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OPINION OF ADVOCATE GENERAL

RUIZ-JARABO COLOMER

delivered on 12 May 2005 1( )

Case C-207/04

Paolo Vergani

v

Agenzia delle Entrate Ufficio di Arona

(Reference for a preliminary ruling from the Commissione tributaria provinciale di Novara (Italy))

(Social policy – Equal treatment as between male and female workers – Tax treatment of severance pay – Discrimination on grounds of sex)

1. By this question referred for a preliminary ruling, the Commissione tributaria provinciale di Novara (Provincial Tax Court, Novara), Italy, wishes to know whether Article 141 EC or Directive 76/207/EEC ( ) preclude national legislation according different tax treatment to men and women on grounds of age, in relation to compensation received from the employer as a consequence of premature termination of the employment relationship.

I – Legal framework

A – Community law

1. Article 141 CE

2. This provision establishes:

‘1. Each Member State shall ensure that the principle of equal pay for male and female workers for equal work or work of equal value is applied.

2. For the purpose of this article, “pay” means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his employment, from his employer.

Equal pay without discrimination based on sex means:

(a) that pay for the same work at piece rates shall be calculated on the basis of the same unit of measurement;

(b) that pay for work at time rates shall be the same for the same job.

3. The Council, acting in accordance with the procedure referred to in Article 251, and after consulting the Economic and Social Committee, shall adopt measures to ensure the application of the principle of equal opportunities and equal treatment of men and women in matters of employment and occupation, including the principle of equal pay for equal work or work of equal value.

4. With a view to ensuring full equality in practice between men and women in working life, the principle of equal treatment shall not prevent any Member State from maintaining or adopting measures providing for specific advantages in order to make it easier for the under-represented sex to pursue a vocational activity or to prevent or compensate for disadvantages in professional careers.’

3. These basic rules are reinforced by various pieces of secondary legislation, such as Council Directive 75/117/EEC of 10 February 1975 on the approximation of the laws of the Member States relating to the application of the principle of equal pay for men and women, ( ) and the aforementioned Directive 76/207, which are mutually exclusive in scope. ( )

2. Directive 76/207

4. Article 1 emphasises that the aim of the directive is to implement the principle of equal treatment for men and women as regards access to employment, including promotion, and to vocational training, and as regards working conditions and, on certain conditions, social security. ( ) This means, according to Article 2(1), that ‘there shall be no discrimination whatsoever on grounds of sex either directly or indirectly by reference in particular to marital or family status’.

5. Under Article 5(1), application of the principle with regard to ‘working conditions, including the conditions governing dismissal, means that men and women shall be guaranteed the same conditions without discrimination on grounds of sex’; subparagraph (2) requires Member States to take the measures necessary ‘to ensure that:

(a) any laws, regulations and administrative provisions contrary to the principle of equal treatment shall be abolished;

(b) any provisions contrary to the principle of equal treatment which are included in collective agreements, individual contracts of employment, internal rules of undertakings or in rules governing the independent occupations and professions shall be, or may be declared, null and void or may be amended;

(c) those laws, regulations and administrative provisions contrary to the principle of equal treatment when the concern for protection which originally inspired them is no longer well founded shall be revised; and that where similar provisions are included in collective agreements labour and management shall be requested to undertake the desired revision’. ( )

6. Under Article 1(2) the Council is required, with a view to ensuring the progressive eradication of discrimination in matters of social security and acting on a proposal from the Commission, to adopt provisions defining ‘[the] substance, ... scope and ... arrangements for [the] application’ of the principle of equal treatment, which include Directive 79/7/EEC. ( )

3. Directive 79/7

7. Under Article 3(1), the provisions of the directive are to apply to statutory schemes which provide protection against sickness, invalidity, old age, accidents at work, occupational diseases and unemployment, and also to rules governing social assistance which supplement or replace those schemes. Article 3(2) provides that the directive is not to apply to survivors’ benefits, maternity benefits or family benefits, except in the case of family benefits granted by way of increases of benefits due in respect of a spouse or dependant. ( )

8. Article 4 provides that, in the interests of uniformity, there must be no discrimination whatsoever on ground of sex either directly, or indirectly by reference in particular to marital or family status, in particular as concerns:

‘– the scope of the schemes and the conditions of access thereto,

– the obligation to contribute and the calculation of contributions,

– the calculation of benefits ...’.

