Opinion of Advocate General Medina delivered on 9 February 2023.

• Jurisdiction: European Union
• ECLI: ECLI:EU:C:2023:92
• Date: 09 February 2023
• Celex Number: 62022CC0015
• Court: Court of Justice (European Union)

Provisional text

OPINION OF ADVOCATE GENERAL

MEDINA

delivered on 9 February 2023(1)

Case C‑15/22

RF

v

Finanzamt G

(Request for a preliminary ruling from the Bundesfinanzhof (Federal Finance Court, Germany))

(Reference for a preliminary ruling – European Development Fund (EDF) – Income tax – Exemption granted to salaries in relation to projects related to development aid financed by national budgetary resources – Different treatment of salary earned in relation to a project funded by the EDF – Article 63 TFEU – Free movement of capital – Article 4(4) TFEU – Exercise of parallel competences – Articles 208 and 210 TFEU – Development cooperation – Obligation to promote the policies on development cooperation – Principle of sincere cooperation – Facilitation of the EU’s tasks – Attainment of the EU’s objectives – Direct effect)

1. For the purposes of personal income tax, can Member States treat the salary of persons working on development cooperation projects that are carried out in third countries (2) and financed by the European Development Fund (‘the EDF’) differently from a salary earned through work on similar projects that are, by contrast, funded by national budgetary resources?

2. The present case concerns a German national administrative practice (‘the national tax rule at issue’). It grants an exemption from income tax for salaries paid for working on foreign development aid projects that are funded to a level of at least 75% by a Federal Ministry responsible for development cooperation or by a state-owned private development assistance company (3) (together, ‘national budgetary resources’). However, the salary of an employee working on an aid project that is funded by the EDF does not benefit from such an exemption.

3. The referring court asks the Court of Justice, in essence, whether the principle of sincere cooperation laid down in Article 4(3) TEU, read in conjunction with Articles 208 and 210 TFEU concerning the field of development cooperation, should be interpreted as precluding Member States from taxing salaries earned in relation to aid projects financed by the EDF, where such an exemption is granted for a salary earned in relation to a project financed by national budgetary resources. In addition, the difference in treatment resulting from that tax rule also raises the question whether the Treaty provisions on the fundamental freedoms are to be applied to the case at hand.

4. It follows that the Court is faced with the delicate task of determining whether the fundamental freedoms and/or the principle of sincere cooperation laid out in Article 4(3) TEU apply in the area of development cooperation and, if so, how. This is by no means a simple question since the European Union and Member States may exercise parallel competences in that area. (4) The present case also touches upon a broader global debate that relates to the tax treatment of development assistance and its effectiveness. (5)

I. Legal context

A. International law

1. The Lomé IV Convention

5. The Fourth ACP-EEC Convention signed at Lomé on 15 December 1989 was concluded between the African, Caribbean and Pacific Group of States (‘the ACP States’) and the European Economic Community (EEC) (‘the Lomé IV Convention’). (6) That convention was approved by a Decision of the Council and the Commission of 25 February 1991. (7)

6. Article 2 of the Lomé IV Convention states that ACP-EEC cooperation, ‘underpinned by a legally binding system and the existence of joint institutions’, is to be exercised on the basis of the principles of equality between partners, respect for their sovereignty, mutual interest and interdependence, and the right of each State to determine its own political, social, cultural and economic policy options.

7. Article 9 of that convention sets out:

‘In order to step up the effectiveness of the instruments of this Convention, the Contracting Parties shall adopt, in the framework of their respective responsibilities, guidelines, priorities and measures conducive to attaining the objectives set out in this Convention …’

2. The Cotonou Agreement

8. The Partnership Agreement between the [ACP States], of the one part, and the European Community and its Member States, of the other part, signed in Cotonou on 23 June 2000 (‘the Cotonou Agreement’) (8) by Council Decision 2003/159/EC of 19 December 2002. (9) It came into force on 1 April 2003 and replaced the existing Lomé Conventions.

9. Article 2 of the Cotonou Agreement sets out the fundamental principles of ACP-EC cooperation, which is ‘underpinned by a legally binding system and the existence of joint institutions’.

