Report for the Hearing delivered in Case 260/86

I — Facts and written procedure

1. Article 162 (1), (2) and (3) of the Code des impôts sur les revenus (Income Tax Code) provides for a reduction in the tax on income from immovable assets in respect of a residence occupied by: a war invalid, a handicapped person, or the head of a family comprising at least two children or a handicapped person.

The reduction is 10 or 20% depending on the case.

However, Article 17 of the Law of 10 February 1981 amending fiscal and financial provisions (Moniteur belge (Official Gazette) of 14 February 1981, p. 1707), which became Article 162 (6) of the Code des impôts sur les revenus, provides as follows:

‘The reductions referred to in paragraphs (1), (2) and (3) shall not be granted in respect of a residence occupied: ... , by a tenant, who, either himself or on account of his spouse is exempt from the tax on natural persons by virtue of international conventions’.

That provision was brought into force as from the 1981 financial year.

2. By a letter dated 26 February 1986 the Commission, taking the view that the latter provision was incompatible with Community law and in particular with Article 7 of the EEC Treaty and with the second paragraph of Article 13 and Article 14 of the Protocol on the Privileges and Immunities of the European Communities (hereinafter referred to as ‘the Protocol’), gave formal notice to the Kingdom of Belgium in accordance with Article 169 of the EEC Treaty. The letter laid down a period of one month for a reply to be given. By a telex message dated 26 March 1985 the Belgian authorities informed the Commission that they would forward their reply within a few days. Since it had received no reply by 18 February 1986, the Commission delivered a reasoned opinion pursuant to Article 169 of the EEC Treaty on that date, in which it set out its complaint and requested the Kingdom of Belgium to adopt the measures necessary to comply with the reasoned opinion within one month. By a letter dated 27 March 1986 the Belgian Government informed the Commission that it would soon be putting before Parliament draft legislation intended to repeal Article 17 of the Law of 10 February 1981. Since it was not satisfied with that reply, the Commission brought these proceedings by an application dated 8 October 1986.

3. The application was lodged at the Court Registry on 16 October 1986. Upon hearing the report of the Judge-Rapporteur and the views of the Advocate General the Court decided to open the oral procedure without any preparatory inquiry.

II — Conclusions of the parties

The Commission claims that the Court should:

a) Declare that the Kingdom of Belgium has failed to fulfil its obligations under the second paragraph of Article 13 and Article 14 of the Protocol on the Privileges and Immunities of the European Communities and Article 7 of the EEC Treaty:

i) by adopting the provisions of Article 17 of the Law of 10 February 1981, which became Article 162 (6) of the Code des impôts sur les revenus;

ii) by applying those provisions to officials and other servants of the European Communities as from the 1981 financial year, thereby abolishing in respect of such persons the benefit of reductions in the tax on income from immovable assets which are normally granted to persons who pay tax on their remuneration to the Belgian Treasury, without giving them a right to reimbursement.

b) Order the Kingdom of Belgium to pay the costs.

The Kingdom of Belgium did not formally submit any conclusions.

III — Submissions and arguments of the parties

1. The Commission submits first of all, in support of its claim that its action is admissible, that it has complied with the requirements of Article 19 of the Protocol, which provides that, for the purpose of applying the Protocol, ‘the institutions of the Communities shall cooperate with the responsible authorities of the Member States concerned’. The purpose of the steps taken by the Commission in the course of the pre-litigation procedure was precisely to ensure, in cooperation with the responsible Belgian authorities, that the Protocol would be applied in this case and that there would be no detrimental consequences for Community officials. Since it was unable to arrive at a solution with those authorities, the Commission was forced to have recourse to legal proceedings. With regard to the substance of the case, the Commission submits in the first place that the second paragraph of Article 13 and Article 14 of the Protocol have been infringed. The second paragraph of Article 13 provides that officials and other servants of the Communities ‘shall be exempt from national taxes on salaries, wages and emoluments paid by the Communities’. Article 14 provides that, for the purposes of income tax and of international conventions on the avoidance of double taxation, officials and other servants are to be considered as having maintained their domicile for tax purposes in their country of domicile for tax purposes at the time of entering the service of the Communities. In the second place the Commission complains that the Belgian legislation discriminates on grounds of nationality, contrary to Article 7 of the EEC Treaty. The legislation leads to a difference in treatment between Belgian workers and workers from other Member States who rent their homes on the one hand and officials and other servants of the Communities in the same position on the other, whereas the purpose of the reduction in income tax entails no objective justification for such a difference in treatment. In that connection the Court held in its judgment of 13 July 1983 in Case 152/82 Forcheń v Belgian State [1983] ECR 2323 that, regardless of the provisions of the Protocol, officials of the Communities must enjoy all the benefits flowing from Community law for the nationals of Member States in relation to freedom of movement, freedom of establishment and social security. Moreover, Regulation (EEC) No 1612/68 of the Council of 15 October 1968 on freedom of movement for workers within the Community (Official Journal, English Special Edition 1968 (II), p. 475) provides that a worker who is a national of another Member State is to enjoy the same social and tax advantages as national workers (Article 7 (2)) and all the rights and benefits accorded to national workers in matters of housing (Article 9 (1)). Finally, the Commission points out that the legislative measures envisaged by the Belgian Government for bringing the breach of obligations to an end do not provide for a reimbursement to those officials who, since the entry into force of the Law of 10 February 1981, have been deprived of the right to a reduction. In that respect the Commission states that in the absence of specific provisions the general rules of the Code des impôts sur les revenus, and in particular Articles 267 and 272, are applicable. It follows from those provisions that owners of property, the only persons liable to the tax authorities for the tax on income from immovable assets, who have not applied for a reduction in that tax on behalf of their tenants who are officials or other servants of the Communities in respect of the financial years 1982 to 1986 within six months of the date on which the assessment notice was sent to them, are now barred from making a claim and have no possibility of obtaining reimbursement of reductions not obtained in the past.

