CELEX: 62005CJ0318
Language: en
Date: 2007-09-11
Title: Judgment of the Court (Grand Chamber) of 11 September 2007. # Commission of the European Communities v Federal Republic of Germany. # Failure by a Member State to fulfil its obligations - Articles 18 EC, 39 EC, 43 EC and 49 EC - Income tax legislation - School fees - Tax deductibility limited to school fees paid to national private establishments. # Case C-318/05.

Case C-318/05
      Commission of the European Communities
      v
      Federal Republic of Germany
      (Failure of a Member State to fulfil obligations – Articles 18 EC, 39 EC, 43 EC and 49 EC – Income tax legislation – School fees – Tax deductibility limited to school fees paid to national private establishments)
      Opinion of Advocate General Stix-Hackl delivered on 21 September 2006 
      Judgment of the Court (Grand Chamber), 11 September 2007 
      Summary of the Judgment
      1.     Freedom to provide services – Services – Definition 
      (Art. 50 EC)
      2.     Freedom to provide services – Restrictions – Tax legislation
      (Art. 49 EC)
      3.     Freedom of movement for persons – Workers – Freedom of establishment – Tax legislation
      (Arts 39 EC and 43 EC)
      4.     Citizens of the European Union – Right of free movement and residence in the territory of the Member States – Tax legislation
      (Art. 18 EC)
      1.     Courses offered by certain establishments forming part of a system of public education and financed, entirely or mainly, by
         public funds are excluded from the definition of services within the meaning of Article 50 EC. By establishing and maintaining
         such a system of public education, financed as a general rule by the public budget and not by pupils or their parents, the
         State did not intend to involve itself in remunerated activities, but was carrying out its task in the social, cultural and
         educational fields towards its population.
      
      However, courses given by educational establishments essentially financed by private funds, notably by students and their
         parents, constitute services within the meaning of Article 50 EC, since the aim of those establishments is to offer a service
         for remuneration. It is not necessary, in that respect, for that private financing to be provided principally by the pupils
         or their parents. Article 50 of the Treaty does not require that the service be paid for by those for whom it is performed.
      
      (see paras 68-70)
      2.     Where taxpayers of a Member State send their children to a school situated in another Member State the financing of which
         is essentially from private funds, the first Member State fails to fulfil its obligations under Article 49 EC by generally
         excluding school fees for attending such a school from the tax deduction by way of special expenses conferring the right to
         a reduction in income tax.
      
      Such legislation constitutes an obstacle to the freedom to provide services guaranteed by Article 49 EC, in that it has the
         effect of deterring taxpayers resident in the Member State concerned from sending their children to schools established in
         another Member State. Furthermore, it also hinders the offering of education by private educational establishments established
         in other Member States to the children of taxpayers resident in the first Member State.
      
      Refusal to grant the tax advantage in question for school fees paid to schools established in another Member State cannot
         be justified by the objective of ensuring that the operating costs of private schools are covered without causing an unreasonable
         burden on the State, since that objective could be achieved by less stringent methods. In order to avoid an excessive burden
         it is legitimate for a Member State to limit the amount deductible in respect of school fees to a given level, corresponding
         to the tax relief granted by that State, taking account of certain values of its own, for the attendance of schools situated
         in its territory, which would constitute a less stringent method than refusing to grant the tax relief in question. It appears
         in any event disproportionate totally to exclude from that tax relief school fees paid to schools established in another Member
         State whether or not those schools fulfil objective criteria determined on the basis of principles individual to each Member
         State and allowing it to be determined what types of school fees confer a right to that tax relief.
      
      (see paras 80-81, 97-100, 139, operative part 1)
      3.     A Member State which generally excludes school fees for attending a school situated in another Member State from the tax deduction
         by way of special expenses conferring the right to a reduction in income tax fails to fulfil its obligations under Articles
         39 EC and 43 EC.
      
      Such legislation is particularly disadvantageous towards employees and self-employed persons who have transferred their normal
         place of residence to the Member State concerned or who work there and whose children continue to attend a fee-paying school
         situated in another Member State. It is also likely to place nationals in a disadvantageous position where they transfer their
         normal place of residence to another Member State, in which their children attend a fee-paying school.
      
      (see paras 116, 118, 121, 139, operative part 1)
      4.     Where the children of taxpayers of a Member State are sent to school in another Member State, at a school the services of
         which are not covered by Article 49 EC, the first Member State fails to fulfil its obligations under Article 18 EC by generally
         excluding school fees for attending such a school from the tax deduction for special expenses conferring the right to a reduction
         in income tax.
      
      Such legislation has the effect of unjustifiably disadvantaging those children in comparison with those who have not made
         use of their right to freedom of movement by going to school in another Member State, and affects the rights conferred on
         them by Article 18(1) EC.
      
      (see paras 137, 139, operative part 1)
JUDGMENT OF THE COURT (Grand Chamber)
      11 September 2007 (*)
      
      (Failure by a Member State to fulfil its obligations – Articles 18 EC, 39 EC, 43 EC and 49 EC – Income tax legislation – School fees – Tax deductibility limited to school fees paid to national private establishments)
      In Case C-318/05,
      ACTION for failure to fulfil obligations pursuant to Article 226 EC, brought on 17 August 2005,
      Commission of the European Communities, represented by K. Gross and R. Lyal, acting as Agents, with an address for service in Luxembourg,
      
      applicant,
      v
      Federal Republic of Germany, represented by M. Lumma and U. Forsthoff, acting as Agents, 
      
      defendant,
      THE COURT (Grand Chamber),
      composed of V. Skouris, President, P. Jann, C.W.A. Timmermans, A. Rosas (Rapporteur) and K. Lenaerts, Presidents of Chambers,
         J.N. Cunha Rodrigues, R. Silva de Lapuerta, K. Schiemann, J. Makarczyk, G. Arestis, A. Borg Barthet, M. Ilešič and J. Malenovský,
         Judges,
      
      Advocate General: C. Stix-Hackl,
      Registrar: B. Fülöp, Administrator,
      having regard to the written procedure and further to the hearing on 2 May 2006,
      after hearing the Opinion of the Advocate General at the sitting on 21 September 2006
      gives the following
      Judgment
      1       By its action, the Commission seeks a declaration that, by excluding without exception fees for attending a school established
         in another Member State from the tax deduction for special expenses under Paragraph 10(1)(9) of the Law on Income Tax in the
         version published on 19 October 2002 (Einkommensteuergesetz, BGBl. 2002 I, p. 4210; ‘the EStG’), the Federal Republic of Germany
         has failed to fulfil its obligations under Articles 18 EC, 39 EC, 43 EC and 49 EC. 
      
       The national legislation at issue
      2       Under German legislation, school fees for attending a private school are covered by tax allowances for dependent children
         and family allowances. In so far as extra costs connected with education are incurred through accommodation in a boarding
         house, such costs confer entitlement on a flat-rate basis to the tax allowance for education laid down by Paragraph 33a(2)
         of the EStG. The same applies to additional costs arising from attendance at a school established in another Member State.
         
