delivered on 5 February 2004(1)

Gérard Merida

Federal Republic of Germany

(Reference for a preliminary ruling from the Bundesarbeitsgericht (Germany))

(Freedom of movement for workers – Equal treatment in collective agreements – Interim assistance – Discrimination against persons formerly employed in Germany and resident in France)

I – Introduction

1. These proceedings are concerned with the calculation of a particular benefit (‘Überbrückungsbeihilfe’; hereinafter: ‘interim assistance’) provided for under a collective agreement and paid upon termination of employment.

II – Relevant legislation

A – Regulation (EEC) No 1612/68 (2) of the Council of 15 October 1968 on freedom of movement for workers within the Community (hereinafter: ‘Regulation No 1612/68’)

B – National law

6. Under the provisions of the Collective Agreement on Social Security relevant to the main proceedings, the amount of interim assistance is calculated uniformly for all recipients. That amount is essentially calculated so that, on the basis of the collectively agreed basic remuneration to which the employee was entitled for a full calendar month at the time of cessation of employment, allowance is also made – in addition to the unemployment benefits actually received – for notional German income tax which, of course, is considered in the light of the tax criteria applicable at the time of payment of interim assistance. Thus, an allowance is also made for notional German income tax in the case of former employees resident in France whose earnings during the period of their employment suffered no deductions for wage tax under German law.

7. Interim assistance calculated by that method is taxable above a certain tax-free allowance where its recipients live in Germany. Recipients living in France are required to pay French taxes on interim assistance. The second sentence of Paragraph 4(4) of the Collective Agreement on Social Security provides: ‘Where interim assistance is paid in addition to the benefits provided by the Bundesanstalt für Arbeit (Federal Employment Office), it shall be increased by the amount required to cover the wage tax’. At the hearing, the representative of the German Government maintained that ‘by topping up in that way …, any form of tax burden is effectively cancelled out, in which case it makes no difference which Member State … levies this tax … In Germany, beneficiaries are invariably in a position so as not to be economically burdened by the tax. In the present case, the tax which [the plaintiff] has to pay in France on interim assistance could … be reimbursed. Proof of the amount of tax paid is the sole prerequisite for such reimbursement. Residents and non-residents are … treated strictly in the same manner at all times … with regard to … taxes actually payable.’

III – Facts, main proceedings and question referred for a preliminary ruling

8. Mr Merida is a French national and resides in France. Until his employment was terminated, he worked for the French armed forces stationed in Germany. Once his employment had been terminated, Mr Merida received interim assistance pursuant to the Collective Agreement on Social Security. The amount of benefit received was calculated in accordance with that collective agreement, that is to say, on the basis of his former gross salary, an allowance being made for the unemployment benefits actually received in France and for notional German wage tax. In Mr Merida’s case, interim assistance calculated by that method was taxable in France as earnings, under the relevant double taxation convention, and was therefore subject to French tax.

IV – The question referred for a preliminary ruling

A – Essential submissions of the parties

10. Mr Merida and the Commission take the view that recipients of interim assistance who live in France are indirectly discriminated against by virtue of the deduction of notional German wage tax. They submit that the method by which interim assistance is calculated means that those recipients in effect receive less in total than they used to be paid by their former employer. Indeed, apart from the deduction of notional German wage tax and unemployment benefits, employees governed by German tax law by reason of their residence in Germany did not suffer any further deduction in respect of interim assistance. However, for recipients living in France, not only was account taken of notional German wage tax but, in addition, French tax was actually payable on interim assistance. However, interim assistance was, they claim, intended to maintain payment during the first year following termination of employment of the full salary that had been paid by the former employer. Achievement of that objective was guaranteed in the case of recipients resident in Germany. On the basis of the double taxation convention, recipients resident in France, on the other hand, received a higher salary because the amounts paid by the employer were still chargeable to wage tax in France. Indeed, for the purposes of interim assistance, the amount of gross earnings was in that case reduced not only by notional German wage tax but also by actual French tax. Such discrimination could not, in their view, be justified on grounds of administrative simplification. The Community principle of freedom of movement for workers under Article 39 EC could not be restricted by that measure.

