the Protocol exempted them from this tax whether they were occupiers or owners or lessees. It followed that it could not be said that the European Communities were liable for the disputed tax. 25. To the extent that it did not infringe the Commission’s fiscal immunity, the tax did not infringe the principle of public international law that treaties should be performed in good faith. There was no tax liability but instead a contractual obligation owed to the taxpayer-owner. On that point the Belgian Court of Cassation had decided that the passing on of the tax burden was founded on a contract governed by private law, and that it would accordingly be disproportionate to allow an international organisation to demand exemption from a part of the rent that related to a general tax increase. 26. Given that the payment disputed by the Commission arose from the provisions of a contract governed by private law, it was also immaterial that the disputed tax had been introduced after the contracts which passed on the burden of certain taxes to the tenant had been concluded. This contractual obligation was binding on all private and public persons at the time the contract was concluded and thereafter. In addition the parties to the contract could easily change the contractual provision which passed on the tax burden to the tenant. 27. The Vienna Convention, in particular Article 23(2) thereof, also provided that exemption from taxation did not extend to taxes payable by a person who had entered a contract with the Communities as is the case, for example, here. The fact that the owner’s tax liability was passed on to the international organisation in the form of additional rent or ancillary costs did not ipso facto transform that rent or those ancillary costs into tax. It followed that the Vienna Convention precluded fiscal immunity being applied to the contractual passing on of a tax burden. The Vienna Convention, as an expression of customary international law, was part of general public international law and as such had to be observed by the Community in the exercise of its powers. 28. As regards the case-law relied upon by the Commission, it was clear that the Court had never expressed an opinion on the fiscal immunity claimed for the Community in the context of a tax imposed on the owner of property leased to the Community but passed on to the Community. However, the case-law concerning the Protocol confirmed generally the purely ‘functional’ role of the rights and immunities conferred by the Protocol on the Communities, which were intended to ensure the functioning and the independence of the Community. 29. As regards the case-law on Article 13 of the Protocol, (8) the Commission was of the view that it applied by analogy to Article 3 of the Protocol, but had not made the relationship between these two provisions clear or explained the differences between their respective purposes and the matters and persons which they governed. In AGF Belgium (9) the Court had expressly differentiated between the case-law concerning Article 13 and the case-law concerning Article 3 of the Protocol. In addition, in that case the Court had concluded from the binding nature of the disputed levy that it was within the scope of the Community’s fiscal immunity under Article 3(1), whereas in the present case there was no statutory payment obligation on the Commission. Furthermore, the conclusions the Commission drew from the case-law on Article 13 of the Protocol were erroneous. (10) 30. The disputed tax also complied with the principle of fiscal neutrality. The fiscal immunity provided for in Article 3 of the Protocol in favour of international institutions was not intended to reduce rents paid by international organisations. Within the scope of its tax-raising powers the regional Brussels legislature was entitled to introduce new taxes and was free to determine who was liable to pay them and any exemptions. In the present case the Regional Order provided that the taxpayer was the person who had the real property right, which meant that international institutions were not affected in any particular way. Thus, the Region of Brussels Capital was not obtaining any fiscal advantage from the fact that international organisations had their seat within its territory, because the disputed tax was payable by the owner regardless of whether the building was leased to an institution or a natural person, or indeed was not leased at all. In addition, since the tax year 2004 regional taxes were no longer deductible from general tax. If the disputed tax were not charged when the Community leased a building, this would endanger the equal treatment of owners, because owners who leased their buildings to the Community would have an advantage by comparison with other owners. 31. In addition, the Commission had not shown the extent to which the disputed tax constituted an obstacle to the functioning and independence of the European Communities. 32. In seeking immunity from the disputed tax, the Commission also ignored the principle of loyal cooperation laid down in Article 10 EC, which not only obliged the Member States to take all appropriate measures to ensure the validity and effectiveness of Community law but also imposed on the Community institutions corresponding obligations of loyal cooperation with the Member States. V – Analysis 33. In the present case it is necessary to define more clearly the scope of application of the Communities’ fiscal immunity under Article 3 of the Protocol. 