      
      3       Concerning the deduction of school fees as special expenses (‘Sonderausgaben’), Paragraph 10(1)(9) of the EStG provides:
      ‘Special expenses [which are tax-deductible for income tax purposes] are the following expenses, where they are neither operating
         expenses nor professional charges:
      
      1.       …
      9.      30% of the amount paid by the taxpayer for the attendance by a child, in respect of whom he enjoys tax relief for dependent
         children or family allowances, of a substitute school approved by the State or authorised by the law of the Land, in accordance
         with Paragraph 7(4) of the Basic Law, or of a complementary school for general education recognised under the law of the Land,
         with the exception of the price of lodging, supervision and meals.’
      
      4       Paragraph 7(4) of the Basic Law of the Federal Republic of Germany of 23 May 1949 (Grundgesetz für die Bundesrepublik Deutschland;
         ‘the Basic Law’), referred to above, provides:
      
      ‘The right to set up private schools is guaranteed. Private schools as substitutes for public schools need the approval of
         the State and are governed by statutes of the State. Such approval is to be given if private schools are not inferior to public
         schools in their teaching aims and arrangements and the training of teachers, and separation of the pupils according to the
         means of their parents is not promoted. Approval is to be refused if the economic and legal standing of the teachers is not
         adequately secured.’
      
       Pre-litigation procedure 
      5       Taking the view that, by excluding without exception fees for attending a school established in another Member State from
         the tax deduction for special expenses under Paragraph 10(1)(9) of the EStG, the Federal Republic of Germany has failed to
         fulfil its obligations under Articles 18 EC, 39 EC, 43 EC and 49 EC, the Commission initiated the procedure for failure to
         fulfil obligations laid down by the first paragraph of Article 226 EC. In accordance with that provision, and having sent
         the Federal Republic of Germany formal notice on 19 July 2002 to submit its observations, the Commission issued a reasoned
         opinion on 7 January 2004, calling upon that Member State to take the necessary measures to comply with those obligations
         within two months from the date of receipt.
      
      6       Being dissatisfied with the German authorities’ reply to that reasoned opinion, the Commission decided to bring the present
         action.
      
      7       In the meantime, the question of the compatibility with Community law of a system such as that arising from Paragraph 10(1)(9)
         of the EStG has become the subject-matter of a reference for a preliminary ruling (judgment of even date in Case C‑76/05 Schwarz and Gootjes-Schwarz [2007] ECR I-0000).
      
       The action
      8       In its action, the Commission maintains that the system under Paragraph 10(1)(9) of the EStG, which limits the tax-deductibility
         of school fees to those arising from attendance at certain German schools, leads to a more favourable tax position for the
         taxpayers concerned, since it causes a reduction in their taxable amount and thus a lessening of their tax burden. School
         fees conferring the right to tax relief are those paid to substitute schools, intended to replace a public establishment already
         existing or contemplated in the Land in question, which are approved by the State or authorised by the legislation of that
         Land, and complementary schools, being German establishments different from the substitute schools, and which have to be recognised
         by the legislation of the Land as complementary schools for general education. 
      
      9       The Commission bases its action on the argument that limiting the tax-deductibility of school fees to those for attending
         certain German schools is incompatible with Community law. Such a limitation, it argues, is contrary to freedom of movement
         for workers and freedom of establishment (first part of the first plea) and, moreover, to the general right to freedom of
         movement for German citizens and other citizens of the Union (second part of the first plea). It also hinders the freedom
         to provide services of private schools established in another Member State and that of the parents concerned living in Germany
         (second plea). Finally, it unjustifiably restricts the freedom of establishment of private schools established in another
         Member State (third plea).
      
      10     In its defence, the Federal Republic of Germany argues that the system under Paragraph 10(1)(9) of the EStG is compatible
         with Community law. That system, which applies only to private schools which satisfy certain conditions laid down by the Basic
         Law and the legislation of the Land in question and which are, for that reason, approved, authorised or recognised, does not,
         it submits, affect the freedom to provide services either of private schools established in other Member States or of parents.
         It does not in any way affect freedom of movement for workers, freedom of establishment or the general right to freedom of
         movement of parents. Nor, it argues, does the system affect the freedom of establishment of private schools established in
         another Member State.
      
      11     In its reply, the Commission maintains all the claims made in its application.
      12     It points out that the defence of the Federal Republic of Germany is concerned almost entirely with potential infringement
         of the principle of the freedom to provide services. As regards the free movement of workers, freedom of establishment or
         the general right to free movement of the parents concerned, and the freedom of establishment of private schools established
         in other Member States, the possibility of the corresponding provisions of the EC Treaty being infringed is denied without
         any justification being given. The Commission, arguing that, in accordance with Article 50 EC, the freedom to provide services
         constitutes a subsidiary freedom in relation to the other fundamental freedoms, considers that such an argument is not conclusive
         and refers to the points in its application where it sets out in detail the infringement of the other rights to free movement.
         
      
      13     Concerning the freedom to provide services, the Commission states that, in its application, it acknowledged that the amount
         of school fees charged by approved, recognised or authorised schools in Germany might be too small for the services provided
         by those schools to be capable of being regarded as provided for remuneration. It nevertheless raised the possibility that
         a private body might bear the whole of the costs not covered by school fees. 
      
      14     In that context, it indicates that, in a judgment of 12 August 1999 (BSTBl. 2000, II, p. 65), the Bundesfinanzhof held that
         aid given by parents to a support association in favour of a private school constituted remuneration for a service and not
         a deductible gift contribution. That, it argues, is the case where, by reason of the low level of the school fees, the school
         can be managed only with the help of aid from a support association. It is thus impossible to establish a distinction between
         school fees paid to the management of the school and gifts received by that association.
      
      15     The Commission infers that, if such an association maintains a German private school, assessment whether the services offered
         by that school are offered for remuneration must take into account not only school fees in the strict sense but also contributions
         paid to that association. Courses provided by that private school are capable of constituting services provided for remuneration
         by reason of the cumulative amount of the school fees and the aid paid to the support association, the latter being potentially
         considerable since the obligation to avoid a selection of pupils based on wealth does not apply to them.
      
      16     The Commission then maintains that the arguments put forward by the Federal Republic of Germany in an attempt to justify the
         legislation in question are not conclusive. In particular, it considers that private schools established in another Member
         State and German schools are not so different from each other that the school fees which they charge must systematically receive
         different tax treatment. 
      
      17     In its rejoinder, the German Government maintains the position expressed in its defence. In its submission, the heart of the
         dispute concerns the freedom to provide services. The Federal Republic of Germany is not required to subsidise private schools
         situated outside its territory, a Member State being empowered to grant public support only within its own area of responsibilities.
         Private schools established in other Member States are not being discriminated against where a State does not extend a public
         subsidy on the European scale. 
      
      18     It should be noted that, in its pleadings and subsequently at the hearing, the German Government mentioned the existence of
         specific features peculiar to school fees paid to German schools and to schools for the children of officials and other servants
         of the European Communities (‘European schools’) situated in other Member States, to which Paragraph 10(1)(9) of the EStG
         also applies. 
      
