Judgment;Summary — ECLI:EU:C:2023:920
Date: 2023-11-23
Language of the case: Croatian
Court formation: Tenth Chamber
Subject matter: Development cooperation;External relations
Procedure: Reference for a preliminary ruling
Origin: Croatia

Anonymised version 
Translation C-682/22–1 
Case C-682/22 
Request for a preliminary ruling  
Date lodged:  
2 November 2022 
Referring court:  
Upravni sud u Zagrebu (Croatia) 
Date of the decision to refer:  
17 October 2022 
Applicant:  
LM 
Defendant:  
Ministarstvo financija Republike Hrvatske, Samostalni sektor za 
drugostupanjski upravni postupak 
  
Request for a preliminary ruling  
submitted to the Court of Justice of the European Union  
pursuant to the second paragraph of Article 267 of the Treaty on the Functioning 
of the European, in conjunction with subparagraph (b) of the first paragraph 
thereof  
Applicant: LM […] Zagreb […] 
Defendant: MINISTARSTVO FINANCIJA, Samostalni sektor za drugostupanjski 
upravni postupak (Ministry of Finance, Administrative Judicial Service), Zagreb 
[…] 
Question referred for a preliminary ruling: 
EN 
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Must Article 26(2)(c) of the Framework Agreement between the Government of 
the Republic of Albania and the Commission of the European Communities on the 
rules for cooperation concerning European Community financial assistance to the 
Republic of Albania in the framework of the implementation of the assistance 
under the instrument for pre-accession assistance, signed on 18 October 2007, be 
interpreted as excluding the power of a Member State, in this case the Republic of 
Croatia, to charge income tax on the remuneration which was paid in 2016 to one 
of its nationals, employed as a long-term expert, for tasks carried out in the 
territory of Albania concerning a project whose beneficiaries are State institutions 
of the Republic of Albania and which is financed by the European Union under 
the 2013 instrument for pre-accession assistance (IPA)?  
I. Subject matter of the dispute  
1 The subject matter of the dispute is the lawfulness of charging income tax, and the 
local income tax supplement, on the remuneration received in 2016 for tasks 
carried out by the applicant as a long-term expert in Albania, concerning a project 
financed by the European Union under the 2013 instrument for pre-accession 
assistance (IPA). 
II. Facts 
2 The Deutsche Stiftung für Internationale rechtliche Zusammenarbeit (German 
foundation for international legal cooperation; ‘IRZ’), established in Bonn 
(Germany), employed the applicant as an expert on matters relating to the 
judiciary to carry out tasks concerning Project No 346–900 ‘Consolidation of the 
Justice System in Albania (EURALIS IV)’. That project was financed by the 
European Union under the IPA 2013 national programme and a consortium, which 
included the IRZ, was selected for its implementation. 
3 The applicant, a citizen of the Republic of Croatia, concluded a contract with the 
IRZ to carry out her tasks, under which, inter alia, she had to work (a minimum 
of) 220 working days in 2016. For that purpose, the applicant entered into a 
contract to rent a flat in Tirana (Albania) and performed her duties daily at an 
office in Tirana. Previously, the applicant had obtained a work permit and an 
identity card from the competent Albanian authorities, declared her residence in 
Albania, and had health insurance there. At the same time, the applicant owned a 
flat in the territory of the Republic of Croatia (p. 4 of the application), was 
married, and her children were already of age. 
4 For carrying out her tasks as a long-term expert on the project described in greater 
detail in paragraph 2 of this application, IRZ paid the applicant remuneration for 
each month in 2016, which consisted of a salary and a subsistence allowance. In 
2016, the applicant was paid a total of EUR 140 400.00, or HRK 1 061 113.30. 
MINISTARSTVO FINANCIJA 
 
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5 The tax decision of the Ministarstvo financija, Porezna uprava, Područni ured 
Zagreb, Ispostava Trnje (Ministry of Finance, Tax Administration, Zagreb 
Regional Office, Trnje Branch) […] of 20 December 2017 found that in respect 
2016 the applicant received income totalling HRK 1 069 614.96, of which 
HRK 1 061 113.30 relates to foreign income (for performing tasks as a long-term 
expert on the project in question). After applying the relevant deductions and tax 
rates, the applicant’s final total tax liability for income tax and local income tax 
supplement was set at HRK 458 045.30. 