9. Article 5 requires Member States to take ‘the measures necessary to ensure that any laws, regulations and administrative provisions contrary to the principle of equal treatment are abolished’. However, Article 7(1) allows them to depart from the Community measures in ‘the determination of pensionable age for the purposes of granting old-age and retirement pensions and the possible consequences thereof for other benefits’ (Article 7(1)(a)), and also other advantages and entitlements.

B – Italian law

10. Article 9 of Law 1272 of 6 July 1939, as amended by Article 2 of Law 218 of 4 April 1952, ( ) granted pensions to male workers at the age of 60 and to female workers at the age of 55, although, under Article 1 and the table in Annex A to Legislative Decree No 503 of 30 December 1992, ( ) those ages were raised to 65 and 60 respectively.

11. Law 155 of 23 April 1981 ( ) allows the employees of companies declared to be in crisis by the Comitato Interministeriale per il Coordinamento della Politica industriale to take early retirement from the age of 55 in the case of men and 50 in the case of women.

12. Decree No 917 of the President of the Republic of 22 December 1986 ( ) governs the tax treatment of severance pay under schemes to encourage retirement and draws a distinction between the two sexes. Article 17(4a), which was added by Decree Law No 314 of 2 September 1997, ( ) provides:

‘In the case of sums paid in relation to cessation of the employment relationship in order to encourage workers who have passed the age of 50 years in the case of women and 55 years in the case of men to take voluntary redundancy, ( ) as provided for in Article 16(1)(a), ( ) the tax shall apply at a rate equal to one-half of the rate applied for the taxation of severance pay and the other allowances and sums mentioned in Article 16(1)(a).’

II – The facts, the main proceedings and the question referred to the Court

13. Mr Vergani joined a voluntary redundancy scheme run by his employer, Chubb Insurance Company S.A. On 14 November 2001, when he had reached the age of 51, he resigned from the company, receiving compensation of ITL 751 000 000 (EUR 387 859.13), from which personal income tax was deducted at the rate of 33.95%.

14. The Agencia delle Entrate Ufficio di Arona (Revenue Authority of the Italian Ministry of Finance) rejected his application for a 50% reduction in the tax rate and a refund of EUR 70 757.22, the amount of the capital and accrued interest, since the tax benefit applied to male workers who are over 55 years old.

15. An appeal has been brought against that decision before the Commissione tributaria provinciale di Novara, which has stayed proceedings and, before giving judgment, has referred the following question to the Court of Justice:

‘Does Article 17(4a) of Decree No 917/86 of the President of the Republic infringe, conflict with or in any event create conditions of unequal treatment as between men and women prohibited by Article 141 EC (formerly Article 119 of the EC Treaty) and by Directive 76/207/EEC in so far as, in like circumstances, it grants the advantage of taxation of voluntary redundancy incentives and of sums paid in connection with the cessation of employment relationships at a rate reduced to one-half (50%) for workers who have passed the age of 50 years in the case of women and the age of 55 years in the case of men?’

III – Procedure before the Court of Justice

16. Written observations were submitted within the period laid down by Article 20 of the EC Statute of the Court of Justice by Mr Vergani, the Italian Government and the Commission.

17. At the hearing held on 14 April 2005 Mr Vergani’s representatives and the Commission’s agent presented oral argument.

IV – Equality between workers of the two sexes in the Union

18. To make it easier to reply to the question referred for a preliminary ruling, a few points should first be made concerning the prohibition on discrimination in employment, ( ) beginning with the legislation in the Treaties, continuing with the main statements of the prohibition and ending with the specific criteria for establishing the existence of discrimination contrary to Community law.

