Herbert Schwarz and Marga Gootjes-Schwarz v Finanzamt Bergisch Gladbach.

• Jurisdiction: European Union
• Celex Number: 62005CJ0076
• ECLI: ECLI:EU:C:2007:492
• Docket Number: C-76/05
• Court: Court of Justice (European Union)
• Procedure Type: Reference for a preliminary ruling
• Date: 11 September 2007

Case C-76/05

Herbert Schwarz

and

Marga Gootjes-Schwarz

v

Finanzamt Bergisch Gladbach

(Reference for a preliminary ruling from the Finanzgericht Köln)

(Article 8a of the EC Treaty (now, after amendment, Article 18 EC) – European Citizenship – Article 59 of the EC Treaty (now, after amendment, Article 49 EC) – Freedom to provide services – Income tax legislation – School fees – Tax deductibility limited to school fees paid to national private establishments)

Opinion of Advocate General Stix-Hackl delivered on 21 September 2006

Judgment of the Court (Grand Chamber), 11 September 2007

Summary of the Judgment

1. Freedom to provide services – Services – Definition

(Art. 50 EC)

2. Freedom to provide services – Restrictions – Tax legislation

(Art. 49 EC)

3. Citizens of the European Union – Right of free movement and residence in the territory of the Member States – Tax legislation

(Art. 18 EC)

1. Courses offered by certain establishments forming part of a system of public education and financed, entirely or mainly, by public funds are excluded from the definition of services within the meaning of Article 50 EC. By establishing and maintaining such a system of public education, financed as a general rule by the public budget and not by pupils or their parents, the State did not intend to involve itself in remunerated activities, but was carrying out its task in the social, cultural and educational fields towards its population.

However, courses given by educational establishments essentially financed by private funds, notably by students and their parents, constitute services within the meaning of Article 50 EC, since the aim of those establishments is to offer a service for remuneration. It is not necessary, in that respect, for that private financing to be provided principally by the pupils or their parents. Article 50 of the Treaty does not require that the service be paid for by those for whom it is performed.

(see paras 39-41)

2. Where taxpayers of a Member State send their children to a school situated in another Member State the financing of which is essentially from private funds, Article 49 EC must be interpreted as precluding legislation of a Member State which allows taxpayers to claim as special expenses conferring a right to a reduction in income tax the payment of school fees to certain private schools established in national territory, but generally excludes that possibility in relation to school fees paid to a private school established in another Member State.

Such legislation constitutes an obstacle to the freedom to provide services guaranteed by Article 49 EC, in that it has the effect of deterring taxpayers resident in the Member State concerned from sending their children to schools established in another Member State. Furthermore, it also hinders the offering of education by private educational establishments established in other Member States, to the children of taxpayers resident in the first Member State.

Refusal to grant the tax advantage in question for school fees paid to schools established in another Member State cannot be justified by the objective of ensuring that the operating costs of private schools are covered without causing an unreasonable burden on the State, since that objective could be achieved by less stringent methods. In order to avoid an excessive burden it is legitimate for a Member State to limit the amount deductible in respect of school fees to a given level, corresponding to the tax relief granted by that State, taking account of certain values of its own, for the attendance of schools situated in its territory, which would constitute a less stringent method than refusing to grant the tax relief in question. It appears in any event disproportionate totally to exclude from that tax relief school fees paid to schools established in another Member State whether or not those schools fulfil objective criteria determined on the basis of principles individual to each Member State and allowing it to be determined what types of school fees confer a right to that tax relief

(see paras 66-67, 79-82, operative part 1)

3. Where taxpayers of a Member State send their children to a school established in another Member State, the services of which are not covered by Article 49 EC, Article 18 EC precludes legislation which allows taxpayers to claim as special expenses conferring a right to a reduction in income tax the payment of school fees to certain private schools established in national territory, but generally excludes that possibility in relation to school fees paid to a private school established in another Member State.

Such legislation places those children at an unjustifiable disadvantage by comparison with those who have not availed themselves of their freedom of movement by going to school in another Member State, and infringes the rights that are conferred upon them by Article 18(1) EC.