      19     Thus, in a judgment of 14 December 2004 (XI R 32/03), the Bundesfinanzhof acknowledged that school fees incurred at a German
         school established in another Member State and recognised by the permanent conference of the Ministers of Education and Culture
         of the Länder are deductible as special expenses in accordance with Paragraph 10(1)(9) of the EStG. Similarly, it is apparent
         from the judgment of the Bundesfinanzhof of 5 April 2006 (XI R 1/04) that European schools established in other Member States
         have a status corresponding to that of a school approved by the German State, so that taxpayers who have paid school fees
         to such schools may benefit from the tax relief provided for by that same provision of the EStG, as an exception to the rule
         that school fees paid to private schools situated in other Member States do not have to be regarded as special expenses conferring
         a right to such relief.
      
      20     It is thus inaccurate to argue, as does the Commission, that school fees linked to attendance at all schools established in
         other Member States are excluded from the tax-deductibility for special expenses under Paragraph 10(1)(9) of the EStG.
      
      21     The Commission takes note of the exceptions arising from the case-law of the Bundesfinanzhof referred to by the German Government.
         That case-law removes the detriment suffered by German and European schools by reason of the fact that they are established
         outside German territory, but the discrimination against private schools established in other Member States remains. 
      
       Preliminary observations concerning Article 18 EC and the general right of citizens of the Union to freedom of movement 
       Arguments of the parties
      22     According to the Commission, the system under Paragraph 10(1)(9) of the EStG infringes the rights of the parents concerned
         in the matter of freedom of movement, particularly the general right of citizens of the Union to freedom of movement.
      
      23     First, that system is likely to affect the right of parents originating in other Member States to establish themselves in
         a private capacity in Germany. The unfavourable tax treatment which they would risk being subjected to, if they wished their
         children to remain at school in their State of origin, might deter them from becoming established in Germany. Their establishment
         in that Member State would in any event be made more difficult. 
      
      24     The same disadvantageous treatment might be suffered, in so far as they remain wholly subject to tax in Germany when establishing
         themselves in another Member State, by German nationals deciding to send their children to a local private school, a German
         school or a European school situated in that other State. 
      
      25     Finally, the Commission submits that German nationals living in Germany sending their children to private schools situated
         in other Member States may also rely on the general right to free movement. The Commission considers that such parents have
         made use of that right through the intermediary of their children and that nothing prevents the latter from staying regularly
         in another Member State for that purpose. 
      
      26     It follows from the combined provisions of the first paragraph of Article 12 EC and Article 18(1) EC that, where they have
         used their right of free movement, at least indirectly through their children, the German citizens concerned may rely on their
         right to enjoy treatment identical to that reserved for other nationals. 
      
      27     The Commission considers that these infringements of Article 18 EC are not justified. 
      28     It maintains in that regard that Paragraph 10(1)(9) of the EStG does not establish an objective criterion allowing determination
         of the cases in which school fees paid to German schools and schools established in other Member States are deductible from
         income tax. That provision makes deductibility subject to the sole fact of the private school concerned being approved or
         recognised in Germany. The determining condition for deductibility relates to the fact that the private school concerned is
         situated in Germany. Any school established in another Member State is automatically excluded from the benefit of the tax
         deduction, whatever the amount of the school fees they charge, even if their operating methods are largely identical to those
         of a private school recognised or approved in Germany.
      
      29     There is, the Commission argues, no objective reason to make the grant of a tax advantage subject to attendance at a private
         school situated in the territory of the Federal Republic of Germany, that Member State retaining the liberty, in accordance
         with Community law, to limit the deductibility of school fees to certain types of establishment or to a certain amount. In
         order to do that, it is necessary only that that deductibility be granted by reference to objective criteria and not depend
         on the location of the school. 
      
      30     The Commission concludes that Paragraph 10(1)(9) affects the general right to freedom of movement which German citizens and
         other citizens of the Union derive from Article 18 EC.
      
      31     The German Government challenges the argument that Paragraph 10(1)(9) of the EStG infringes the general right to free movement
         of the parents concerned. Even if the area of application of that right were to be affected, that would in any event be justified,
         having regard to the objective differences existing between the German private schools referred to by that provision of the
         EStG and private schools situated in other Member States. 
      
       Findings of the Court
      32     Concerning the applicability of Article 18 EC to the national legislation at issue, it should be recalled that, in accordance
         with consistent case-law, Article 18 EC, which lays down in general terms the right of every citizen of the Union to move
         and reside freely within the territory of the Member States, is specifically applied in the provisions guaranteeing the freedom
         to provide services (Case C-92/01 Stylianakis [2003] ECR I-1291, paragraph 18, and Case C-208/05 ITC [2007] ECR I-0000, paragraph 64). 
      
      33     Therefore, if the national legislation at issue falls under Article 49 EC, it will not be necessary for the Court to rule
         on the interpretation of Article 18 EC (Stylianakis, paragraph 20, and ITC, paragraph 65). 
      
      34     There is therefore no need to rule on Article 18(1) EC save in so far as the legislation at issue does not fall within the
         scope of Article 49 EC. 
      
      35     Similarly, Article 18 EC, which sets out in general terms the right of every citizen of the Union to move and reside freely
         within the territory of the Member States, finds specific expression in Article 43 EC with regard to freedom of establishment
         and in Article 39 EC with regard to freedom of movement for workers (Case C‑345/05 Commission v Portugal [2006] ECR I-10633, paragraph 13, and Case C‑104/06 Commission v Sweden [2007] ECR I-0000, paragraph 15). 
      
      36     Therefore, if the national legislation at issue falls within the scope of Article 39 EC or Article 43 EC, it will not be necessary
         for the Court to rule on the interpretation of Article 18 EC.
      
      37     It therefore needs to be examined first whether Article 49 EC, the provision with which the essential part of the parties’
         observations has been concerned, precludes the national legislation under Paragraph 10(1)(9) of the EStG (second plea), and,
         secondly, whether Articles 39 EC and/or 43 EC preclude such legislation (first part of the first plea, and third plea).
      
       The second plea, alleging an obstacle to the freedom to provide services
       Arguments of the parties
      38     According to the Commission, the system under Paragraph 10(1)(9) of the EStG infringes the freedom to provide services in
         relation both to taxpayers resident in Germany wishing to send their children to a private school situated in another Member
         State and to private schools situated in other Member States wishing to offer their services to taxpayers resident in Germany.
         
      
      39     First, the system at issue hinders the so-called ‘passive’ freedom to provide services (the use of services), which has long
         been recognised by the case-law. The situation envisaged is that in which the recipients of the service, namely the children
         of taxpayers resident in Germany, go to the provider, in this case a private school situated in another Member State. 
      
      40     The so-called ‘active’ freedom to provide services, enjoyed by private schools established in other Member States, is also
         involved. By reason of the existence of the disputed deduction system, the Commission argues, taxpayers who send their children
         to a private school established in another Member State are disadvantaged in comparison with those who opt for a German private
         school. Private establishments established in other Member States thus have greater difficulty in effectively offering their
         services to German clients. Cross-border teaching and education services are thus placed at a disadvantage in comparison with
         purely national services.
      
      41     The Commission argues that the education and training of young persons may constitute provisions of services, as the case-law
         of the Court of Justice demonstrates.
      
