1 By an order of 15 November 1988, which was received at the Court on 18 November 1988, the Office of the Special Commissioners of Income Tax referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty several questions relating to the interpretation of Article 13 of the Protocol on the Privileges and Immunities of the European Communities ( hereinafter referred to as "the Protocol ") and Articles 5 and 7 of the EEC Treaty .
2 The questions were raised in the context of proceedings between Mr P . J . K . Tither, an official of the Commission of the European Communities, and the Commissioners of Inland Revenue . The proceedings relate to the grant of a notice pursuant to a provision of the Finance Act 1982, which is designed to encourage the acquisition and improvement of private dwellings .
3 The system in question, known as the Miras scheme ( mortgage interest relief at source ), deals with the payment of interest on a "qualifying loan" within the meaning of the Finance Act, taken out in order to finance certain real estate transactions . In accordance with the provisions of the Finance Act, the borrower is entitled to deduct from the interest which he pays a sum equal to income tax thereon at the basic rate . The lender is required to allow this deduction and the borrower is discharged of the sum deducted as if he had actually paid it .
4 For tax purposes, the deduction in question is regarded as income tax paid by the lender . As far as the borrower is concerned, the deduction which he makes from the payment of interest has the same effect as a personal income tax relief . However, the application of the Miras scheme does not depend on whether the borrower has a sufficient amount of taxable income to cover the mortgage interest . The deduction may be made by the borrower even where he has no taxable income .
5 The Miras scheme is available to any "qualifying borrower" residing in the United Kingdom, whatever may be his tax situation and irrespective of his nationality . However, paragraph 13 of Schedule 7 of the Finance Act provides that the expression "qualifying borrower" does not include persons who hold an office or employment in respect of which they receive emoluments which are not chargeable to tax by virtue of a special exemption or immunity .
6 Mr Tither, who is the owner of a house in Wales, applied to be included in the Miras scheme in respect of a loan granted by a building society for improvements to be made to that house . The Commissioners of Inland Revenue refused to issue the notice necessary to enable him to benefit from that scheme on the ground that, as a Community official, he was not a "qualifying borrower ".
7 Mr Tither appealed against this refusal to the Special Commissioners of Income Tax . In support of his appeal, he relied on Article 13 of the Protocol . The Special Commissioners considered that the exemption from national taxes pursuant to Article 13 of the Protocol was an exemption or immunity from tax under paragraph 13 of Schedule 7 of the Finance Act, such as to have the effect of excluding officials of the European Communities from the Miras scheme .
8 The Special Commissioners therefore considered it necessary to refer the following questions to the Court of Justice for a preliminary ruling : "Where a Member State subsidizes interest paid by an individual on a loan to purchase or improve his main residence situated within that State if his income taxable in that State is less than the amount of those payments, but does not subsidize such payments in those circumstances if he or his spouse is in receipt of a salary which is not taxable in that State because of a special exemption or immunity : ( 1 ) Is ( a ) Article 13 of the Protocol on the Privileges and Immunities of the European Communities, or ( b ) Article 5, or ( c ) Article 7 of the Treaty establishing the European Economic Community, or ( d ) any other provision of Community law to be interpreted as imposing an obligation on that Member State to subsidize such payments of interest by an individual who is a national of that State and is in receipt of a salary which is exempt from tax in that State by virtue of the said Article 13 and whose income taxable in that State is less than the amount of those payments? ( 2 ) If the Member State is under such an obligation as is mentioned in Question 1 above, is such an individual entitled as a matter of Community law to rely on the said obligation in the courts and tribunals of the Member State if the national law of that Member State does not implement that obligation?"
9 Reference is made to the Report for the Hearing for a more detailed account of the legal background to, and the facts underlying, the main proceedings, the course of the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only in so far as is necessary for the reasoning of the Court .
10 As to the first question, it should be emphasized that it relates only to the situation of a person whose salary is not chargeable to tax by virtue of an immunity such as the one laid down in Article 13 of the Protocol and whose other income is less than the amount of mortgage interest paid, so that that person is not subject to income tax under the national legislation .
11 In order to reply to this question, it is necessary to determine the scope of Article 13 of the Protocol pursuant to which officials and other servants of the Community are exempt from national taxes on salaries, wages, and emoluments paid by the Community .
12 As regards the interpretation of that provision in relation to financial arrangements such as the scheme at issue in the present case, the judgment of the Court of 24 February 1988 in Case 260/86 Commission v Belgium (( 1988 )) ECR 955 should be borne in mind . In that judgment, the Court held that Article 13 of the Protocol provides for an exemption from all direct and indirect national taxes on the salaries, wages and emoluments in question, and that it precludes any national tax, regardless of its nature and the manner in which it is levied, which is imposed directly or indirectly on officials or other servants of the Communities by reason of the fact that they are in receipt of remuneration paid by the Communities, even if the tax in question is not calculated by reference to the amount of that remuneration .
13 In those circumstances, it must be determined whether the application of national legislation such as that introducing the Miras scheme has the effect, whether directly or indirectly, of imposing a tax on the emoluments of officials and other servants of the Community .
14 It is clear from the considerations mentioned in the order making the reference that the Miras scheme, which is at issue in the main proceedings, is designed to alleviate the burdens on borrowers stemming from the payment of mortgage interest, in order to encourage the purchase or improvement of dwelling houses by private persons . As regards persons whose taxable income is too low to be charged to tax at the basic rate, the scheme has the effect of granting the beneficiary a direct subsidy given that, in such a case, there is no relationship between a tax burden and a deduction made from the payment of interest .
15 In the light of that situation, the Court considers that Article 13 of the Protocol does not require Member States to grant officials and other servants of the Community the same subsidies that are paid to beneficiaries determined in accordance with the relevant national provisions . Article 13 merely requires that, whenever such persons are subject to certain taxes, they are able to enjoy any tax advantage normally available to taxable persons, so as to prevent those persons from being subject to a greater tax burden .
16 As far as Article 5 of the EEC Treaty is concerned, it should be remembered that, as the Court pointed out in its judgment of 15 January 1986 in Case 44/84 Hurd v Jones (( 1986 )) ECR 29, that provision prohibits Member States, inter alia, from adopting measures which are likely to impede the functioning of the Community institutions . Although a system such as the Miras scheme may have the effect of depriving officials and servants of the Communities of a financial advantage which they would enjoy if they did not have that status, it does not appear that the scheme is likely to dissuade certain persons from entering the service of the Communities, or to induce them to quit the employment that they carry on there . It is, consequently, not of such a nature as to impede the functioning of the Community institutions .
17 As regards Article 7 of the Treaty, it is not disputed that the Miras scheme makes no distinction between beneficiaries on the basis of their nationality . Accordingly, that provision is also not capable of having any bearing on the interpretation of Article 13 of the Protocol in this case .
18 The reply to be given to the first question should therefore be that the provisions of Articles 5 and 7 of the Treaty and of Article 13 of the Protocol on the Privileges and Immunities of the European Communities must be interpreted as meaning that they do not preclude a Member State, which subsidizes interest paid by individuals on loans taken out for the acquisition or the improvement of their main residence situated in that State where the persons concerned have, in the State in question, less taxable income than the amount of interest paid, from denying that advantage to persons who are officials or servants of the European Communities, where the taxable income of such persons in the State in question is less than the amount of interest which they pay .
19 In view of the reply given to that question, there is no need to reply to the second question .