(see paras 98-99, operative part 2)

JUDGMENT OF THE COURT (Grand Chamber)

11 September 2007 (*)

(Article 8a of the EC Treaty (now, after amendment, Article 18 EC) – European Citizenship – Article 59 of the EC Treaty (now, after amendment, Article 49 EC) – Freedom to provide services – Income tax legislation – School fees – Tax deductibility limited to school fees paid to national private establishments)

In Case C-76/05,

REFERENCE for a preliminary ruling under Article 234 EC, by the Finanzgericht Köln (Germany), made by decision of 27 January 2005, received at the Court on 16 February 2005, in the proceedings

Herbert Schwarz,

Marga Gootjes-Schwarz

v

Finanzamt Bergisch Gladbach,

THE COURT (Grand Chamber)

composed of V. Skouris, President, P. Jann, C.W.A. Timmermans, A. Rosas (Rapporteur) and K. Lenaerts, Presidents of Chambers, J.N. Cunha Rodrigues, R. Silva de Lapuerta, K. Schiemann, J. Makarczyk, G. Arestis, A. Borg Barthet, M. Ilešič and J. Malenovský, Judges,

Advocate General: C. Stix-Hackl,

Registrar: B. Fülöp, Administrator,

having regard to the written procedure and further to the hearing on 2 May 2006,

after considering the observations submitted on behalf of:

– H. Schwarz and M. Gootjes-Schwarz, by W. Meilicke, Rechtsanwalt,

– the German Government, by M. Lumma and U. Forsthoff, acting as Agents,

– the Commission of the European Communities, by K. Gross and R. Lyal, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 21 September 2006

gives the following

Judgment

1 This reference for a preliminary ruling concerns the interpretation of Articles 8a(1) of the EC Treaty (now Article 18(1) EC), 48, 52 and 59 of the EC Treaty (now respectively, after amendment, Articles 39 EC, 43 EC and 49 EC).

2 It was submitted in an action between Mr Schwarz and Mrs Gootjes-Schwarz (‘the Schwarzes’), German nationals living in Germany, and the Finanzamt Bergisch Gladbach (‘the Finanzamt’), concerning the latter’s refusal to allow them tax relief on school fees incurred in respect of their children attending schools in other Member States, the German legislation on income tax reserving the grant of that tax relief to taxpayers who have paid school fees to certain German private schools.

National legal context

3 Paragraph 7(4) of the Basic Law of the Federal Republic of Germany of 23 May 1949 (Grundgesetz für die Bundesrepublik Deutschland, ‘the Basic Law’) provides:

‘The right to set up private schools is guaranteed. Private schools as substitutes for public schools need the approval of the State and are governed by statutes of the State. Such approval is to be given if private schools are not inferior to public schools in their teaching aims and arrangements and the training of teachers, and separation of the pupils according to the means of their parents is not promoted. Approval is to be refused if the economic and legal standing of the teachers is not adequately secured.’

4 Paragraph 10(1)(9) of the Law on Income Tax, in the version applicable at the date of the facts in the main proceedings (Einkommensteuergesetz, BGBl. 1997 I, p. 821, ‘the EStG’) provides:

‘Special expenses [“Sonderausgaben”] [which are tax-deductible for income tax purposes] are the following expenses, where they are neither operating expenses nor professional charges:

1. …

9. 30% of the amount paid by the taxpayer for the attendance by a child, in respect of whom he enjoys tax relief for dependent children or family allowances, of a substitute school approved by the State or authorised by the law of the Land, in accordance with Paragraph 7(4) of the Basic Law, or of a complementary school for general education recognised by the law of the Land, with the exception of the price of lodging, supervision and meals.’

5 In addition, in accordance with Paragraph 33(1) of the EStG, the taxpayer may, at his request, benefit from a reduction of income tax if he is obliged to bear expenses greater than those affecting the large majority of taxpayers having an equivalent income and in a similar financial and family situation.

The dispute in the main proceedings and the question referred

6 At the time of the facts in the main proceedings, the Schwarzes lived in Germany and were assessed jointly to income tax there. According to them, their three children require special schooling. For that reason, they enrolled two of them, born in 1981 and 1986, in a school in Scotland for exceptionally gifted children: the Cademuir International School (‘Cademuir School’), to which they paid school fees in 1998 and 1999.

7 As the Schwarzes did not initially submit tax declarations for those years, the competent authorities made an estimate of their taxable amount. The Schwarzes have lodged an objection before the Finanzamt against the notices of estimated assessment sent to them.

8 In the tax declarations produced in connection with that objection, the Schwarzes principally claimed as exceptional expenses...