      42     It follows from Case 263/86 Humbel and Edel [1988] ECR 5365, paragraph 18 and Case C-109/92 Wirth [1993] ECR I-6447, paragraph 17 that the essential feature of a provision of services for remuneration consists in the payment
         by the pupil or a third party of school fees covering a major part of the cost of the education. If that is the case, the
         offer of education services will constitute a commercial activity.
      
      43     By contrast, the Commission argues, public education in the context of the social and political tasks of the State, most of
         the cost of which is borne by the State, cannot be classified as a provision of services for remuneration. The fact that the
         pupil may contribute to expenses by paying school fees is not sufficient to entail such a classification.
      
      44     The Commission considers that the assessment as to whether services are provided for remuneration must not be based exclusively
         on an examination of the private schools favoured by German legislation, and that account must also be taken of the situation
         of private schools established in other Member States which are excluded from the advantage provided for in Paragraph 10(1)(9)
         of the EStG.
      
      45     In other Member States, the organisation of private schools may differ considerably from the German model. Private schools
         exist which meet their needs without State aid or which are managed as commercial undertakings. Those establishments undeniably
         provide services for remuneration. The Commission argues that, since the system under Paragraph 10(1)(9) of the EStG generally
         excludes schools established in other Member States from the tax advantage which it confers, it is likely to hinder the cross-border
         offer of services by those commercially-oriented schools. 
      
      46     It is, the Commission maintains, irrelevant whether or not a private school established in another Member State meets the
         requirements imposed by German legislation. Since none of those private schools can fulfil the conditions laid down in Paragraph
         10(1)(9) of the EStG, the Commission considers that there is no useful purpose in establishing a distinction between private
         establishments situated in other Member States according to whether or not, in theory, they are comparable with German private
         schools, in order to determine whether or not they are being discriminated against.
      
      47     In any event, the schools disadvantaged by the system at issue include establishments whose financing is based exclusively
         on school fees and ancillary economic activities, and which therefore undeniably provide services for remuneration. The discrimination
         which they suffer is, the Commission submits, an infringement of the freedom to provide services. 
      
      48     The infringement of the freedom to provide services is, the Commission submits, unjustified. The Commission refers in that
         respect to its arguments concerning freedom of movement in general, adding that the failure to fulfil obligations under Article
         49 EC is all the more serious since dissemination of the languages of the Member States and the promotion of mobility amongst
         students are expressly included amongst the European Community’s objectives by virtue of the first and second indents of Article
         149(2) EC.
      
      49     The German Government argues, as its principal argument, that there is no obstacle to the freedom to provide services in this
         case because the conditions for the freedom to provide services are not fulfilled. In the alternative, it argues that any
         obstacle to the freedom to provide services that there may be is in any event justified. 
      
      50     First, the Government argues, the conditions for the freedom to provide services are not fulfilled because schools satisfying
         the requirements in Paragraph 10(1)(9) of the EStG do not provide services within the meaning of the Treaty.
      
      51     The freedom to provide services presupposes the existence of an economic activity, as is apparent from the words ‘for remuneration’
         used in Article 50 EC. In Humbel and Edel, the Court held that the essential characteristic of remuneration, which lies in the fact that it constitutes consideration
         for the service in question, is absent in the case of courses provided under the national education system.
      
      52     According to the German Government, it cannot be inferred merely from its private character that a school carries on an economic
         activity and provides services within the meaning of Articles 49 EC and 50 EC. The case-law of the Court shows that the fact
         that parents pay school fees in order to contribute, in some measure, to the costs of the functioning of the system has no
         impact on the classification of the activity carried out with regard to the concept of the provision of services (see, to
         that effect, Humbel and Edel, paragraph 19, and Wirth, paragraph 15). 
      
      53     Having regard to the principles expressed in the Court’s case-law, the German Government submits that the Court should hold
         that the German schools referred to in Paragraph 10(1)(9) of the EStG do not provide services within the meaning of Articles
         49 EC and 50 EC and that education provided by schools established in other Member States which correspond to those schools
         does not constitute a provision of services within the meaning of those articles either.
      
      54     Secondly, the German Government argues that an obstacle to the freedom to provide services is justified in a number of respects.
      55     It argues that the freedom to provide services cannot generate an obligation to finance educational establishments falling
         within the educational system of another Member State. Educational policy is one of the essential tasks of each State, and
         the structure of those tasks differs widely from one Member State to another. 
      
      56     Since the Federal Republic of Germany exercises no influence over the organisation of private schools established in other
         Member States, and in particular over the educational programmes which they pursue, the Government argues that it cannot be
         required to subsidise the operation of those schools by waiving tax receipts which are its due.
      
      57     The Government also argues that the principle of the freedom to provide services does not oblige the Federal Republic of Germany
         to extend the tax advantage granted by Paragraph 10(1)(9) of the EstG to school fees paid to private schools situated in another
         Member State. The difference in tax treatment resulting from that absence of obligation is, the Government argues, justified
         because schools established in other Member States which provide services within the meaning of Articles 49 EC and 50 EC are
         objectively distinct from German schools attendance at which confers the right to that tax advantage. 
      
      58     First, it argues that those latter schools do not function as commercial companies, contrary to what is the case with private
         schools situated in another Member State if they benefit from the freedom to provide services. Such private schools situated
         in other Member States correspond precisely to those German private schools which are not aided under Paragraph 10(1)(9) of
         the EStG. The decision of the Federal Republic of Germany to aid under that provision only schools which, by their offer of
         education, implement the task of education devolved upon the State, are integrated into the national educational system and
         thus do not operate in a commercial context, cannot be circumvented by recourse to the principle of the freedom to provide
         services. 
      
      59     Secondly, the German Government considers that the system under Paragraph 10(1)(9) of the EStG corresponds to a State aid
         designed to compensate, in part, for the costs borne by the schools referred to in that provision. The Basic Law requires
         the State to aid those schools financially in order to compensate for the demands which are imposed upon them. That aid largely
         takes the form of direct subsidies. The schools in question thus receive about 80% of the sums paid to a comparable public
         school. Paragraph 10(1)(9) of the EStG concretises that constitutional obligation to assist by allowing the German State indirectly
         to support those schools by means of financial advantages granted in relation to school fees. 
      
      60     A link between the demands imposed by that State and the corresponding public support does not exist in the case of private
         schools established in other Member States which provide services within the meaning of Articles 49 EC and 50 EC. Since the
         German State does not impose any burden on those schools, nor is it under any obligation to support them financially. 
      
      61     Thirdly, if the Federal Republic of Germany were required to grant the tax advantage under Paragraph 10(1)(9) of the EStG
         irrespective of the amount of school fees claimed, it would be favouring schools which, by reason of their high school fees,
         selected pupils by reference to the wealth of the parents. It would moreover, have to grant those schools aid which was higher
         than that enjoyed by the schools attendance at which confers the right to that tax advantage, since those school fees are
         considerably higher than those charged by the latter schools.
      
      62     Fourthly, an obligation to grant a tax advantage for school fees paid to private schools established in other Member States
         would lead to a net increase in the overall amount of the tax relief provided for in Paragraph 10(1)(9) of the EStG. 
      