6 The applicant appealed against that tax decision of 20 December 2017. In her 
appeal, the applicant refers, inter alia, to Article 26(2)(c) of the Framework 
Agreement between the Government of the Republic of Albania and the 
Commission of the European Communities on the rules for cooperation 
concerning EC financial assistance to the Republic of Albania in the framework of 
the implementation of the assistance under the instrument for pre-accession 
assistance of 18 October 2007 because she considers that that article excludes the 
possibility of the Republic of Croatia subjecting the remuneration which she 
received as an expert in Albania to income tax. 
7 In its decision […] of 22 November 2021, the defendant granted the appeal, 
annulled the above tax decision of 20 December 2017, and referred the case back 
for reconsideration. It is evident from that decision that the defendant disagrees 
with the applicant’s findings regarding the interpretation of Article 26(2)(c) of the 
Framework Agreement between the Government of the Republic of Albania and 
the Commission of the European Communities on the rules for cooperation 
concerning EC financial assistance to the Republic of Albania in the framework of 
the implementation of the assistance under the instrument for pre-accession 
assistance of 18 October 2007. However, since the tax authority of first instance 
did not correctly establish all the relevant factual circumstances regarding the 
amount of the applicant’s income and tax residence in the Republic of Croatia, the 
defendant annulled the decision issued at first instance and referred the case back 
to the authority of first instance for reconsideration. 
8 The applicant brought an action before the Upravni sud u Zagrebu (Administrative 
Court, Zagreb). In her application, she requests that the first-instance decision of 
20 December 2017 and the defendant’s decision of 22 November 2021 be 
annulled in their entirety. As a result of the action, administrative court 
proceedings were initiated in which the referring court decided to request a 
preliminary ruling from the Court of Justice of the European Union. 
III. Legal framework 
II. a. European Union law 
9 Article 7(1) of Commission Regulation (EC) No 718/2007 of 12 June 2007 
implementing Council Regulation (EC) No 1085/2006 establishing an instrument 
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for pre-accession assistance (IPA) [OJ 2007 L 170, p. 1; ‘Commission Regulation 
(EC) No 718/2007’] provides: 
‘The Commission and the beneficiary country shall conclude a framework 
agreement, in order to set out and agree on the rules for cooperation 
concerning EC financial assistance to the beneficiary country. Where 
necessary, the framework agreement may be complemented by a sectoral 
agreement, or sectoral agreements, covering component specific provisions.’ 
10 Article 7(3) of Commission Regulation (EC) No 718/2007 of 12 June 2007 
provides: 
‘3. The framework agreement shall lay down, in particular, the provisions 
concerning: 
(k) the rules on taxes, customs duties and other fiscal charges.’ 
11 Article 26(2)(c) of the Framework Agreement between the Government of the 
Republic of Albania and the Commission of the European Communities on the 
rules for cooperation concerning EC financial assistance to the Republic of 
Albania in the framework of the implementation of the assistance under the 
instrument for pre-accession assistance (IPA), signed on 18 October 2007 
(‘Framework agreement of 18 October 2007’) provides: 
‘(c) Profit and/or income arising from EC contracts shall be taxable in 
Albania in accordance with the national/local tax system. However, natural 
and legal persons, including expatriate staff, from Member States of the 
European Union or other countries eligible under IPA, executing 
Community financed contracts shall be exempted from those taxes in 
Albania’.  
II. b. Law of the Republic of Croatia 
12 Article 3(1) of the Zakon o porezu na dohodak (Law on income tax) (Narodne 
novine No 177/04, 73/08, 80/10, 114/11, 22/12, 144/12, 43/13, 120/13, 125/13, 
148/13, 83/14, 143/14, and 136/2015; ‘ZPD’) provides: 
‘A resident is a natural person who is domiciled or habitually resident in the 
Republic of Croatia’. 
13 Article 5 of the ZPD provides: 
‘(1) Sources of income are receipts obtained from employment, self-employment, 
property and property rights, capital, insurance and other remuneration’.  
(2) The following shall constitute taxable income under this Law, according to the 
source of income specified in paragraph 1 of this Article: 
MINISTARSTVO FINANCIJA 
 
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1. income from employment, 
2. income from self-employment, 
3. income from property and property rights, 
4. income from capital, 
5. income from insurance, 
6. other income’. 
14 Article 6(1) of the ZPD provides: 
‘A resident’s income tax base shall be the total amount of income from 
employment, self-employment in accordance with paragraph 3 of this Article, 
property and property rights, capital, insurance and other income which the 
resident has received at home and abroad (unlimited tax liability), less the 
personal deduction referred to in Article 36 and/or Article 54 of this Law’. 