A – Primary law

19. The legal position of women in Europe in the 1950s can be distinguished from their position throughout history when they were not accorded proper recognition. By way of example, Fray Luis de León, in his work La Perfecta Casada, claimed that Woman was by nature ‘flaca y deleznable más que otro animal y de su costumbre e ingenio quebradiza y melindrosa’ (‘weaker and more fragile than any other creature, and by inclination and habit frail and finicky’). ( ) There were, however, other voices in the 16th century which bore testimony to the injustice; the most forceful of them is that of Teresa de Ávila, writing, in Camino de perfección: ‘No lo creo yo, señor, de vuestra bondad y justicia, que sois justo juez y no como los jueces de este mundo, que como son hijos de Adán y, en fin, todos varones, no hay virtud de mujer que no tengan por sospechosa’ (‘Yet, Lord, I cannot believe this of Thy goodness and righteousness, for Thou art a righteous Judge, not like judges in the world, who, being, after all, men and sons of Adam, refuse to consider any woman’s virtue as above suspicion’). ( )

20. When the European Communities were established, the principle of equality of the sexes was subject to serious shortcomings, which have been eradicated in a continual process of improvement. ( )

21. The founding Treaties, in accordance with their aim of promoting trade, did not deal directly with those issues. The main provisions were designed to prevent employees being excluded on grounds of nationality (former Article 48 of the EC Treaty) and to ensure their social protection (former Article 51 of the EC Treaty), in the context of the free movement of the factors of production. In their turn, the scant provisions which granted rights specifically with regard to employment, such as equal pay for men and women (former Article 119 of the EC Treaty), were designed to avoid ‘social dumping’, which would distort competition between the Member States ( ) although reference was also made to the need to promote improved living and working conditions, so as to achieve equality through progress (former Article 117 of the EC Treaty) and the European Social Fund was established (former Articles 123 et seq. of the EC Treaty). ( )

22. The order of priorities when the process was undertaken explains the scant Community initiative in this field, which was essentially directed towards facilitating the movement of workers and coordinating the support mechanisms. However, in the 1970s other issues were tackled, and provisions were adopted concerning equality in relation to pay (Directive 75/117), access to employment, vocational training and promotion, and working conditions (Directive 76/207) and social security (Directive 79/7).

23. The Single European Act ( ) did not deal specifically with equality in employment, but introduced into the basic legislation rules designed to improve the working environment and also the health and safety of workers (former Article 118a of the EC Treaty), created the Structural Funds in order to achieve economic and social cohesion (former Articles 130a et seq. of the EC Treaty), and also promoted dialogue in this field (former Article 118b of the EC Treaty).

24. With the Treaty on European Union ( ) this Community gained an independent identity, distinct from economic policy, since one of the objectives of the Union and of the Community is to promote social progress and a high level of employment and protection (former Article B of the Treaty on European Union and Article 2 of the EC Treaty, respectively), although the most significant innovations were contained in the Protocol on Social Policy – which the United Kingdom did not sign –, based on the Community Charter of the Fundamental Social Rights of Workers of 1989, ( ) which included an agreement on the issue, in which equality of opportunity and treatment was mentioned (Article 2(1)).

25. The Treaty of Amsterdam ( ) underpins the principle by expressly stating it as one of the aims of the Community, which has as its task ‘... by establishing a common market and an economic and monetary union and by implementing common policies or activities referred to in Articles 3 and 4, ... to promote ... equality between men and women ...’ (Article 2). ( ) It confirmed the principle by introducing a new paragraph in Article 3, according to which, in all the activities referred to in that provision, the Community aims to eliminate inequalities, and to promote equality, between men and women. ( ) Also, the Agreement on Social Policy is incorporated into the EC Treaty; its content is enlarged and it is given greater force. Especially significant is the express acceptance of the fundamental social rights (Article 136 EC), particular emphasis being placed on equality between male and female workers.

26. Against this legislative background, the Treaty of Nice, ( ) which is for the time being the most recent addition to the European project, concerns aspects such as the combating of social exclusion.

