Commission of the European Communities v Federal Republic of Germany.
Date: 2007-09-11
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.
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).
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.
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.
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 th e 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.
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).
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).
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 Garcia Avello  [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; Garcia Avello , 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.
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 De Cuyper  [2006] ECR I‑6947, paragraph 39, and Case C-192/05 Tas - Hagen and Tas  [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; De Cuyper , paragraph 40; and Tas - Hagen and Tas , paragraph 33).