Opinion of the Advocate General — ECLI:EU:C:2006:323
Date: 2006-05-16
Language of the case: German
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Freedom to provide services
Procedure: Reference for a preliminary ruling
Origin: Germany

Summary of the Judgment 1. Freedom to provide services – Restrictions – Tax legislation (Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC) and Article 60 of the EEC Treaty (later Article 60 of the EC Treaty, now Article 50 EC)) 2. Freedom to provide services – Restrictions – Tax legislation (Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC) and Article 60 of the EEC Treaty (later Article 60 of the EC Treaty, now Article 50 EC)) 3. Freedom to provide services – Restrictions – Tax legislation (Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC) and Article 60 of the EEC Treaty (later Article 60 of the EC Treaty, now Article 50 EC)) 4. Freedom to provide services – Provisions of the Treaty – Scope ratione personae (Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC)) 1. Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC) and Article 60 of the EEC Treaty (later Article 60 of the EC Treaty, now Article 50 EC) are to be interpreted as not precluding national legislation under which a procedure of retention of tax at source is applied to payments made to providers of services not resident in the Member State in which the services are provided, while payments made to providers of services resident in that Member State are not subject to such a retention, and which imposes liability on a recipient of services who has failed to make the retention at source that he was required to make. It is true that such legislation is likely to deter recipients of services from using providers resident in other Member States and thus constitutes an obstacle to the freedom to provide services, prohibited in principle by Articles 59 and 60 of the EEC Treaty. It is, however, justified by the need to ensure the effective collection of income tax. In the absence of a Community directive or other instrument governing mutual administrative assistance for the recovery of tax debts, the procedure of retention at source and the liability rules supporting it constitute a legitimate and appropriate means of ensuring the tax treatment of the income of a person established outside the State of taxation and ensuring that the income concerned does not escape taxation in the State of residence and the State where the services are provided. Moreover, the use of retention at source, and its corollary of the potential liability of the recipient of services who is required to make such a retention, enabling the absence of retention at source to be penalised if necessary, represent proportionate means of ensuring the recovery of the tax debts of the State of taxation. (see paras 33-39, operative part 1) 2. Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC) and Article 60 of the EEC Treaty (later Article 60 of the EC Treaty, now Article 50 EC) are to be interpreted as precluding national legislation which does not allow a recipient of services who is the debtor of the payment made to a non-resident provider of services to deduct, when making the retention of tax at source, the business expenses which that service provider has reported to him and which are directly linked to his activity in the Member State in which the services are provided, whereas a provider of services residing in that State is taxable only on his net income, that is, the income received after deduction of business expenses. The existence of a refund procedure in which the business expenses of a non-resident provider of services can be taken into account subsequently is irrelevant in that respect. To the extent that commencing such a procedure involves additional administrative and economic burdens, and is inevitably necessary for the provider of services, the tax legislation in question constitutes an obstacle to the freedom to provide services, prohibited by Articles 59 and 60 of the EEC Treaty. By contrast, those provisions do not preclude national legislation whereby, on the occasion when the retention at source procedure is used, the only business expenses deducted are those directly linked to the activity that generated the taxable income in the Member State in which the service is provided, which the service provider established in another Member State has reported to the payment debtor, expenses not directly linked to that economic activity being taken into account if appropriate in a subsequent refund procedure. (see paras 46-47, 49, 52, operative part 2) 3. Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC) and Article 60 of the EEC Treaty (later Article 60 of the EC Treaty, now Article 50 EC) do not preclude a rule that the tax exemption granted under the Convention between the Federal Republic of Germany and the Kingdom of the Netherlands for the avoidance of double taxation to a non-resident provider of services who has carried on activity in Germany can be taken into account by the payment debtor in the procedure for retention of tax at source, or in a subsequent procedure for exemption or refund, or in proceedings for liability brought against him, only if a certificate of exemption stating that the conditions laid down to that end by that convention are satisfied is issued by the competent tax authority. Whilst such a measure constitutes an obstacle to the freedom to provide services guaranteed under Articles 59 and 60 of the EEC Treaty, it is, however, justified in order to ensure the proper functioning of the procedure for taxation at source. It appears to be important that the payment debtor can refrain from retaining tax at source only if he is certain that the provider of services satisfies the conditions for an exemption. The payment debtor cannot be required himself to clarify whether or not, in each individual case, the income in question is exempt under a convention for the avoidance of double taxation. Finally, authorising the payment debtor unilaterally to refrain from retaining the tax at source could, in the event of an error on his part, have the effect of compromising the collection of the tax from the payment creditor. (see paras 58-61, operative part 2) 4. Article 59 of the EEC Treaty (later Article 59 of the EC Treaty, now, after amendment, Article 49 EC) must be interpreted as not being applicable in favour of a provider of services who is a national of a non-member country. On this point, the EEC Treaty states that, since the Council has not made use of the possibility provided for in the second paragraph of Article 59 thereof, the provisions governing the freedom to provide services apply if the following conditions are satisfied: the service must be provided within the Community, and the provider of services must be a national of a Member State and established in a State of the Community. It follows that the EEC Treaty does not extend the benefit of those provisions to providers of services who are nationals of non-member countries, even if they are established within the Community and an intra-Community provision of services is concerned. (see paras 67-69, operative part 3)