27. More relevant is the Charter of Fundamental Rights of the European Union, proclaimed on 7 December 2000 at the Nice European Council, since, apart from the controversy regarding its legal nature, it has had a significant influence on legislation planned and approved since it was proclaimed.

28. Finally, the Treaty establishing a Constitution for Europe ( ) places equality among the values on which the Union is based, and specifically mentions equality between ‘women and men’ (Article I-2); it states that the Union ‘shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men ...’ (the second subparagraph of Article I-3(3)); and, in the section dedicated to fundamental rights, it cautions that ‘equality between women and men must be ensured in all areas, including employment, work and pay’ although that principle ‘shall not prevent the maintenance or adoption of measures providing for specific advantages in favour of the under-represented sex’ (Article II-83). There is other evidence of this in the provisions regulating social policy: provision is made for supporting and complementing activities of the Member States designed to ensure ‘equality between women and men with regard to labour market opportunities and treatment at work.’ (Article III-210(1)(i)), and Member States are required to ensure ‘that the principle of equal pay for female and male workers for equal work or work of equal value is applied’; they are authorised to maintain or adopt measures ‘to make it easier for the under-represented sex to pursue a vocational activity, or to prevent or compensate for disadvantages in professional careers’; at the same time, it provides that European laws or framework laws are to establish measures to avoid distinctions ‘in matters of employment and occupation’ and also in respect of pay (Article III-214).

B – Content

29. ‘The elimination of discrimination based on sex’ is one of the fundamental rights, ( ) having become, both quantitatively and qualitatively, a significant aspect of Community social policy. ( ) It affects three main areas: salaries, access to employment, professional careers and working conditions, and also matters of social security. ( )

1. The principle of equal pay

30. This proposition ‘is one of the foundations of the Community’, ( ) being the most striking expression of the prohibition against discrimination between male and female workers. ( ) It is acknowledged in Article 141 EC, whose economic component, which focuses on the elimination of distortions of competition between undertakings established in different Member States, is secondary to the social theme on which the provision is based. ( ) I have already expressed the view, in point 32 of my opinion in Mayer, ( ) that the legislation contains a provision not usually found in an international agreement. First, it represents a social ideal and the means – albeit indirect – of harmonising employment policy in the Union. Secondly, it establishes a legal obligation of result, ( ) an economic and social objective in itself. Its wording is based on Article 2 of Convention 100 of the International Labour Organisation of 1951. ( )

31. The essence of this legislation turns on the meaning of ‘pay’, which the Court of Justice has defined gradually over time, ( ) extending it to any consideration, whether in cash or in kind, whether immediate or future, provided that the worker receives it, albeit indirectly, from his employer in respect of his employment ( ) under a contract of employment, by virtue of legislative provisions or on a voluntary basis. ( ) A study of the case-law reveals that the persons concerned have a common denominator since, without drawing particular attention to this point, the cases have made clear that the payer must be the employer, even if it is a public body. ( ) This is apparent from Article 141 EC itself.

32. Apart from that, it is necessary to consider other secondary legislation, such as Directive 75/117.

2. The principle of equal treatment

33. Following the amendments made by the Treaty of Amsterdam, Article 141(3) EC contains the principle of ‘equal treatment of men and women in matters of employment and occupation’. Previously, Directive 76/207 had recognised that homogeneity must be assessed at each stage or in every circumstance of the working relationship, ( ) since it affects not only salaries; the directive specifically mentions access to employment, vocational training and promotion, and also working conditions, including the conditions governing dismissal. ( ) This last situation must be widely construed, as referring to every kind of cessation or termination of the employment relationship, irrespective of the name given to it by the parties, including termination by mutual agreement. ( )

34. The problems of retirement call for particular attention. The Court of Justice has declared that an age limit for compulsory dismissal pursuant to a company’s general policy falls within the term ‘dismissal’ referred to above, even if the dismissal involves the grant of the pension, so that ‘the exception to the prohibition of discrimination on grounds of sex provided for in Article 7(1)(a) of Directive No 79/7 applies only to the determination of pensionable age for the purposes of granting old-age and retirement pensions and the possible consequences thereof for other benefits.’ ( )