34. The first point to clarify is the extent to which Article 23 of the Vienna Convention is relevant to the interpretation of Article 3 of the Protocol in the present case. 35. There is no doubt that, in exercising its powers, the Community must observe public international law. (11) The Vienna Convention is a public international law convention to which all the Member States of the Community, but not however the Community itself, are contracting parties. It was concluded by the Member States acting under their powers to enter into diplomatic relations with one another and with third States. (12) 36. In principle, the Vienna Convention concerns bilateral relationships between States (sending and receiving States) and not, as in the present case, the relations between the Community (an international organisation) and the country in which an institution of that organisation has its seat (Belgium). (13) 37. It follows that the Vienna Convention is not of decisive importance in the present case. The Communities’ fiscal immunity under Article 3 of the Protocol is to be regarded as a fiscal immunity designed according to the Communities’ characteristics, and as such is to be interpreted primarily by reference to Community law. 38. To date the Court has given an interpretation of Article 3 of the Protocol only once, (14) in AGF Belgium, (15) stating that the Protocol defined the tax exemption in very broad terms. (16) The Court held that the wording and purpose of Article 3 was intended to ensure not only that the Communities, their assets, revenues and other property should be exempt from all direct taxes, but also that the Member States were to remit or refund the amount of indirect taxes or sales taxes included in the price of substantial purchases made by the Communities for their official use. (17) Subject solely to the reservations mentioned in the second and third paragraphs of Article 3 of the Protocol, that immunity covered all types of taxation, whether direct or indirect. (18) 39. That case showed that the fiscal immunity conferred by Article 3 of the Protocol is not to be interpreted exclusively by reference to that article’s wording; its spirit and its purpose are the deciding factors. (19) Thus, the broad interpretation given to the fiscal immunity conferred by Article 3 of the Protocol was based on observance of the general principles underlying the Communities’ fiscal immunity. 40. The tax exemption is, on the one hand, conferred in order to ensure the Communities’ independence with regard to the Member States and their proper functioning. (20) This ‘functional’ character of the rights and immunities of the Communities has been recognised in the case-law relating to various other provisions of the Protocol. (21) 41. On the other hand, a broad interpretation of the provision should prevent the host State from gaining an unjustified advantage by diverting to the national treasury funds contributed to the budget of the Communities. (22) That justification derives from the principle of sovereign equality (23) between States. All the Member States do in fact together provide the funds necessary for the functioning of the Community and it would accordingly be unfair if the State where an institution of the Communities has its seat could obtain financial advantages from the fact that that seat is within its territory by taxing the Communities. (24) It follows that the fact that the Communities’ have a seat within the territory of a State must be fiscally neutral for the latter. 42. In the case-law relating to Article 13 of the Protocol, (25) on the basis of those principles the Court has repeatedly concluded that any direct or indirect taxation was intended to be prohibited. (26) Otherwise the practical effectiveness of the tax exemption conferred by Article 13 of the Protocol would be endangered. (27) 43. However, the indirect nature of the tax burden in the present case is unusual. Specifically, the regional Brussels legislature introduced a tax structure which, although not directly affecting the Communities, can lead to an indirect burden on the Communities’ assets by means of a general, contractual passing on of the burden of tax agreed by the contracting parties. The question thus arises as to whether such an indirect tax burden falls within the Community’s fiscal immunity under Article 3 of the Protocol. 44. It is clear that the Community does not directly bear the tax, since the Regional Order does not impose a direct tax liability on the Communities. However, closer examination of the provision raises the question whether Belgium enacted the disputed provision in order to circumvent the Communities’ fiscal immunity. 45. The first point worth mentioning is the historical development of the disputed tax. The provision in force prior to 1992 imposed a tax in principle on occupiers of buildings. By reason of the fiscal immunity under Article 3 of the Protocol the Community was exempted from this tax in so far as it was the occupier of buildings it leased. The 1992 Regional Order amended the content and chargeable event of the disputed tax to the effect that in the event of business occupancy of a building with more than a certain floor area the owner became the taxable person instead of the occupier. 