11. The Federal Republic of Germany considers that calculating the amount of interim assistance by deducting notional German wage tax is not discriminatory in circumstances such as those pertaining to Mr Merida. In that regard it raises inter alia grounds of administrative simplification and asserts that interim assistance does not serve to maintain payment of a salary in the event of unemployment. At the hearing, the representative of the German Government maintained that such assistance was in fact a voluntary social benefit paid by the Federal Republic of Germany to former employees from other States which was designed to ‘soften the social welfare impact of the readjustment process’ in the event of unemployment and was ‘a particular type of assistance in the form of a social benefit’. Interim assistance, it submits, was therefore calculated in the same way for all beneficiaries. Community law did not create a right to more favourable treatment for frontier workers than for employees resident in the State concerned. At the hearing, the Federal Republic of Germany further contended that, in principle, interim assistance was in itself still subject to tax even for recipients resident in Germany. Nevertheless, any taxes accruing were ‘cancelled out’ for the purpose of calculating interim assistance by a corresponding increase in the benefit paid. That arrangement also applied, it concludes, in relation to taxes payable in France on interim assistance.

B – Assessment

1. Wording of the question referred

12. The referring court entertains doubts as to whether the second sentence of Paragraph 4(3)(b) of the Collective Agreement on Social Security is compatible with Article 39 EC inasmuch as that provision of the collective agreement is concerned with ‘determining the basis of assessment’ (clearly meaning the calculation of the amount) for interim assistance – even for recipients resident in France – by deduction of notional German wage tax. It is therefore seeking an interpretation of Article 39 EC. However, collectively agreed benefits such as interim assistance also come under the principle of non-discrimination laid down in Article 7(4) of Regulation No 1612/68. In similar cases the Court has thus far examined the EC Treaty and Regulation No 1612/68 jointly and has established that the regulation sets out in detail the rights enjoyed by migrant workers pursuant to Article 39 EC where obligations arising from employment and/or from a collective agreement are concerned. (3)

13. I therefore propose rewording the question referred as follows: Are Article 39 EC and Article 7(4) of Regulation (EEC) No 1612/68 of the Council of 15 October 1968 on freedom of movement for workers within the Community to be interpreted as precluding a provision of a notional collective agreement under which the amount of a social benefit such as the ‘interim assistance’ at issue in the main proceedings is calculated, in the case of recipients resident in another Member State and subject to tax there, in such a way that, on the basis of former gross earnings, account is taken of the notional wage tax of the first Member State although, under a double taxation convention, wage tax was not deducted by that State from the pay of the abovementioned recipients during the currency of their employment?

a) Whether or not discrimination has arisen by virtue of actual double taxation

14. Mr Merida and the Commission regard as unlawful discrimination the fact that, for the purpose of calculating interim assistance for recipients resident in France, account is taken of notional German wage tax although the interim assistance is still taxable in France. Plainly the question referred by the national court also has regard to that consideration, in focusing on liability to tax in France.

15. In that respect, it should first be pointed out that, given that the Collective Agreement on Social Security is said to form the basis of any discrimination occurring, the referring court did not provide comprehensive particulars of it. It was not until the hearing that the Federal Republic of Germany argued – without challenge – on the basis of the relevant passage from the collective agreement, that interim assistance is in fact taxable in the hands of its recipients in Germany but that the taxes were reimbursable and recipients resident in France could also claim that reimbursement. Thus the argument that recipients resident in France are treated unfavourably in that they are subject to ‘quasi’ double taxation (notional taxation in Germany and actual taxation in France), put forward by Mr Merida and the Commission and rated as possible by the referring court does not hold true.

b) Whether discrimination might arise owing to the fact that the amount of interim assistance intended for recipients resident in France does not correspond to the amount paid to them by their former employer

16. For the purpose of calculating interim assistance for all recipients – that is to say, whether or not they are resident in Germany – on the basis of individual gross earnings, account is taken of notional German wage tax for which any comparable person resident in Germany is liable. Recipients resident in France are consequently at a disadvantage in relation to recipients resident in Germany in so far as the amount of interim assistance that they receive, unlike the amount granted to recipients in Germany, does not correspond to the actual amount paid by their former employer.

17. It is uncertain whether that constitutes indirect discrimination prohibited by Article 39 EC and Article 7(4) of Regulation No 1612/68.

18. Article 39 EC and Article 7(4) of Regulation No 1612/68 prohibit not only discrimination by reason of nationality but also all covert forms of discrimination which, by the application of other distinguishing criteria, lead in fact to the same result. (4) It is clear from the Court’s case-law that, unless it is objectively justified and proportionate to the objective pursued, a provision of national law is to be regarded as indirectly discriminatory if it is intrinsically liable to affect migrant workers more than national workers and if there is a consequent risk that it will place the former at a particular disadvantage. (5)

19. Although the Collective Agreement on Social Security does not distinguish between recipients of interim assistance by nationality, it may still impact differently depending on whether the employee lives in Germany or France at the time of receipt of interim assistance. However, a State’s own nationals are far more likely to be resident in that State than former migrant workers and, consequently, a criterion of that kind demonstrates a tendency to disadvantage former frontier workers. (6) This could therefore constitute indirect discrimination.