3. Equality with regard to benefits

35. Directive 79/7 concerns the impact of the principle on the contingencies and risks provided for in the statutory social security schemes – Directive 86/378 does the same but in respect of occupational schemes. ( )

36. According to the case-law, in order to fall within the scope of the directive the benefit must be directly and effectively linked to the protection provided against one of the risks specified in Article 3(1). ( )

C – A finding of discrimination

37. In the absence of a legal definition, the Court of Justice gives a similar meaning to inequality in the three situations mentioned. It has repeatedly stated that inequality arises through the application of different rules to comparable situations or the application of the same rule to different situations. ( ) In order to make the appropriate assessment it is necessary to ascertain whether the provisions at issue have a more unfavourable impact on workers of one sex or the other. ( ) Indirect discrimination – through the adoption of a measure which, although couched in neutral terms, in fact harms a far greater number of women than men – is also unacceptable unless justified by objective factors unrelated to any discrimination based on sex. ( )

38. In this last respect it has stressed that measures which meet a legitimate aim of social policy, provided they are suitable and requisite for attaining that end, are not contrary to the principle of equal treatment; ( ) budgetary considerations cannot in themselves justify such measures. ( )

V – Analysis of the question referred for a preliminary ruling

39. The above considerations make it necessary, in the present case, to identify the relevant provisions of Union law, to investigate whether there may have been discriminatory treatment and, if so, to establish whether it may be justified.

A – Determination of the applicable Community legislation

40. The question referred for a preliminary ruling concerns the Italian tax rules on severance pay. The argument is not about the amount of the sum received or retirement age, but about the fact that women bear a lighter tax burden than men.

41. With this as the point of departure, the rules on equal pay may be discounted, since amounts of personal income tax paid by taxpayers do not form part of the salary, despite the breadth of that term in the Community sphere, because they are not paid by the employer in respect of the employment. Furthermore, conversely, they cannot be regarded as paid by the State on the basis of such a connection. Consequently, reliance on Article 141(1) and (2) EC and Directive 75/117, and also the case-law which has interpreted them, must be ruled out.

42. Also, obligations to the tax authorities are not within the ambit of social security, irrespective of whether a statutory or occupational scheme is involved. The fact that some charges are fixed with a view to achieving social objectives does not make them measures protecting against risks. Therefore, Directive 79/7 cannot apply.

43. It remains to be considered whether Directive 76/207 comes into play; as I have mentioned, it extends equality to practically all aspects of working life, in particular working conditions, including those relating to termination of the contract.

44. In principle, although that legislation is more frequently used for reacting against discrimination by the employer, it also extends to discrimination arising out of collective bargaining or discrimination by the State itself, one of whose duties is to abolish any laws, regulations or administrative provisions which promote, cause or give rise to situations of inequality.

45. The compensation received by workers on severing their link with an undertaking is subject to tax under the relevant fiscal measures, on which the final figure depends; therefore, national tax systems are affected by the provisions of Directive 76/207, although they may also be affected by other provisions.

B – Tax treatment of severance pay

46. Decree No 917 of the President of the Republic determines the tax rate for payments made in relation to voluntary redundancy, applying a reduced rate in the case of women over the age of 50 and men over the age of 55.

47. Workers receive the tax advantage at one age or the other, depending on their gender. A distinction is therefore drawn in favour of women, since, in a situation in which a man and a woman are the same age, the woman contributes less to the Treasury on a supplementary payment received as a consequence of the termination of the employee-employer relationship, and thus obtains a larger net sum.

48. That is Mr Vergani’s position. As he was 51 years old when the chargeable event occurred, he was refused the tax concession which a female worker in the same undertaking and in the same situation would have enjoyed.

49. The finding of an infringement of the principle of equality makes it necessary to ascertain whether there is any justification for it.