15 Article 8(1) and (2) of the ZPD provides: 
‘(1) Income tax shall be levied at a rate of 12% on a tax base of up to 
HRK 2 200.00, at a rate of 25% on a tax base between HRK 2 200.00 and 
HRK 13 200.00, and at a rate of 40% on a tax base above HRK 13 200.00. 
(2) Income tax under paragraph 1 of this Article shall be increased by a local 
income tax supplement imposed by local authorities pursuant to special 
provisions, and reduced where local authorities lay down a smaller proportion of 
income tax than that due to them under a special law’. 
16 Article 37(3) of the ZPD provides: 
‘Annual income tax shall be determined according to the tax base defined in 
Article 6 of this Law, and the amounts of advance tax paid on all declared income 
shall be deducted from the determined annual tax in accordance with Article 5 of 
this Law and the amount of tax to be paid or refunded shall be determined.’  
17 Article 38(1) of the Opći porezni zakon (Tax Code) (Narodne novine Nos 
147/2008, 18/2011, 78/2012, 136/2012, 73/2013, 26/2015, and 44/2016; ‘OPZ’) 
provides: 
‘(1) For the purposes of this Law, a taxable person shall be deemed to be 
domiciled where he or she owns or possesses a dwelling for a continuous period 
of at least 183 days in one or two calendar years. Staying in the dwelling shall not 
be required’.  
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IV. Main arguments of the parties  
18 In her application and the main proceedings, the applicant maintains that she is not 
subject to income tax on the remuneration paid to her in 2016 for carrying out the 
tasks of an expert in Albania as part of the EU-funded IPA 2013 project. She 
relies on Article 26(2)(c) of the Framework Agreement of 18 October 2007 
because she considers that that article excludes the possibility of the Republic of 
Croatia charging income tax on the remuneration which she received as an expert 
in Albania. In addition, the applicant states that other experts, nationals of other 
Member States employed on the same project, were not subject to income tax in 
the Member States of which they are nationals. In addition, the applicant claims 
that Article 12 of the Protocol No 7 on the privileges and immunities of the 
European Union attached the Treaty on the Functioning of the European Union 
[OJ 2016 C 202, p. 266; ‘Protocol No 7’] also applies to her and consequently she 
is exempt from paying income tax on the remuneration in question paid for her 
participation as an expert in the above project. 
19 In its defence, the defendant refers to the findings contained in the decision of 
22 November 2021 (see paragraph 7 of the present application). In that decision, 
the defendant rejects the applicant’s arguments concerning Article 26 of the 
Framework Agreement of 18 October [2007], finds that that agreement is not 
binding on the tax authorities of the Republic of Croatia, and that Article 26(2)(c) 
of the Framework Agreement of 18 October [2007] excludes the right of the 
Republic of Albania to tax the remuneration in question of the applicant as a long-
term expert. Therefore, as stated in that decision, Croatian income tax legislation 
applies to the remuneration which the applicant received as an expert in Albania 
in so far as the applicant is a resident of the Republic of Croatia. However, since 
the tax authority of first instance did not correctly establish all the relevant facts 
concerning the amount of the applicant’s income and tax residence in the Republic 
of Croatia, the defendant annulled the decision issued by the authority of first 
instance and referred the case back to it for reconsideration. 
20 In the light of the foregoing, the referring court considers the parties’ arguments 
on the disputed issue of the interpretation of Article 26(2)(c) of the Framework 
Agreement of 18 October [2007] to be relevant. As regards the parties’ other 
contentions, the referring court considers that Protocol No 7 does not apply to the 
applicant; she is not a servant or official of the European Union, but rather was 
employed by a person selected to implement an EU-funded project. Moreover, it 
is not evident from the attestation of the EU Delegation in Albania of 4 November 
2016, to which the applicant refers, that Protocol No 7 applies to her. 
Furthermore, the referring court considers that there is sufficient evidence of the 
applicant’s tax residency in the territory of Croatia in 2016 under the relevant 
national legislation since at that time the applicant owned a dwelling in the 
territory of Croatia (p. 4 of the application), which, for the purposes of 
Article 38(1) of the OPZ, in conjunction with Article 3(1) of the ZPD, is sufficient 
to establish her tax residency and the application of national income tax 
legislation. 