46. Thus, the disputed tax continues to be directed primarily at occupancy of buildings, which means that, logically, the taxpayer in respect of the disputed tax should be the occupier, and this was indeed the case until 1992. The fact that the tax is on occupancy is confirmed by the point emphasised by the Commission that the exceptions to the disputed tax provision depend solely on circumstances related to the occupier and not to the owner, and the exemptions available to an owner depend on the characteristics of the occupier and the nature of its business occupancy (for example, buildings used for educational, religious or social purposes). 47. The chargeable event is also the decisive difference between the disputed tax and property tax (‘précompte immobilier’). The latter is primarily a tax on the income the owner derives from the building and not, as is the case with the disputed tax, a tax on occupancy of the building. Property tax (‘précompte immobilier’) is not a disguised tax on the Communities, even if the burden of it may be transferred to the Communities by contract. 48. By contrast, in terms of its effect the disputed tax appears more like a measure which has the object, or at least the effect, that the Communities indirectly contribute to the budget of the Region of Brussels Capital. Contrary to the Belgian Government’s claim, the disputed tax clearly increases the tax receipts of the Region of Brussels Capital. Originally, under the previous provision, none of the buildings leased by the Community or other international organisations which had their seat in Brussels brought in any tax, because the occupier was exempt from tax. By contrast, the 1992 Regional Order increased the number of buildings liable to tax at a stroke, by all those leased by international organisations, including the Communities. This increase in tax receipts involved a not insignificant burden on the Community’s budget, such that the question arises as to whether such a burden is incompatible with the purpose of the fiscal immunity under Article 3 of the Protocol as explained above. 49. Nor is it possible in the present case to draw a clear distinction between a tax liability on the one hand and a contractual obligation on the other, as the Belgian Government seeks to do. The passing on of the tax liability results directly from a private law contract and is therefore, in theory not generally applicable. However, the widespread practice of including a passing-on of tax clause in leases means that generally the tax burden is passed on to the Communities and the Communities’ fiscal immunity is thereby circumvented. It follows that, given its legal and factual context, the effect of the measure is equivalent to that of a direct tax on the Communities. As is apparent from the statements made by the Minister for Finance, the Budget and the Civil Service in relation to the disputed tax which appear in the travaux préparatoires and which were relied upon by the Commission, the Brussels legislature did not overlook that fact when it introduced the disputed measure. 50. If the Belgian Government’s view were accepted, every State in which a Community institution has a seat would be tempted to transform direct tax burdens from which the Communities are exempt into indirect tax burdens, in order to circumvent the Communities’ fiscal immunity and to undermine permanently its practical effectiveness. 51. Finally it is to be observed that, although the Belgian State is entitled to exercise its autonomy in fiscal matters freely, it must do so in a manner which is compatible with its obligations under Community law, including its obligation of loyal cooperation under Article 10 EC. It is difficult to reconcile that obligation with the structure of the disputed tax, which undoubtedly has the effect of obtaining tax receipts in respect of buildings leased by the Communities where this was not previously the case, indirectly and at the cost of the Communities. In addition, the Region of Brussels Capital was under an obligation under Article 19 of the Protocol to consult with the institutions in order to ensure that the Communities’ fiscal immunity was not infringed and in any event to find a solution which was compatible with the EC Treaty. 52. In the light of the foregoing considerations it should be held that the disputed tax is not compatible with the fiscal immunity provided for by Article 3 of the Protocol. Thus, by subjecting the Communities to a tax by virtue of the Regional Order which, although imposed directly on the contracting partner of the Communities, is nevertheless borne indirectly by the Communities because of the general factual and legal context, the Kingdom of Belgium has disregarded the fiscal immunity. 53. Accordingly, the Commission’s complaint is well founded. VI – Costs 54. Under Article 69(2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission has been successful, the Kingdom of Belgium should be ordered to pay the costs. VII – Conclusion 55. For the foregoing reasons I would suggest to the Court that it should: – declare that, by enacting national tax legislation which provides for a direct tax on persons who conclude contracts with the Communities but which indirectly has the object or at least the effect that the real burden of the tax is borne by or passed on to the Communities, the Kingdom of Belgium has failed to fulfil its obligations under Article 3 of the Protocol; – order the Kingdom of Belgium to pay the costs of the proceedings. 