      63     In Case C-209/03 Bidar [2005] ECR I-2119, paragraph 56, the Court held it permissible for a Member State to ensure that the grant of assistance
         to cover the maintenance costs of students from other Member States did not become an unreasonable burden which could have
         consequences for the overall level of assistance which may be granted by that State. The German Government considers that,
         similarly, it is legitimate for a Member State to make the granting of a tax advantage subject to criteria permitting the
         avoidance of a situation in which that advantage is taken beyond a level which the Member State considers to be necessary.
      
      64     Fifthly, the Government argues, the tax advantage granted in relation to school fees paid to certain private schools situated
         in Germany is justified by the fact that those schools are approved, authorised or recognised. In principle, no corresponding
         authorisation, approval or recognition exists in relation to private schools situated in other Member States (save for the
         specific case of German schools and European schools situated in other Member States). The supervision exercised by the German
         educational authorities is in principle limited to schools situated in German territory. 
      
       Findings of the Court
      65     As regards the applicability to the disputed tax legislation of the Treaty provisions relating to freedom to provide services,
         it should first be noted that, whilst the third paragraph of Article 50 EC refers only to the active freedom to provide services,
         where the provider goes to the recipient, it is clear from well-established case-law that the freedom to provide services
         includes the freedom for the recipients of services to go to another Member State in order to receive those services there
         (Joined Cases 286/82 and 26/83 Luisi and Carbone [1984] ECR 377, paragraphs 10 and 16). In this case, application of the national legislation at issue leads the Member State
         in question to refuse tax relief because the school attended is a private school situated in another Member State. What is
         concerned therefore, by the principle of the freedom to provide services, is the possibility of having recourse to offers
         of education emanating from a private school established in another Member State.
      
      66     It must, however, be examined whether those offers of education have the provision of services as their subject-matter. For
         that purpose, it needs to be examined whether courses provided by a private school established in another Member State constitute,
         within the meaning of the first paragraph of Article 50 EC, ‘services ... normally provided for remuneration’. 
      
      67     It has already been held that, for the purposes of that provision, the essential characteristic of remuneration lies in the
         fact that it constitutes consideration for the service in question (Humbel and Edel, paragraph 17; Case C-157/99 Smits and Peerbooms [2001] ECR I-5473, paragraph 58; Case C-136/00 Danner [2002] ECR I-8147, paragraph 26; Case C-355/00 Freskot [2003] ECR I-5263 paragraph 55; and Case C-422/01 Skandia and Ramstedt [2003] ECR I-6817, paragraph 23). 
      
      68     The Court has thus excluded from the concept of services within the meaning of Article 50 EC courses provided by certain establishments
         forming part of a system of public education and financed entirely or mainly by public funds (see, to that effect, Humbel and Edel, paragraphs 17 and 18, and Wirth, paragraphs 15 to 16). The Court has thus stated that, by establishing and maintaining such a system of public education,
         normally financed from the public purse and not by pupils or their parents, the State does not intend to become involved in
         activities for remuneration, but carries out its task towards its population in the social, cultural and educational areas.
         
      
      69     By contrast, the Court has held that courses provided by establishments financed essentially by private funds, particularly
         by pupils and their parents, constitute services within the meaning of Article 50 EC, the aim of such establishments being
         to offer a service for remuneration (Wirth, paragraph 17). 
      
      70     It is important to note in that context that it is not necessary for such private financing to be provided mainly by the pupils
         or their parents. According to consistent case-law, Article 50 EC does not require that the service be paid for by those for
         whom it is performed (see, in particular, Case 352/85 Bond van Adverteerders and Others [1988] ECR 2085, paragraph 16; Joined Cases C-51/96 and C-191/97 Deliège [2000] ECR I-2549, paragraph 56; Smits and Peerbooms, paragraph 57; and Skandia and Ramstedt, paragraph 24). 
      
      71     It is undisputed that, in parallel with schools belonging to a public educational system whereby the State performs its task
         in the social, educational and cultural areas, the financing of which is essentially from public funds, there are schools
         in certain Member States which do not belong to such a system of public education and which are financed essentially from
         private funds. 
      
      72     The education provided by such schools must be regarded as a service provided for remuneration. 
      73     It should be added that, for the purposes of determining whether Article 49 EC applies to the national legislation at issue,
         it is irrelevant whether or not the schools established in the Member State of the user of the service – in this case the
         Federal Republic of Germany – which are approved, authorised or recognised in that Member State within the meaning of that
         legislation, provide services within the meaning of the first paragraph of Article 50 EC. All that matters is that the private
         school established in another Member State may be regarded as providing services for remuneration.
      
      74     Along the same lines, in its judgment in Case C-372/04 Watts [2006] ECR I-4325, paragraph 90, concerning the provision of medical services, the Court held that Article 49 EC applied
         to the situation of a patient living in the United Kingdom, whose state of health required hospital treatment and who, having
         gone to another Member State to receive the relevant treatment there for remuneration, then applied for reimbursement from
         the National Health Service, even though identical services were provided free of charge by the national health system of
         the United Kingdom. 
      
      75     In paragraph 91 of that judgment, the Court held that, without there being any need to determine whether the provision of
         hospital treatment in the context of a national health service such as the NHS was in itself a service within the meaning
         of the Treaty provisions on the freedom to provide services, a situation in which a person whose state of health necessitated
         hospital treatment went to another Member State and there received the treatment in question for consideration fell within
         the scope of those provisions.
      
      76     It follows that Article 49 EC applies to the national legislation at issue where the private school to which taxpayers of
         the Member State in question send their children is established in another Member State and may be regarded as providing services
         for remuneration, that is to say is financed essentially by private funds.
      
      77     It needs to be examined whether, in such circumstances, as the Commission argues, the tax legislation in question constitutes
         an obstacle to the freedom to provide services. 
      
      78     In that regard, it should be noted that that legislation makes the granting of tax relief subject to the condition that school
         fees be paid to private schools approved by the German State or authorised or recognised by the law of the Land in question,
         which presupposes that they are established in Germany. 
      
      79     That legislation generally excludes the possibility of taxpayers in Germany deducting from the taxable amount a part of the
         school fees for sending their children to a private school established outside German territory, save for school fees paid
         in another Member State to German schools recognised by the permanent conference of the Ministers of Education and Culture
         of the Länder or to European schools, whereas that possibility does exist for school fees paid to certain German private schools.
         It thus results in a larger tax burden for those taxpayers if they send their children to a private school situated in another
         Member State rather than to a private school established in national territory.
      
      80     The provisions of Paragraph 10(1)(9) of the EStG has the effect of deterring taxpayers resident in Germany from sending their
         children to schools established in another Member State. Moreover, it also hinders the offer of education emanating from private
         educational establishments established in other Member States directed towards the children of taxpayers resident in Germany.
         
      
      81     Such legislation constitutes an obstacle to the freedom to provide services guaranteed by Article 49 EC. That article precludes
         the application of any national rules which have the effect of making the provision of services between Member States more
         difficult than the provision of services purely within a Member State (see, in particular, Case C-118/96 Safir [1998] ECR I-1897, paragraph 23; Smits and Peerbooms, paragraph 61; Danner, paragraph 29; Case C-334/02 Commission v France [2004] ECR I-2229, paragraph 23; Watts, paragraph 94; and Case C‑444/05 Stamatelaki [2007] ECR I-0000, paragraph 25).
      