10. Article 3 of the Cotonou Agreement states that ‘the Parties shall … take all appropriate measures, whether general or particular, to ensure the fulfilment of the obligations arising from this Agreement and to facilitate the attainment of the objectives thereof. …’

11. Article 70(a) of the Cotonou Agreement states that cooperation is to support ‘micro projects at local level which have an economic and social impact on the life of the people, meet a demonstrated and observed priority need, and shall be undertaken at the initiative and with the active participation of the local community which shall benefit therefrom’.

12. Article 71 of that agreement provides:

‘1. Microprojects and decentralised cooperation operations may be supported from the financial resources of the Agreement. …

2. Contributions for the financing of micro-projects and decentralised cooperation shall be made by the Fund, in which case the contribution shall not normally exceed three-quarters of the total cost of each project and may not exceed the limit set in the indicative programme. The remaining balance shall be provided:

(a) by the local community concerned in case of micro-projects (either in kind or in the form of services or cash and adapted to its capacity to contribute);

…

(c) exceptionally by the ACP State concerned, either in the form of a financial contribution or through the use of public equipment or the supply of services.

…’

B. European Union law

13. The EDFs were set up to finance cooperation with the ACP States and overseas countries and territories, initially by means of an annex to the EEC Treaty and later by internal agreements between the Member States meeting within the Council. An EDF finances any project or programme which contributes to the economic, social or cultural development of the countries in question. Each EDF is concluded for a period of several years, often five years, corresponding to the period of validity of the various agreements and conventions through which the European Union and its Member States established the special partnership with the ACP States. Historically, the EDFs did not come under the general budget of the European Union. Therefore, specific financial regulations were adopted to implement the obligations stemming from the international agreements and to set up, in particular, the financing of the EDF. (10)

1. The Seventh EDF (11)

14. The representatives of the Governments of the Member States of the European Economic Community, meeting within the Council, on 16 July 1990 adopted Internal Agreement 91/401/EEC on the financing and administration of Community aid under the [Lomé IV Convention]. (12) By that agreement, the Member States established the Seventh EDF. The provisions implementing that internal agreement are the subject of Financial Regulation 91/491/EEC of 29 July 1991 applicable to development finance cooperation under the [Lomé IV Convention]. (13)

15. The Authorising Officer decided to bring an end to the Seventh EDF on 31 August 2008. In the absence of a legal basis for the closure of EDFs, the remaining balances and the related contracts and decisions were transferred to the Ninth EDF, according to the provisions of Part 3 of the Financial Regulation applicable to the Ninth EDF. (14)

2. The Ninth EDF

16. After the Cotonou Agreement, the Internal Agreement 2000/770/EC between Representatives of the Governments of the Member States, meeting within the Council, on the Financing and Administration of Community Aid under the Financial Protocol to [the Cotonou Agreement] and the allocation of financial assistance for the Overseas Countries and Territories to which Part Four of the EC Treaty was adopted. (15) The provisions implementing that internal agreement are the subject of the Financial Regulation of 27 March 2003.

C. German Law

17. Paragraph 1(1), first sentence, of the Einkommensteuergesetz (Law on income tax; ‘the EStG’), in the version applicable to the facts in the main proceedings, provides that natural persons domiciled or who have their place of permanent residence or usual abode in Germany are subject in that country to tax on the entirety of their income.

18. Under Paragraph 2(1) of the EStG, income from paid employment which the taxable person receives while subject to unlimited tax liability is subject to income tax.

19. Paragraph 34(c) of the EStG provides:

‘(1) Where persons subject to unlimited tax liability pay tax on income of foreign origin in the State of origin of that income which is equivalent to German income tax, the foreign tax which has been calculated, paid and reduced by the amount of a right of reduction shall be offset against the amount of German income tax which they are liable to pay in respect of income received in that State;…

…

(5) The upper tax authorities of the Länder or the tax authorities designated by them may, with the agreement of the Federal Ministry of Finance, grant a partial or full rebate of the income tax on foreign income, or fix a lump sum where this is deemed appropriate for economic reasons or if the application of point 1 of this paragraph proves particularly difficult.’

20. On 31 October 1983, the Bundesministerium der Finanzen (Federal Ministry of Finance, Germany) published a Notice concerning the tax treatment of...