2. The Belgian Government does not make any submission with regard to the allegation that it has failed to fulfil its obligations. It merely refers to the fact that a draft law capable of bringing such failure to an end has in the meantime been approved by the Government; the Conseil d'Etat (State Council) has delivered an opinion on it and it will shortly be presented to Parliament. The measures in question could therefore enter into force in the next few months. The proposed legislation comprises two provisions concerning the tax on income from immovable assets. First, it is intended simply to repeal Article 162 (6) of the Code des impôts sur les revenus, which was inserted by Article 17 of the Law of 10 February 1981. Secondly, it is envisaged that any person entitled as a result of the entry into force of the new provision to claim a reduction which had not been granted may obtain such reduction by making an application within six months of the publication of the law to the relevant tax inspector, without prejudice to the possibility of a reduction being made as a matter of course. The latter provision is intended to enable the persons concerned to obtain reductions in respect of past financial years, which will therefore be paid with retrospective effect to the beneficiaries.

IV — Replies to the questions put by the Court

1. The replies submitted by the Commission to the questions put by the Court may be summarized as follows. As regards the alleged infringement of Article 7 of the EEC Treaty, the Commission considers that in this case a comparison on the basis of nationality is no longer apposite. Instead, a comparison should be made on the basis of criteria derived from the Protocol. Consequently, the Court should compare the reductions in the tax on income from immovable assets granted to a tenant subject to the tax on natural persons in Belgium with the legal position of a tenant who benefits from the provisions of the Protocol. A difference in treatment between those two situations would constitute an infringement of the principle of nondiscrimination as laid down in Article 7 of the EEC Treaty and in the provisions of the Protocol. As regards the interpretation of Article 14 of the Protocol (concerning domicile for tax purposes), the Commission states that the proceedings are directed against the fact that the Belgian legislation has drawn from a legal situation created by the Protocol, namely the retention of the country of origin as the domicile for tax purposes, consequences which discriminate against persons benefiting from its provisions. The Protocol should be interpreted as making the foreign domicile for tax purposes equivalent to tax domicile in the country where the officials or other servants are employed in the service of the Communities. Any other interpretation would deprive the provisions of the Protocol of their meaning because the host State would then be able to make the levying of a tax subject to the sole condition that the person charged is not liable to tax on certain income in Belgium. As regards the interpretation of the second paragraph of Article 13 of the Protocol (exemption from national taxes on salaries, wages and emoluments paid by the Communities), the Commission accepts that it is the owners of rented property who are liable to the tax on income from immovable assets. This did not, however, prevent the Belgian legislature from taking the tax position of the tenant as the reference basis for deciding whether or not any tax reduction should be granted. Such an approach does in fact reflect economic reality because ultimately it is the tenant who pays the tax, either as a lump sum once a year or as part of his monthly rent. In conclusion, the Commission takes the view that the only approach consistent with the purpose of Article 13 of the Protocol is to assimilate the tax position of Community officials to that of taxpayers in Belgium. Any other conclusion would enable a Member State to levy a specific tax solely on persons benefiting from the provisions of the Protocol. This could be done by introducing a tax which from the legal point of view is not one of the types of taxes referred to in the Protocol and whose amount corresponds to the amount lost to the national budget by virtue of an international convention.

2. In response to the questions put by the Court the Belgian Government explained the characteristics of the scheme for levying the tax on income from immovable assets. The Land Registry fixes a cadastral income for all real estate, whether or not built upon, situated in Belgium. The cadastral income represents the normal average net annual income and is generally fixed either by reference to the normal net letting value (derived from the rents actually paid) of a given number of registered plots of the same type or by comparison with similar property the cadastral income of which is definitively fixed. As a general rule Belgian income tax is levied by deduction at source (tax on income from movable assets, tax on income from immovable assets and income tax). Deductions constitute advance payments on account of the final amount of tax and may be set against that amount. However, the tax on income from immovable assets is not wholly deductable. The tax on income from immovable assets is calculated on the basis of the cadastral income from the property to which it relates. The rate is set at 1.25% of the cadastral income; the provinces, urban areas and parishes are, however, authorized to levy a special surtax. The tax on income from immovable assets is payable by the person who owns or is in possession of the property, who holds a long lease or a building lease of the property or who holds a beneficial life interest in it. Reductions in the tax deducted may be granted in certain circumstances depending on the social circumstances of the occupant of the property, provided the person concerned applies for the relief. Such reductions are granted to the person liable to the tax, that is to say, as a general rule to the owner of the property who must, however, if he does not occupy the property himself, transfer the benefit of the reduction to the occupant.

U. Everling

Judge-Rapporteur

1 Language of the Case: French.