      82     The existence of a restriction on the freedom to provide services having been established, it needs to be examined whether
         it can be objectively justified.
      
      83     The German Government puts forward several arguments to justify that restriction.
      84     First, it argues that a potential obstacle to the freedom to provide services is justified by the fact that the principle
         of the freedom to provide services cannot be taken to imply an obligation to extend privileged tax treatment granted to certain
         schools under the educational system of a Member State to schools of another Member State (see paragraph 55 of this judgment).
         
      
      85     In that regard, it should be noted that Paragraph 10(1)(9) of the EstG concerns the tax treatment of school fees. According
         to well-established case-law, whilst direct taxation falls within the competence of the Member States, the latter must none
         the less exercise that competence consistently with Community law (see, in particular, Danner, paragraph 28; Case C-374/04 Test Claimants in Class IV of the ACT Group Litigation [2006] ECR I-11673, paragraph 36; and Case C-524/04 Test Claimants in the Thin Cap Group Litigation [2007] ECR I-0000, paragraph 25). 
      
      86     Similarly, whilst it is undisputed that Community law does not affect the competence of the Member States as regards the content
         of teaching and the organisation of education systems and their cultural and linguistic diversity (Article 149(1) EC) or the
         content and organisation of vocational training (Article 150(1) EC), the fact remains that, when exercising that competence,
         Member States must comply with Community law, especially the provisions on the freedom to provide services (see, by analogy,
         Watts, paragraphs 92 and 147). 
      
      87     Moreover, as regards the argument of the German Government that a Member State cannot be required to subsidise schools falling
         within the educational system of another Member State, it is sufficient to point out that Paragraph 10(1)(9) of the EStG provides
         not for the granting of a direct subsidy by the German State to the schools concerned, but for the granting of a tax advantage
         to parents in relation to the school fees paid to those schools.
      
      88     Secondly, according to the German Government, the refusal to extend the tax advantage under Paragraph 10(1)(9) of the EStG
         to school fees paid to private schools established in other Member States is justified by the fact that the German schools
         referred to in that article and private schools established in other Member States which provide services within the meaning
         of Articles 49 EC and 50 EC are not in an objectively comparable situation (see paragraph 57 of this judgment). 
      
      89     The schools referred to in Paragraph 10(1)(9) of the EStG are, it argues, subject to the obligation under Paragraph 7(4) of
         the Basic Law to avoid a selection of pupils on the basis of parental means, with the result that school fees are fixed at
         a level not covering those schools’ costs, and that there is a corresponding obligation on the German State to support those
         schools financially. That link between the requirements imposed by the State and the corresponding public support does not
         exist in the case of private schools established in other Member States providing services within the meaning of Articles
         49 EC and 50 EC (see paragraph 60 of this judgment). To extend the tax advantage to school fees charged for attending schools
         which do not satisfy the requirements of Paragraph 10(1)(9) of the EStG would be contrary to the requirement under Paragraph
         7(4) of the Basic Law to avoid a selection of pupils on the basis of parental means (see paragraph 61 of this judgment).
      
      90     Those arguments cannot be accepted. Paragraph 10(1)(9) of the EStG makes deductibility of part of the school fees subject
         to the approval, authorisation or recognition of the private school concerned in Germany, without establishing any objective
         criterion enabling it to be determined which types of school fees charged by the German schools are deductible. 
      
      91     It follows that any private school established in another Member State, merely by reason of the fact that it is not established
         in Germany, is automatically excluded from the tax advantage in question, whether or not it complies with criteria such as
         charging school fees in an amount not allowing a selection of pupils based on parental means. 
      
      92     In order to justify the obstacle to the freedom to provide services constituted by the national legislation at issue, the
         German Government also argues, referring to the judgment in Bidar, that it is legitimate for a Member State to link the grant of an aid or a tax advantage to criteria intended to avoid those
         aids or advantages being taken beyond a level which the Member State considers necessary (see paragraphs 62 and 63 of this
         judgment). 
      
      93     The German Government maintains that the arguments in that judgment concerning the granting of aid designed to cover the maintenance
         costs of students and the freedom of movement of citizens of the Union should be placed in a general context inasmuch as,
         where public funds are limited, the extension of the benefit of a tax advantage necessarily implies a diminution of the amount
         of the individual advantages granted to individuals in order to arrive at a fiscally neutral operation. The Government argues
         that extending the application of Paragraph 10(1)(9) of the EstG to the payment of school fees to certain schools situated
         in other Member States would cause extra burdens for the State budget. 
      
      94     Such an argument cannot be accepted for the following reasons. 
      95     First, according to the consistent case-law of the Court, prevention of a reduction in tax receipts is not one of the reasons
         set out in Article 46 EC read in conjunction with Article 55 EC and nor can it be regarded as an imperative reason in the
         public interest. 
      
      96     Next, as regards the argument of the German Government that any Member State is free to ensure that the grant of aid for school
         fees does not become an unreasonable burden which might have consequences on the overall level of aid which may be granted
         by that State, it appears from the information supplied by that government that the excessive financial burden which it says
         extending the benefit of the tax relief to school fees paid to certain schools situated in other Member States would represent
         arises from the fact that the aid indirectly granted to those schools would be much higher than that paid to educational establishments
         approved, authorised or recognised in Germany because schools established in other Member States have to finance themselves
         by means of high school fees. 
      
      97     Even if reasoning identical to that followed in Bidar were to apply to the granting of a tax advantage in relation to school fees, it should be noted in that respect that, as the
         Commission has argued, the objective pursued by the refusal to grant the tax relief in question for school fees paid to schools
         established in other Member States, namely ensuring that the operating costs of private schools are covered without causing
         an unreasonable burden for the State, in accordance with the analysis followed in Bidar, could be achieved by less stringent means.
      
      98     As the Advocate General has pointed out in point 62 of her Opinion, in order to avoid an excessive financial burden, it is
         permissible for a Member State to limit the amount deductible for school fees to a given amount, corresponding to the tax
         relief granted by that State, taking account of certain values it holds concerning the attendance of schools situated in its
         territory, which would constitute a less stringent method than refusing to grant the tax advantage in question. 
      
      99     Finally, it appears in any event disproportionate totally to exclude from the tax relief under Paragraph 10(1)(9) of the EstG
         school fees paid by income tax payers in Germany to schools established in a Member State other than the Federal Republic
         of Germany. That excludes from the tax relief in question school fees paid by those taxpayers to schools established in another
         Member State, irrespective of whether those schools fulfil objective criteria laid down on the basis of principles proper
         to each Member State and allowing it to be determined what types of school fees confer the right to that tax relief. 
      
      100   In the light of the above considerations, this Court finds the Commission’s second plea in support of its action well founded,
         and holds that, in situations in which income tax payers in Germany send their children to a school situated in another Member
         State financed essentially by private funds, the Federal Republic of Germany has failed to fulfil its obligations under Article
         49 EC by generally excluding school fees for attending such a school from the tax deduction by way of special expenses under
         Paragraph 10(1)(9) of the EStG. 
      