21. In most cases the Court has assessed whether indirect discrimination exists by examining the objective of the measure at issue in a given case. (8)

22. In line with the arguments – which were indeed plausible in that regard – advanced by the Federal Republic of Germany at the hearing, the objective of interim assistance is not to maintain an individual’s level of income in the event of his unemployment. On the contrary, its objective is to grant a State-funded social benefit which is independent from the employment concerned and serves to soften the social welfare impact in the event of unemployment. This is apparent from the fact that the benefit is paid on behalf of a third party, namely the Federal Republic of Germany, from its own resources and without consideration, rather than at the expense of the former employer.

23. It appears entirely consistent with that objective to calculate that social benefit uniformly for comparable recipients who are resident either in the national territory or in another Member State, that is to say, taking account in this instance of notional German wage tax.

24. It is true that the amount of interim assistance payable to recipients resident in France does not correspond to the amount paid by their former employer. However, the latter nominally greater amount payable to employees resident in France was no more than the natural consequence of the fact that their earnings during the currency of their employment were exempt from German wage tax on the basis of the relevant double taxation convention.

25. Under the Court’s case-law, a difference of that kind in the respective situations of taxpayers resident in different Member States under double taxation conventions, is compatible with Community law inasmuch as it is the consequence, primarily, of differing rates of taxation of the Member States concerned, which is a matter for the individual Member States. (9) However, it cannot be inferred from the fact that a difference in treatment, as occurred in the main proceedings in the case of active employees resident in Germany and France, is compatible with Community law that this must also be reflected in the calculation of a State-funded social benefit, granted independently of the employer, the objective of which is to soften the social welfare impact in the event of unemployment.

26. Therefore, it must be ruled that Article 39 EC and Article 7(4) of Regulation No 1612/68 do not preclude the calculation of interim assistance in accordance with the Collective Agreement on Social Security in the case of recipients resident in France provided that interim assistance is a State-funded social benefit granted independently of the employer, the objective of which is to soften the social welfare impact in the event of unemployment.

V – Conclusion

27. In light of all the foregoing considerations, I propose that the Court should answer the question referred for a preliminary ruling as follows: Article 39 EC and Article 7(4) of Regulation (EEC) No 1612/68 of the Council of 15 October 1968 on freedom of movement for workers within the Community must be interpreted as not precluding a provision of a collective agreement of a Member State under which the amount of a social benefit such as the ‘interim assistance’ at issue in the main proceedings is calculated, in the case of recipients resident in another Member State and liable to tax there, in such a way that, on the basis of former gross earnings, account is taken of the notional wage tax of the first Member State on former gross earnings, although, under a double taxation convention, wage tax was not deducted by that State from the pay of the abovementioned recipients during the currency of their employment, if a tax imposed on interim assistance in another Member State is reimbursed in precisely the same manner as any tax imposed in the first Member State.

1 – Original language: German.

2 – OJ, English Special Edition 1968 (II), p. 475.

3 – Case C-175/88 Biehl [1990] ECR I-1779, Case C-419/92 Scholz [1994] ECR I-505 and Case C‑15/96 Schöning-Kougebetopoulou [1998] ECR I-47.

4 – Case 152/73 Sotgiu [1974] ECR 153, paragraph 11, Case C-237/94 O’Flynn [1996] ECR I-2617, paragraph 17, and Case C-57/96 Meints [1997] ECR I-6689, paragraph 44.

5 – Case C-278/94 Commission v Belgium [1996] ECR I-4307 and the O’Flynn case (cited in footnote 4).

6 – Meints judgment (cited in footnote 4) and Case C-35/97 Commission v France [1998] ECR I-5325.

7 – See, for purposes of illustration, the judgments on the tax treatment of non-residents in Cases C-279/93 Schumacker [1995] ECR I-225, C-80/94 Wielockx [1995] ECR I-2493, C-107/94 Asscher [1996] ECR I-3089 and C-391/97 Gschwind [1999] ECR I-5451, paragraph 21 et seq.; see further the judgments in Meints (cited in footnote 4), at paragraph 45, and O’Flynn (cited in footnote 4), at paragraph 20.

8 – See, for instance, the Court’s recent case-law in Joined Cases C-4/02 and C-5/02 Schönheit and Becker [2003] ECR I-0000, paragraphs 84 and 95.

9 – Case C-336/96 Gilly [1998] ECR I-2793 and Case C-385/00 de Groot [2002] ECR I-11819.