P. H. Asscher v Staatssecretaris van Financiën.
Date: 1996-06-27
25 It is settled law that any person who pursues an activity which is effective and genuine, to the exclusion of activities on such a small scale as to be regarded as purely marginal and ancillary, is to be treated as a "worker" within the meaning of Article 48 of the Treaty. According to the case-law, the essential characteristic of the employment relationship is that for a certain period of time a person performs services for and under the direction of another person in return for which he receives remuneration (Case 66/85 Lawrie-Blum v Land Baden-Wuerttemberg [1986] ECR 2121, paragraph 17).
26 In the Netherlands, Mr Asscher is the director of a company of which he is the sole shareholder; his activity is thus not carried out in the context of a relationship of subordination, and so he is to be treated not as a "worker" within the meaning of Article 48 of the Treaty but as pursuing an activity as a self-employed person within the meaning of Article 52.
29 In any event, as was held in Case C-106/91 Ramrath v Ministre de la Justice [1992] ECR I-3351, paragraph 17, a comparison of Articles 48 and 52 of the Treaty shows that they are based on the same principles both as regards entry into and residence in the territory of the Member States by persons covered by Community law and as regards the prohibition of all discrimination against them on grounds of nationality. The same applies to the pursuit of an economic activity in the territory of the Member States by persons covered by Community law.
32 It is settled law that, although the provisions of the Treaty relating to freedom of establishment cannot be applied to situations which are purely internal to a Member State, Article 52 nevertheless cannot be interpreted in such a way as to exclude a given Member State' s own nationals from the benefit of Community law where by reason of their conduct they are, with regard to their Member State of origin, in a situation which may be regarded as equivalent to that of any other person enjoying the rights and liberties guaranteed by the Treaty (see Case 115/78 Knoors v Secretary of State for Economic Affairs [1979] ECR 399, paragraph 24; Case C-61/89 Bouchoucha [1990] ECR I-3551, paragraph 13; Case C-19/92 Kraus v Land Baden-Wuerttemberg [1993] ECR I-1663, paragraph 15; and Case C-419/92 Scholz v Opera Universitaria di Cagliari [1994] ECR I-505).
36 In answering those questions, it must first be borne in mind that although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence consistently with Community law and therefore avoid any overt or covert discrimination by reason of nationality (Case C-279/93 Finanzamt Koeln-Altstadt v Schumacker [1995] ECR I-225, paragraphs 21 and 26; Case C-80/94 Wielockx v Inspecteur der Directe Belastingen [1995] ECR I-2493, paragraph 16).
37 The legislation in issue in the main proceedings applies irrespective of the nationality of the taxpayer concerned.
38 However, national legislation of that kind, which lays down a distinction founded on, inter alia, residence inasmuch as the rate of wages and income tax applicable to certain non-resident taxpayers is higher than that applied to those who are resident or treated as such, is liable to act mainly to the detriment of nationals of other Member States, since non-residents are most frequently non-nationals. Legislation of the kind in issue in the main proceedings is, moreover, all the more likely to concern mainly foreign nationals in that it applies, in addition to the residence criterion, a threshold of at least 90% of worldwide income originating in the Netherlands.
40 It is, furthermore, settled law that discrimination arises through the application of different rules to comparable situations or the application of the same rule to different situations (Wielockx, paragraph 17).
41 In relation to direct taxes, the situations of residents and of non-residents in a given State are not generally comparable, since there are objective differences between them both from the point of view of the source of the income and from that of their ability to pay tax or the possibility of taking account of their personal and family circumstances (Wielockx, paragraph 18, citing Schumacker, paragraph 31 et seq.).
42 However, in the case of a tax advantage which is not available to a non-resident, a difference in treatment as between the two categories of taxpayer may constitute discrimination within the meaning of the Treaty where there is no objective difference between the situations of the two such as to justify different treatment in that regard (Schumacker, paragraphs 36, 37 and 38).
43 Thus, if a Member State refuses tax benefits linked to the taking into account of personal and family circumstances to a taxpayer who works but does not reside in its territory whilst granting them to resident taxpayers, the Court has held that there is discrimination where the non-resident receives all or almost all of his worldwide income in that State since the income received in the State in which he resides is insufficient to allow his personal and family circumstances to be taken into account. The situations of the two categories of taxpayer are in that case comparable with regard to the taking into account of their personal and family circumstances (Schumacker, paragraphs 36, 37 and 38).