       The first part of the first plea and the third plea, respectively alleging an obstacle to the free movement of workers and
            a restriction on the freedom of establishment 
       Arguments of the parties
      101   According to the Commission, the system under Paragraph 10(1)(9) of the EStG affects the rights which the taxpayers concerned
         derive from the freedom of movement for workers and the freedom of establishment (first part of the first plea).
      
      102   First, that system is likely to hinder the right of parents originating from other Member States from taking up employment
         in Germany (Article 39 EC) or establishing themselves there as self-employed persons (Article 43 EC). The less favourable
         tax treatment that they risk incurring if they wish to continue sending their children to school in their State of origin
         might deter them from establishing themselves in Germany or becoming cross-border workers. In any event, the Commission argues,
         it is more difficult for those parents to establish themselves or work in Germany. 
      
      103   In addition, German nationals remaining fully subject to tax in Germany when establishing themselves in another Member State
         are also disadvantaged if they decide to send their children to a local private school situated in that other Member State.
         
      
      104   The Commission maintains that these infringements of Articles 39 EC and 43 EC are not justified. 
      105   It argues in that respect that Paragraph 10(1)(9) of the EStG does not establish an objective criterion allowing determination
         of the cases in which school fees paid to German schools and to those established in other Member States are deductible. That
         provision makes deductibility of those costs subject to the sole condition that the private school concerned be approved or
         recognised in Germany. The determinant condition for deductibility thus relates to the fact that the private school concerned
         is situated in Germany. Any school established in another Member State is automatically excluded from the tax deduction, whatever
         the amount of school fees it charges, that is to say even if its operating methods are largely identical to those of a private
         school approved or recognised in Germany.
      
      106   The Commission argues that there is no objective reason for making the grant of a tax advantage subject to attendance at a
         private school situated in the Federal Republic of Germany, that Member State retaining the liberty, under Community law,
         to limit the tax deductibility of school fees to certain types of establishment or a certain amount. In order to do that,
         the Commission submits, it is necessary only that that deductibility be granted by reference to objective criteria and not
         depend on the location of the school. 
      
      107   Similarly, the Commission argues in its third plea that the system under Paragraph 10(1)(9) of the EStG restricts the freedom
         of establishment of private schools established in other Member States. It argues that that system forces those schools to
         establish themselves in Germany, at least by creating a branch in that Member State. Those schools cannot obtain the status
         of substitute school approved by the State or authorised by the legislation of the Land in question, or that of a complementary
         establishment for general education recognised by the Land unless they offer their services from German territory. In order
         not to suffer, in terms of competition, in comparison with German private establishments, those schools have to be established
         in that territory.
      
      108   That restriction on the choice of the place of establishment is, the Commission submits, a difference in treatment contrary
         to Article 43 EC, which is not justified.
      
      109   The Commission concludes that Paragraph 10(1)(9) of the EStG constitutes an obstacle to the freedom of movement for workers
         provided for by Article 39 EC and the freedom of establishment provided for by Article 43 EC. 
      
      110   The German Government denies that Paragraph 10(1)(9) of the EStG affects the free movement of workers and the freedom of establishment.
         If the scope of those freedoms were to be affected, that would in any event be objectively justified having regard to the
         objective differences, which have already been explained, existing between the German private schools referred to in that
         provision of the EStG and private schools situated in other Member States.
      
      111   Similarly, the Government denies that there has been an infringement of the freedom of establishment of schools established
         in other Member States. It does not see in what way that freedom is supposed to be affected by the deduction system in question.
         If, however, that freedom were to be shown to have been affected, that would in any case be objectively justified having regard
         to the differences, referred to above, between the German private schools referred to in Paragraph 10(1)(9) of the EStG and
         private schools situated in other Member States.
      
       Findings of the Court
      112   It needs to be examined whether Articles 39 EC and 43 EC preclude the rules under Paragraph 10(1)(9) of the EStG.
      113   In the first part of its first plea, the Commission argues that such legislation, which places the taxpayers concerned at
         a tax disadvantage, affects both employees coming from another Member State and self-employed taxpayers, who have established
         themselves in Germany for private reasons and want their children to continue attending school in their State of origin, and
         German taxpayers who, by reason of the transfer of their normal place of residence to another Member State, have enrolled
         their children in a private school there. In that respect, the Commission argues, those rules are contrary to Articles 39
         EC and 43 EC. 
      
      114   The provisions of the Treaty on freedom of movement for persons are intended to facilitate the pursuit by Community nationals
         of occupational activities of all kinds throughout the Community, and preclude measures which might place Community nationals
         at a disadvantage when they wish to pursue an economic activity in the territory of another Member State (Case C-464/02 Commission v Denmark [2005] ECR I-7929, paragraph 34 and the case-law cited; Commission v Portugal, paragraph 15; and Commission v Sweden, paragraph 17).
      
      115   Rules which preclude or deter a national of a Member State from leaving his country of origin in order to exercise his right
         to freedom of movement therefore constitute an obstacle to that freedom even if they apply without regard to the nationality
         of the workers concerned (Commission v Denmark, paragraph 35; Commission v Portugal, paragraph 16; and Commission v Sweden, paragraph 18). 
      
      116   In this case, as the Advocate General has pointed out in point 83 of her Opinion, Paragraph 10(1)(9) of the EStG is particularly
         disadvantageous towards employees and self-employed persons who have transferred their normal place of residence to Germany
         or who work there and whose children continue to attend a fee-paying school situated in another Member State. Pursuant to
         the first sentence of Paragraph 1(1) of the EStG, workers resident in German territory are fully liable to income tax. Under
         Paragraph 1(3) of the EStG, cross-border workers who carry on their activity in Germany without living there may, at their
         request, also be subject to income tax without limitation. Paragraph 10(1)(9) of the EStG does not allow any of these workers
         the benefit of tax relief for part of the school fees paid, whereas it would allow it to them if their children attended a
         school situated in Germany. 
      
      117   That difference in treatment is likely to make it more difficult for those workers to exercise their rights under Articles
         39 EC or 43 EC. 
      
      118   Paragraph 10(1)(9) of the EStG is also likely to place German nationals in a disadvantageous position where they transfer
         their normal place of residence to another Member State, in which their children attend a fee-paying school. 
      
      119   It is true that, as a general rule, such German nationals are no longer subject to tax in Germany when they leave that Member
         State, so that there can be no question of the tax legislation at issue applying to their detriment. However, under Paragraph
         1(2) of the EStG, that rule does not apply to officials working in another Member State, and, under Article 14 of the Protocol
         of 8 April 1965 on the Privileges and Immunities of the European Communities (JO 1967 152, p. 13), nor does it apply to officials
         of the European Communities. If those officials of German nationality send their children to fee-paying schools situated in
         another Member State – with the exception, however, of German schools and European schools –, Paragraph 10(1)(9) of the EStG
         does not permit them to deduct part of the school fees paid from the taxable amount of their income.
      
