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OPINION OF ADVOCATE GENERAL
TIZZANO
delivered on 6 March 2003 (1)


Case C-209/01



Theodor Schilling,
Angelika Fleck-Schilling
v
Finanzamt Nürnberg-Süd


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

((Free movement of workers – Officials and other servants of the European Communities – Protocol on Privileges and Immunities – Domicile for tax purposes in the Member State of origin – National income tax – Deductible expenditure))






1. By order of 21 February 2001, the Bundesfinanzhof (Federal Finance Court, hereinafter the BFH) referred to the Court under Article 234 EC a number of questions on the interpretation of the Protocol on the Privileges and Immunities of the European Communities of 8 April 1965 (hereinafter the Protocol) and of Article 39 EC (formerly Article 48 of the Treaty) in relation to the application of Paragraph 10(1)(8) of the Einkommensteuergesetz (Income Tax Law, hereinafter the EStG), which provides that the cost of employing a household assistant is deductible from taxable income for income tax purposes if the compulsory social security contributions have been paid.

2. In substance, the national court is asking whether Article 14 of the Protocol or Article 39 EC preclude the interpretation of Paragraph 10(1)(8) of the EStG to the effect that a German citizen who has moved residence to Luxembourg in order to work for a Community institution but whose tax domicile remains in Germany is not entitled to deduct, for the purposes of the income tax to which the official is subject in that Member State, expenditure incurred in Luxembourg on employing a household assistant.

I ─ Legal background

A─ The Community legal background

3. Article 14(1) of the Protocol provides:In the application of income tax, wealth tax and death duties and in the application of conventions on the avoidance of double taxation concluded between Member States of the Communities, officials and other servants of the Communities who, solely by reason of the performance of their duties in the service of the Communities, establish their residence in the territory of a Member State other than their country of domicile for tax purposes at the time of entering the service of the Communities, shall be considered, both in the country of their actual residence and in the country of domicile for tax purposes, as having maintained their domicile in the latter country provided that it is a member of the Communities. This provision shall also apply to a spouse, to the extent that the latter is not separately engaged in a gainful occupation, and to children dependent on and in the care of the persons referred to in this Article.

4. Article 39 EC (formerly Article 48 of the Treaty) provides in paragraph (1) that: [f]reedom of movement for workers shall be secured within the Community, clarifying then in paragraphs (2) and (3) that [s]uch freedom of movement shall entail the abolition of any discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment and, as far as concerns us here, is to entail the right to accept offers of employment actually made, to move freely within the territory of Member States for this purpose, and to stay in a Member State for the purpose of employment. However, [t]he provisions of this Article shall not apply to employment in the public service (paragraph (4).

B─ The national legal background

5. According to Paragraph 1 of the EStG: 1. Natural persons who have their permanent residence or usual abode in Germany are subject there to tax on their total income. ......4. Natural persons not having their permanent residence or usual abode in Germany are subject to tax only on the part of their income arising in Germany within the meaning of Paragraph 49.

6. Under that system, thus, natural persons permanently or usually resident in Germany are taxable in principle on the whole of their worldwide income while other persons are taxable on their German income only.

7. Paragraph 10 of the EStG, as in force at the material time, provides that a taxable person with two or more dependent children under the age of ten is entitled to deduct various special expenses from taxable income.

8. Those special expenses include, according to subparagraph (1)(8) of that paragraph, expenditure incurred by the taxpayer up to an amount of DEM 12 000 per calendar year in respect of a household assistant, in the case where compulsory contributions are paid, within the framework of the employment relationship, to the national statutory pension insurance scheme.

9. Finally, it should be noted that under Paragraph 50 of the EStG persons subject to income tax on part of their income only are not entitled to deduct the special expenses referred to in Paragraph 10 of the EStG.

II ─ Facts and procedure

10. The order for reference shows that during 1991 and 1992, Mr and Mrs Schilling, both German nationals, worked as officials of the European Communities in Luxembourg where they lived with their three children and where they had established their residence. It also shows that prior to entering the service of the European Communities they were permanently resident in Germany.

11. As well as his earnings as a Community official, Mr Schilling derived income from letting property and, in the 1992 tax year, from self-employed work.

12. The dispute in the main proceedings involves a claim for the deduction in Germany, pursuant to Paragraph 10 of the EStG, of the special expenses incurred by the applicants on employing a household assistant who worked for them in Luxembourg in the years 1991 and 1992.