1 – Original language: German. 2 – See my Opinion in the pending Case C‑199/05 European Community v Belgium. 3 – Protocol of 8 April 1965 (JO 1967 152, p. 13). 4 – Case C‑191/94 AGF Belgium v European Economic Community and Others [1996] ECR I‑1859. Case C‑220/03 European Central Bank v Germany [2006] ECR I‑10595 concerned Article 3 of the Protocol only indirectly. 5 – See also the first paragraph of Article 28 of the Treaty establishing a Single Council and a Single Commission of the European Communities (JO 1967 152, p. 10), and the sole recital to the Protocol on the Privileges and Immunities of the European Communities. 6 – Vienna Convention of 18 April 1961 on Diplomatic Relations, United Nations Treaty Series (UNTS), vol. 500, p. 95. 7 – Case 260/86 Commission v Belgium [1988] ECR 955. 8 – In particular, Commission v Belgium (cited in footnote 7), and Case C‑229/98 Vander Zwalmen and Massart v Belgium [1999] ECR I‑7113. 9 – Cited in footnote 3, paragraph 14. 10 – Thus, in Commission v Belgium (cited in footnote 7), the Court certainly did not express any view against a contractual passing on of the tax burden to a lessee who was a Community official, but decided simply that refusing a tax reduction on the sole ground that the tenant was an official of the European Communities and consequently exempt from national taxes constituted an infringement of the Treaty. It follows that the Commission was wrong to rely on this case for the proposition that it is possible to ‘transfer the immunity by contract’. In its judgment in Vander Zwalmen and Massart (cited in footnote 8), the Court did not express itself in terms of a general tax exemption but only of a prohibition against taxing officials directly or indirectly by reason of the fact that they are in receipt of remuneration paid by the Communities. In addition, that case concerned discrimination between officials and other natural persons arising from the absence of any income tax liability on Community officials, whereas the present case does not raise any issue of discrimination between Belgian and Community institutions. 11 – Case C‑286/90 Poulsen and Diva Navigation [1992] ECR I‑6019. 12 – At present there are 179 contracting parties to the Convention: see http://untreaty.un.org/sample/EnglishInternetBible/partI/chapterIII/treaty3.asp. 13 – See A.S. Muller, International Organizations and their Host States, Aspects of their Legal Relationship, Kluwer 1995, p. 32: ‘These treaties [the 1961 Vienna Convention on Diplomatic Relations and the Vienna Convention on Consular Relations] apply only to diplomatic and consular relations and not to the immunities of international organisations. Nevertheless, they are at the very least useful points of historical reference and sometimes even an indirect source of law.’ 14 – See footnote 4. 15 – Cited in footnote 3. 16 – AGF Belgium (cited in footnote 3), paragraph 19; see also the Opinion of Advocate General Jacobs in that case, paragraph 23. 17 – AGF Belgium (cited in footnote 3), paragraph 19. 18 – AGF Belgium (cited in footnote 3), paragraph 20. 19 – See my Opinion in European Community v Belgium (cited in footnote 4). 20 – AGF Belgium (cited in footnote 3), paragraph 19. 21 – Article 1 of the Protocol: see the orders in Case 1/88 SA Générale de Banque v Commission [1989] ECR 857, paragraph 2, and Case C-2/88 Imm. Zwartveld and Others [1990] ECR I‑3365, paragraph 20. As regards Article 13 of the Protocol, see Case T-497/93 Hogan v Court of Justice [1995] ECR II‑703, paragraph 48. 22 – Opinion of Advocate General Jacobs in AGF Belgium (cited in footnote 3), paragraph 23. As regards Article 13 of the Protocol, see Case 6/60 Humblet v Belgium [1960] ECR 559, at 577, point C. 23 – On this point see also Article 2(1) of the Charter of the United Nations. 24 – Humblet (cited in footnote 22), 577, point (c). 25 – The tax exemption in Article 13 of the Protocol is distinguishable in terms of both its scope of application and its content: Article 13 of the Protocol contains a tax exemption for officials and other servants of the Communities from national taxes on salaries, wages and emoluments, whereas Article 3 of the Protocol exempts the Community itself from direct taxes and from indirect taxes and sales taxes in certain circumstances (see AGF Belgium, cited in footnote 3), paragraph 14). However, the purposes of the exemptions overlap to a large degree. In addition to the two grounds identified above, the tax exemption under Article 13 is based also on the principle of equal treatment of officials. In fact, the tax exemption for officials may be traced back to the fact that their salaries are subject to a unified tax which is paid directly to the Community. This is intended to ensure that all officials receive equal pay for equal work (see Humblet, cited in footnote 22). 26 – Humblet (cited in footnote 22), Commission v Belgium (cited in footnote 7), paragraph 10, and Vander Zwalmen and Massart (cited in footnote 8), paragraph 21. 27 – See the Opinion of Advocate General Mischo in Commission v Belgium (cited in footnote 7), paragraph 24.