44 However, a Member State in which a non-resident taxpayer works may be justified in refusing him such benefits where he does not receive all or almost all of his income in that State, since comparable benefits are granted in the State in which he resides and which is responsible, under international tax law, for taking personal and family circumstances into account.
45 In the present case, the difference in treatment is constituted by the fact that tax on income in the first band is charged at a rate of 25% on non-residents who receive less than 90% of their worldwide income in the Netherlands, but at 13% on those residing and pursuing the same economic activity in the Netherlands even if they receive less than 90% of their worldwide income there.
46 According to the Netherlands Government, the higher rate of tax is intended to offset the fact that certain non-residents escape the progressive nature of the tax because their tax obligations are confined to income received in the Netherlands.
47 It must be noted in that regard that, under Article 24(2)(1) of the Convention, modelled on Article 23A(1) and (3) of the OECD Model Convention (exemption with maintenance of progressivity), income received in a State in which the taxpayer pursues an economic activity but does not reside is taxable exclusively in that State and exempt in the State of residence. The State in which the taxpayer resides may nevertheless take that income into account in calculating the amount of tax on the remaining income in order, inter alia, to apply the rule of progressivity.
48 The fact that a taxpayer is a non-resident thus does not enable him, in the circumstances under consideration, to escape the application of the rule of progressivity. Both categories of taxpayer are therefore in comparable situations with regard to that rule.
49 In those circumstances, the application of a higher rate of tax to the income of certain non-residents than is applicable to those who are resident or treated as such constitutes indirect discrimination prohibited by Article 52 of the Treaty.
53 The advantage which such non-residents are presumed to enjoy arises, if at all, from the decision of the Netherlands legislature to abolish the right to deduct social security contributions which, by its nature, affects only such taxpayers as are under an obligation to pay them, thus favouring, in the Netherlands Government' s submission, those who do not have to pay such contributions in the Netherlands. Such a circumstance may not be offset by tax differentials affecting the latter category, since that would amount to penalizing them for not paying social security contributions in the Netherlands.
58 In the cases cited above, there was a direct link between the right to deduct contributions and the taxation of sums payable by insurers under pension and life assurance contracts and it was necessary to preserve that link in order to safeguard the cohesion of the tax system in question. Taxpayers had a choice between being able to deduct the assurance premiums but being taxed on the capital and pensions received when the contract matured and not being able to deduct the premiums but in that case not being taxed on the capital and pensions received at maturity.
60 The application of a higher rate of tax does not provide any social security protection. In addition, the fact that certain non-residents are not insured with the Netherlands social security scheme and that social security contributions are consequently not levied on their income from sources in the Netherlands can only derive, if it is justified, from the application, when determining the legislation applicable, of the binding general system set up by Council Regulation (EEC) No 1408/71 of 14 June 1971 on the application of social security schemes to employed persons and their families moving within the Community (OJ, English Special Edition 1971 (II), p. 416) and in principle entails, pursuant to the same provisions, insurance solely under the social security scheme of the State in which they reside and pursue part of their professional activity.
61 The Court' s rulings to the effect that Member States are not entitled to determine the extent to which their own legislation or that of another Member State is applicable since they are under an obligation to comply with the provisions of Community law in force (see Case 276/81 Sociale Verzekeringsbank v Kuijpers [1982] ECR 3027, paragraph 14, Case 302/84 Ten Holder v Nieuwe Algemene Bedrijfsvereniging [1986] ECR 1821, paragraph 21, and Case 60/85 Luijten v Raad van Arbeid [1986] ECR 2365, paragraph 14) preclude a Member State from using tax measures in reality to make up for the fact that a taxpayer is not insured with, and does not pay contributions to, its social security scheme.
64 The answer to be given to the national court is therefore that Article 52 of the Treaty precludes a Member State from taking account, by means of a higher rate of income tax, of the fact that, by virtue of the relevant provisions of Regulation No 1408/71 concerning the determination of the applicable legislation, the taxpayer is not obliged to pay contributions to its national social insurance scheme. The fact that, also by virtue of Regulation No 1408/71, the taxpayer is insured under the social security scheme of the State in which he resides is irrelevant in that regard.