MINISTARSTVO FINANCIJA 
 
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V. Reasons for the request for a preliminary ruling  
21 The essential issue in the present case is the interpretation of Article 26(2)(c) of 
the Framework Agreement of 18 October [2007] and the power to charge income 
tax on the remuneration of a long-term expert such as the applicant, a national of a 
Member State, employed in a third country as part of an EU-funded IPA project. 
22 According to the case-law of the Court of Justice of the European Union, as a 
general rule, Member States retain the power of direct taxation within their 
purview. Nevertheless, in the exercise of that power the Member States must 
observe the restrictions which may result from EU law (judgment of 14 February 
1995, Schumacker, C-279/93, EU:C:1995:31, paragraph 21). It is therefore 
important for the referring court to clarify whether such a restriction was laid 
down in Article 26(2)(c) of the Framework Agreement of 18 October [2007] and 
what the scope thereof is in so far as such restriction exists. 
23 If the above provision of the Framework Agreement of 18 October [2007] is to be 
interpreted as conferring on the Republic of Albania the exclusive right to charge 
income tax on the remuneration received by long-term experts employed on an 
EU-funded IPA project, that precludes the possibility of a Member State, 
including the Republic of Croatia, charging income tax on remuneration such as 
that received by the applicant in the present case. Consequently, there is no 
possibility for the tax authorities of the Republic of Croatia to take proceedings in 
respect the applicant in order to establish an obligation to pay income tax on the 
foreign remuneration in question arising from the applicant’s performance of the 
tasks of a long-term expert on an IPA project. In the circumstances of the main 
proceedings, this would mean that there is no statutory basis for the taxation of the 
applicant’s remuneration in question by the Croatian tax authorities and that the 
defendant’s position is unjustified, and there are therefore sufficient grounds for 
the referring court to annul in its entirety the defendant’s decision of 22 November 
2021 and decision of 20 December 2017 issued by the first-instance authority. In 
any event, the referring court would have an opportunity to rule on the 
compatibility with the law of the contested decisions of the Croatian tax 
authorities in a manner consistent with the correct interpretation of the provision 
of the Framework Agreement of 18 October 2007 in question. 
24 Some doubts in this regard are raised by the fact that certain categories of experts 
employed on the project, including long-term experts such as the applicant, who 
are nationals of the Member States, are exempt from income tax in Albania on 
that remuneration. The question arises whether that exemption opens up the 
possibility for the Member States to charge income tax on that remuneration of 
long-term experts who are their nationals. Related to this is also the question of 
the purpose of such an exemption – whether it is merely intended to protect the 
independence of employed (long-term) experts, nationals of the Member States, 
from the possible influence of the beneficiary country of an IPA project through 
tax measures, or whether such an exemption is also intended, in addition, to 
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enable the Member States to tax the remuneration of their nationals who are 
employed as long-term experts on an EU-funded project. 
25 If the provision of the Framework Agreement of 18 October 2007 in question is to 
be interpreted other than as set out in paragraph 23 of the present application, that 
is to say, if it is to be interpreted as not excluding the power of a Member State to 
charge income tax on the remuneration received by its nationals employed as 
long-term experts, then taxation of the remuneration of persons such as the 
applicant is governed by Croatian tax legislation and (possibly) international 
conventions for the avoidance of double taxation. The consequence of this 
interpretation is that the Framework Agreement of 18 October [2007] in question 
does not place a restriction on the Republic of Croatia’s power to charge income 
tax on remuneration such as that received by the applicant, which coincides with 
the defendant’s position in the contested decision of 22 November 2021 (see 
paragraph 7 of the present application). In that case, the referring court should 
examine whether there is an obligation on the part of the applicant to pay income 
tax under the ZPD and (possibly) the Convention for the avoidance of double 
taxation with respect to taxes on income and capital concluded between the 
Government of the Republic of Croatia and the Government of the Republic of 
Albania (Narodne novine – međunarodni ugovori No 13/95; ‘Convention for the 
prevention of double taxation with Albania’). Before such an examination, 
however, the disputed issue of the interpretation of Article 26(2)(c) of the 
Framework Agreement of 18 October [2007] must be resolved. 
26 In view of the foregoing, the referring court decided, pursuant to the second 
paragraph of Article 267 of the Treaty on the Functioning of the European, in 
conjunction with subparagraph (b) of the first paragraph thereof, to refer a 
question to the Court of Justice of the European Union for a preliminary ruling, as 
set on the first page of this application. 
[…]