C – Justification for the unequal treatment

1. Early retirement age

50. Italy tries to justify the discriminatory national provision by claiming that it is based on the regulations concerning the early retirement age, which was fixed by the Law of 23 April 1981 at 55 and 50 years, depending on whether the employees of the companies declared to be in crisis are male or female, respectively. However, this connection, although clear, is not a ground for the discrimination concerned because:

First, the dispute in this case does not relate to the different age limit for early termination of contracts but to the fact that that distinction operates in respect of tax.

Second, it disregards other possible ways in which the employment relationship may come to an end. According to the argument put forward by the Italian State, the tax concession provided for in Article 17(4a) of the Presidential Decree applies only in the cases stated in the Law of 23 April 1981. However, Article 17(4a) refers, without specifying further, to any ‘cessation of the employment relationship in order to encourage ... voluntary redundancy’, whereas the Law applies when that situation occurs in undertakings in crisis.

51. In other words, in contrast to the Commission’s submission, the tax scheme reflects the disparity in age for early retirement only in the circumstances provided for by the Law of 1981, which does not include all the possible situations, amongst them that of Mr Vergani.

2. National social policy

52. The Court has consistently held that Member States have a broad discretion when choosing the measures capable of achieving their aims in this respect. ( ) That is why the rules set by one country, according to its needs and interests, may justify women stopping work earlier than men, in which case Directive 79/7 comes into play, particularly Article 7, which authorises the exclusion from its scope of the determination of pensionable age for the purposes of granting pensions and other benefits dependent on that eventuality.

53. However, the exception stated in that provision, as I have pointed out, ‘is limited to the forms of discrimination existing under other benefit schemes which are necessarily and objectively linked to the difference in pensionable age’, which is the position when the financial equilibrium of the social security system or the coherence between the retirement pension scheme and other benefits schemes is jeopardised. ( ) The dispute therefore centres on the fact that the different time stipulated for cessation of the employment relationship is linked to the grant of a tax reduction.

54. Furthermore, as I have already pointed out, the aforementioned directive is not applicable to the present case.

55. It is also necessary to clarify whether the privileged rate benefits women. In the context of the national legislation, it is difficult to accept that its aim is to favour female workers or to ensure that they are not prejudiced, by encouraging them to cancel their contracts sooner. If the objective of the tax reduction were that all employees should receive a comparable income, reliance could be placed on the judgment in Birds Eye Walls, by virtue of which that purpose would provide valid grounds for discrimination. However there is no evidence to establish either that that is the intention or consequently that the situation is the same. ( )

2. Economic reasons

56. Finally, it is necessary to consider whether the discrimination at issue protects economic or financial interests, as the Commission maintains.

57. That is not a valid option since, according to the judgment in Roks and Others, although budgetary considerations may influence a Member State’s choice of social policy and affect the nature or scope of the social protection measures it wishes to adopt, they cannot themselves constitute the aim pursued by that policy and cannot, therefore, justify discrimination against one of the sexes (paragraph 35). ( )

58. Furthermore, not even the State concerned has sought to rely on that ground. ( )

D – Corollary

59. It follows from the foregoing considerations that a reduction in tax levied on severance pay, which applies at different ages for men and women, is contrary to Article 2(1) and Article 5(1) of Directive 76/207 and that that discrimination is not justified by objective factors unrelated to the sex of the workers.

60. The same conclusion is reached if, hypothetically, recourse is had to the principle of equal pay, in the sense given to it by the Court of Justice on numerous occasions since the aforementioned judgement in Barber, it being pointed out that to impose an age limit which differs according to sex for granting or calculating company benefits is contrary to Article 141 EC, even if the difference is based on the respective retirement ages provided for by the national pension scheme. ( ) This assessment is perfectly capable of being applied to the tax treatment of any remuneration.

VI – Conclusion

61. In the light of the foregoing considerations, I suggest that the Court of Justice give the following reply to the Commissione tributaria provinciale di Novara, Italy:

‘Community law, specifically Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions, precludes the application to female workers when they have passed the age of 50 years, but to male workers only when they have passed the age of 55 years, of a reduction in tax on sums paid to them in connection with the cessation of the employment relationship in order to encourage voluntary redundancy.’