FKP Scorpio Konzertproduktionen GmbH v Finanzamt Hamburg-Eimsbüttel.
Date: 2006-10-03
30. It must be stated, first, that although direct taxation does not as such fall within the purview of the Community, the powers retained by the Member States must nevertheless be exercised consistently with Community law (see, inter alia, Case C‑279/93 Schumacker  [1995] ECR I‑225, paragraph 21).
31. It should be recalled, next, that according to the Court’s case-law Article 59 of the EEC Treaty requires the abolition of any restriction on the freedom to provide services imposed on the ground that the person providing a service is established in a Member State other than the one in which the service is provided (Case 205/84 Commission  v Germany  [1986] ECR 3755, paragraph 25, and Case C‑180/89 Commission  v Italy  [1991] ECR I‑709, paragraph 15).
32. Finally, it is settled case-law that Article 59 of the EEC Treaty confers rights not only on the provider of services but also on the recipient (see, in particular, Joined Cases 286/82 and 26/83 Luisi and Carbone  [1984] ECR 377; Case C‑204/90 Bachmann  [1992] ECR I‑249; Case C‑158/96 Kohll  [1998] ECR I‑1931; Case C‑224/97 Ciola  [1999] ECR I‑2517; and Case C‑294/97 Eurowings Luftverkehr  [1999] ECR I‑7447).
33. In the present case, as the referring court points out, the obligation on the recipient of services to make a retention at source of the tax on the payment made to a provider of services residing in another Member State and the fact that that recipient may in certain cases incur liability are liable to deter companies such as Scorpio from calling on providers of services residing in other Member States.
35. As the governments which have submitted observations and the Commission rightly submit, and as the Advocate General states in his Opinion, such legislation is nevertheless justified by the need to ensure the effective collection of income tax.
36. The procedure of retention at source and the liability rules supporting it constitute a legitimate and appropriate means of ensuring the tax treatment of the income of a person established outside the State of taxation and ensuring that the income concerned does not escape taxation in the State of residence and the State where the services are provided. It should be recalled that at the material time, in 1993, no Community directive or any other instrument referred to in the case-file governed mutual administrative assistance concerning the recovery of tax debts between the Kingdom of the Netherlands and the Federal Republic of Germany.
42. The Court has already had occasion to rule on whether Articles 59 and 60 of the EC Treaty preclude national tax legislation which as a general rule takes into account gross income when taxing non-residents, without deducting business expenses, whereas residents are taxed on their net income, after deduction of those expenses ( Gerritse , paragraph 55).
46. Starting from the Bundesfinanzhof’s premiss, namely the existence at the material time of a refund procedure in which the business expenses of a non-resident provider of services could be taken into account subsequently, it should be recalled that, according to settled case-law of the Court, the application of the host Member State’s national rules to providers of services is liable to prohibit, impede or render less attractive the provision of services to the extent that it involves expense and additional administrative and economic burdens (see Case C‑165/98 Mazzoleni and ISA  [2001] ECR I‑2189, paragraph 24, and Joined Cases C‑49/98, C‑50/98, C‑52/98 to C‑54/98 and C‑68/98 to C‑71/98 Finalarte and Others  [2001] ECR I‑7831, paragraph 30).
49. The answer to Question 3(a) must therefore be that Articles 59 and 60 of the EEC Treaty must be interpreted as precluding national legislation which does not allow a recipient of services who is the debtor of the payment made to a non-resident provider of services to deduct, when making the retention of tax at source, the business expenses which that service provider has reported to him and which are directly linked to his activity in the Member State in which the services are provided, whereas a provider of services residing in that State is taxable only on his net income, that is, the income received after deduction of business expenses.
Question 3(b)
50. By this question, which is linked to the preceding one, the Bundesfinanzhof essentially asks whether Articles 59 and 60 of the EEC Treaty must be interpreted as not precluding national legislation under which only the business expenses directly linked to activities in the Member State in which the service is provided, which the service provider established in another Member State has reported to the payment debtor, are deducted in the procedure for retention at source, and any further business expenses can be taken into account in a subsequent refund procedure.
51. This question must be answered in the light of the considerations on the previous question and bearing in mind the fact that the Court does not have the material to make a comparison between the situations of resident and non-resident providers of services. While the expenses which the provider of services has reported to his debtor must be deducted in the procedure for the retention of tax at source, Articles 59 and 60 of the EEC Treaty do not preclude the taking into account if appropriate of expenses that are not directly linked, within the meaning of the Gerritse  line of case-law, to the economic activity that generated the taxable income, in a subsequent refund procedure.
52. The answer to Question 3(b) must therefore be that Articles 59 and 60 of the EEC Treaty must be interpreted as not precluding national legislation under which only the business expenses directly linked to the activity that generated the taxable income in the Member State in which the service is provided, which the service provider established in another Member State has reported to the payment debtor, are deducted in the procedure for retention at source, and expenses that are not directly linked to that economic activity can be taken into account if appropriate in a subsequent refund procedure.
Question 3(c)
54. It should be recalled, first, that, according to settled case-law, in the absence of unifying or harmonising measures adopted by the Community, the Member States remain competent to determine the criteria for taxation of income and wealth with a view to eliminating double taxation by means inter alia of international agreements (see Case C‑307/97 Saint-Gobain  [1999] ECR I‑6161, paragraph 57).
55. However, as far as the exercise of the power of taxation so allocated is concerned, the Member States are obliged to comply with Community rules (see, to that effect, Saint-Gobain , paragraph 58; Case C‑385/00 De Groot  [2002] ECR I‑11819, paragraph 94; and Case C‑265/04 Bouanich  [2006] ECR I‑923, paragraph 50).
64. While those rights include the freedom for recipients of services to go to another Member State in order to receive a service there without being obstructed by restrictions ( Ciola , paragraph 11, and Case C‑55/98 Vestergaard  [1999] ECR I‑7641, paragraph 20), it is also apparent from settled case-law of the Court that the recipient of services may rely on those rights even if neither he nor the service provider moves within the Community (see, to that effect, Eurowings Luftverkehr , paragraph 34; Case C‑243/01 Gambelli and Others  [2003] ECR I‑13031, paragraphs 55 and 57; and Case C‑36/02 Omega  [2004] ECR I‑9609, paragraph 25).