      120   For the reasons set out in paragraphs 85 to 99 of this judgment, such inequalities in treatment are not justified by the arguments
         put forward by the German Government for the purposes of justifying an obstacle to a fundamental freedom.
      
      121   This Court therefore regards the first part of the Commission’s first plea as well founded, and finds that, by generally excluding
         school fees paid to schools established in other Member States from the tax relief granted by Paragraph 10(1)(9) of the EStG,
         the Federal Republic of Germany has failed to fulfil its obligations under Articles 39 EC and 43 EC. 
      
      122   As regards the third plea, alleging infringement of the freedom of establishment of private schools situated in other Member
         States, the Court finds, as does the Advocate General in point 85 of her Opinion, that the fact that Paragraph 10(1)(9) of
         the EStG makes the possibility of enjoying tax relief for school fees dependent on the place where the school is situated
         does not directly affect the freedom of establishment of private schools situated in other Member States. That fact, as such,
         does not make it more difficult to establish those schools in Germany. 
      
      123   The Commission’s third plea must therefore be dismissed. 
       The second part of the first plea, alleging infringement of the general right of citizens of the Union to free movement 
      124   It remains to examine the national legislation in question in the light of Article 18(1) EC as regards all situations which
         do not fall within the scope of Articles 39 EC, 43 EC and 49 EC.
      
      125   According to settled case-law, the status of citizen of the Union is destined to be the fundamental status of nationals of
         the Member States, enabling those among such nationals who find themselves in the same situation to enjoy the same treatment
         in law irrespective of their nationality, subject to such exceptions as are expressly provided for in that regard (see, in
         particular, Case C-184/99 Grzelczyk [2001] ECR I-6193, paragraph 31; Case C-224/98 D’Hoop [2002] ECR I-6191, paragraph 28; Case C-148/02 GarciaAvello [2003] ECR I-11613, paragraphs 22 and 23; and Case C-224/02 Pusa [2004] ECR I-5763, paragraph 16). 
      
      126   Situations falling within the scope of Community law include those involving the exercise of the fundamental freedoms guaranteed
         by the Treaty, in particular those involving the freedom to move and reside within the territory of the Member States, as
         conferred by Article 18 EC (see, in particular, Grzelczyk, paragraph 33; D’Hoop, paragraph 29; GarciaAvello, paragraph 24; and Pusa, paragraph 17).. 
      
      127   Inasmuch as a citizen of the Union must be granted in all Member States the same treatment in law as that accorded to nationals
         of those Member States who find themselves in the same situation, it would be incompatible with the right to freedom of movement
         were a citizen to receive in the Member State of which he is a national treatment less favourable than he would enjoy if he
         had not availed himself of the opportunities offered by the Treaty in relation to freedom of movement (D’Hoop, paragraph 30, and Pusa, paragraph 18). 
      
      128   Those opportunities could not be fully effective if a national of a Member State could be deterred from availing himself of
         them by obstacles placed in the way of his stay in the host Member State by legislation in his State of origin penalising
         the fact that he has used them (see, to that effect, Case C-370/90 Singh [1992] ECR I-4265, paragraph 23; D’Hoop, paragraph 31; and Pusa, paragraph 19). 
      
      129   By going to another Member State to attend school there, the children of the German nationals concerned make use of their
         right to freedom of movement. Indeed, it follows from Case C-200/02 Zhu and Chen [2004] ECR I-9925, paragraph 20, that even a young child may use the rights of freedom of movement and residence guaranteed
         by Community law. 
      
      130   The national legislation at issue introduces a difference in treatment between those income tax payers in Germany who have
         sent their children to a school situated in that Member State and those who have sent their children to a school established
         in another Member State. 
      
      131   By linking the grant of tax relief for school fees to the condition that the latter be paid to a private school fulfilling
         certain conditions in Germany, and causing that relief to be refused to parents of children attending a school established
         in another Member State, the national legislation at issue disadvantages the children of certain nationals purely because
         they have exercised their freedom of movement by going to school in another Member State.
      
      132   According to consistent case-law, national legislation which disadvantages some nationals of the Member State concerned simply
         because they have exercised their freedom to move and to reside in another Member State is a restriction on the freedoms conferred
         by Article 18(1) EC on every citizen of the Union (Case C‑406/04 DeCuyper [2006] ECR I‑6947, paragraph 39, and Case C-192/05 Tas-HagenandTas [2006] ECR I-10451, paragraph 31). 
      
      133   A difference in treatment of that kind can be justified only if it is based on objective considerations that are independent
         of the nationality of the persons concerned and proportionate to the legitimate aim of the national provisions (D’Hoop, paragraph 36; DeCuyper, paragraph 40; and Tas-HagenandTas, paragraph 33). 
      
      134   In attempting to justify the obstacle to the freedom to provide services which the legislation at issue constitutes, the German
         Government has put forward the arguments set out in paragraphs 55 to 64 of this judgment. It referred in particular to the
         analysis by the Court of Justice in Bidar, concerning the interpretation of Article 18 EC.
      
      135   In paragraph 56 of that judgment, the Court held it legitimate for a Member State to seek to ensure that the grant of aid
         to cover the maintenance costs of students from other Member States did not become an unreasonable burden which might have
         consequences on the overall level of aid which that State was able to grant. 
      
      136   However, even if identical reasoning were to be applied in relation to a tax advantage for school fees, the fact remains that
         the legislation under Paragraph 10(1)(9) of the EStG appears in any case to be disproportionate in relation to the objectives
         which it pursues, for the same reasons as those set out in paragraph 99 of this judgment when examining that legislation in
         relation to the principle of the freedom to provide services.
      
      137   It follows that, where the children of taxpayers of a Member State are sent to school in another Member State, at a school
         the services of which are not covered by Article 49 EC, Paragraph 10(1)(9) of the EStG has the effect of unjustifiably disadvantaging
         those children in comparison with those who have not made use of their right to freedom of movement by going to school in
         another Member State, and affects the rights conferred on those children by Article 18(1) EC. 
      
      138   In those circumstances, the second part of the Commission’s first plea must also be regarded as well founded.
      139   In view of all of the above considerations, this Court finds that, by generally excluding school fees for attending a school
         situated in another Member State from the tax deduction for special expenses under Paragraph 10(1)(9) of the EStG, the Federal
         Republic of Germany has failed to fulfil its obligations under Articles 18 EC, 39 EC, 43 EC and 49 EC. As for the remainder,
         namely the plea alleging infringement of the freedom of establishment of schools established in other Member States, the action
         must be dismissed.
      
       Costs
      140   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 applied for costs and the Federal Republic of Germany
         has been essentially unsuccessful, it must be ordered to pay the costs.
      
      On those grounds, the Court (Grand Chamber) hereby rules:
      1.      By generally excluding school fees for attending a school situated in another Member State from the tax deduction for special
            expenses under Paragraph 10(1)(9) of the Law on Income Tax (Einkommensteuergesetz) in the version published on 19 October
            2002, the Federal Republic of Germany has failed to fulfil its obligations under Articles 18 EC, 39 EC, 43 EC and 49 EC.
      2.      The remainder of the action is dismissed.
      3.      The Federal Republic of Germany is ordered to pay the costs.
      [Signatures]
      * Language of the case: German.