13. The Finanzamt Nürnberg-Süd ((Tax Office for Nuremberg South, hereinafter the Finanzamt), before which the issue initially arose, refused to allow the deduction of the expenses on the ground that the compulsory social security contributions had not been paid to the German statutory pension insurance scheme, as required by Paragraph 10(1)(8) of the EStG, but to the Luxembourg statutory pension insurance scheme. Mr and Mrs Schilling appealed that decision to the Finanzgericht (Revenue Court) but were unsuccessful. They then challenged the Finanzgericht's decision in the BFH, claiming inter alia a breach of Article 14 of the Protocol.

14. Taking the view that the resolution of the dispute required the interpretation and application of various rules and principles of Community law, the BFH stayed the proceedings and referred the following questions to the Court for a preliminary ruling:

1. Is it contrary to the first paragraph of Article 14 of the Protocol on the Privileges and Immunities of the European Communities ... if German nationals who work in Luxembourg as officials of the European Community and live there may not, in the context of assessment to German income tax, deduct expenditure in respect of a household assistant employed in Luxembourg under Paragraph 10(1)(8) of the Einkommensteuergesetz because the contributions to the statutory pension insurance scheme for the household assistant were not paid to the German pension insurance scheme?

2. If Question 1 is answered in the negative: Is Article 48(4) of the EC Treaty to be interpreted as meaning that an EC official may not rely on Article 48 of the EC Treaty?

3. If Question 2 is answered in the negative: Is it contrary to Article 48 of the EC Treaty if an EC official living in Luxembourg who is deemed to be resident in Germany and pays contributions in Luxembourg to the statutory pension insurance scheme for a household assistant is not entitled to deduct special expenditure under Paragraph 10(1)(8) of the Einkommensteuergesetz?

4. If Question 3 is answered in the negative: May the principles developed in the judgment in Werner (Case-112/91 [1993] ECR I-429, in particular page 463) be applied to the present case?

15. In the ensuing proceedings before the Court, written observations were submitted by Mr and Mrs Schilling and by the Commission. The Finanzamt did not submit any written observations of its own but, by letter of 17 July 2001, endorsed the views of the law expressed by the BFH in the order for reference.

III ─ Legal analysis

Preliminary remark

16. I must first observe that it is not easy to set out the parties' respective positions since they do not address the questions in the same sequence as the order for reference.

17. Mr and Mrs Schilling essentially confine themselves to dealing with the first question, which they see as subsuming the others, although they do note summarily, in relation to the third question, the inapplicability of Article 39 EC.

18. The Commission, on the other hand, having first disposed of the second and fourth questions with telegraphic concision, chooses to deal with the third and first questions in that order after reformulating them and merging them into a single question with two parts.

19. I too find that the questions are better taken in a different order to that suggested by the national court. Logically speaking, I believe, one first has to determine whether the application of a national rule such as that at issue in the instant case is contrary to Article 39 EC (second and third questions), and only then to inquire as to whether such application is contrary to Article 14 of the Protocol, within the particular scope of that provision (first question), before finally going on to the fourth question, concerning the interpretation of the Werner judgment.

20. Since, as mentioned above, the respondent in the main proceedings has adopted the views expressed by the national court in its order for reference, I will also refer in what follows, where necessary, to the approaches considered in the order.

The second question

21. By the second question, the national court asks whether Community officials can rely on the rules on free movement laid down in Article 39(1) to (3) EC, or whether that possibility is precluded by paragraph (4) of that article, according to which the aforementioned rules do not apply to employment in the public service.

22. I must say, however, that, notwithstanding the doubts expressed on the subject by the BFH, it does not seem to me that there can be any doubt but that the question has to be answered in the affirmative. As was correctly observed by the Commission, the only party to deal with the point, the Court has always interpreted the exception under Article 39(4) EC restrictively, limiting its effects to those posts which involve direct or indirect participation in the exercise of powers conferred by public law and in the discharge of functions whose purpose is to safeguard the general interests of the State or of other public authorities.  (2) As it is abundantly clear that this is not such a case, it follows that the exception does not apply here.

23. Let me add that the answer would be the same if what the national court had meant by this question was whether Community officials are governed not by the general rules, laid down in Article 39 EC, but by a different set of rules, laid down by Article 12 et seq. of the Protocol on Privileges and Immunities, which, as lex specialis , would take precedence over the general rules.

24. Apart from anything else, such a view would immediately run foul of the Court's case-law, according to which a Community national working in a Member State other than his State of origin does not lose his status of worker within the meaning of Article 39 EC through occupying a post within an international organisation, in this case the European Communities. Any discriminatory treatment calculated to restrict his exercise of his right of free movement is therefore prohibited, regardless of whether the rules relating to his entry into and residence in the country in which he is employed are specifically governed by an international agreement.  (3)

25. I therefore conclude that Community officials may rely, in principle, on the rules on free movement laid down in Article 39(1) to (3) EC, notwithstanding paragraph (4) of that article.

The third question

26. In the event that Article 39 EC is held to apply to Community officials, the BFH asks whether that article precludes a national rule such as Paragraph 10(1)(8) of the EStG as interpreted by the Finanzamt and by the Finanzgericht. The referring court is in doubt as to whether the fact that internal situations receive more favourable tax treatment than international ones is in fact objectively justified or whether it constitutes discrimination contrary to the Treaty.

Arguments of the parties

27. In support of the former hypothesis, the referring court observes firstly that Paragraph 10(1)(8) of the EStG is an instrument by which the German legislature seeks to implement economic, social and employment policy objectives within German society. In particular, it seeks to alleviate the economic burden of household management for large families. It is also aimed at stemming the phenomenon of black-market employment in order to protect the rights of workers employed in Germany and the proper functioning of the statutory system of compulsory social security. It was entirely legitimate for those objectives to be pursued with regard to German society alone by limiting eligibility for the tax concessions to internal situations, since to do otherwise would be to impose a wholly unjustified burden on the German budget.

28. In the view of Mr and Mrs Schilling, Article 39 EC applies only in cases of direct or indirect discrimination based on nationality. Since no such discrimination exists in this case, they argue, the German rule does not fall to be assessed in the light of that Treaty provision. Their objections to Paragraph 10(1)(8) therefore relate not to this question but to the first question, concerning Article 14 of the Protocol (see point 68 below). I will therefore return to those objections at the appropriate juncture.

29. The Commission, for its part, submits that while freedom of movement for workers within the Community certainly entails a prohibition of discrimination against workers based on nationality, it goes further than that because it also prohibits a Member State from impeding its own nationals wishing to go and work in another Member State by treating them less favourably than those not exercising their right to free movement.

30. That prohibition, the Commission points out, applies equally in the area of direct taxation, which has yet to be harmonised at European level. Specifically, the judgments in Bachmann   (4) and Schumacker   (5) showed that the principle of free movement for workers and the principle of equality preclude the operation of a discriminatory national tax regime that is restrictive of freedom of movement.

31. In so far as it made the entitlement to deduct the cost of employing a household assistant from taxable income for income tax purposes subject to the condition that the relevant social security contributions go to the German national compulsory social security scheme, Paragraph 10(1)(8) of the EStG had the effect of increasing the tax burden on persons moving residence abroad without any valid justification for that unfavourable treatment.

32. The third question must therefore, in the Commission's view, be answered in the affirmative.

Discussion

33. Moving on to an analysis of the question, I must first note, as a preliminary point, that, as the Court has repeatedly held, although direct taxation falls within the competence of the Member States, the latter must none the less exercise that competence in accordance with Community law and must therefore avoid any overt or covert discrimination on the basis of nationality.  (6)

34. I must also note, again as a preliminary point, that, contrary to what Mr and Mrs Schilling contend, Article 39 EC is entirely applicable to the case in hand. The principle of free movement entails not only the prohibition of discrimination based directly or indirectly on nationality but more generally outlaws any measure which prevents or simply makes it more difficult for a person resident in the Community to pursue an economic activity in a Member State other than the Member State of origin (be it the State of nationality or that of residence).

35. According to settled case-law, the provisions of the Treaty relating to the free movement of persons are intended to facilitate the pursuit by Community citizens of occupational activities of all kinds throughout the Community, and preclude measures which might place Community citizens at a disadvantage when they wish to pursue an economic activity in the territory of another Member State  (7) and, therefore, [p]rovisions which preclude or deter a national of a Member State from leaving his country of origin to exercise his right to freedom of movement ... constitute an obstacle to that freedom even if they apply without regard to the nationality of the workers concerned.  (8)

36. If therefore the view is taken, as I believe it must, that this case falls within the scope of Article 39 EC, it then remains to be ascertained whether or not Paragraph 10 of the EStG constitutes an obstacle to freedom of movement for workers.

37. I do not believe, however, that this matter need detain us, particularly as we have the benefit of a clear precedent in point. In a case with several similarities to this one, the Court stated that legislation of a Member State which makes the deductibility of sickness and invalidity insurance contributions and pensions and life assurance contributions conditional on those contributions being paid in that State may constitute an obstacle to the free movement of persons, on the ground, in particular, that the requirement in question typically or predominantly penalises Community nationals exercising their right of free movement.  (9)

38. Turning to the contentious German measure, there is no doubt but that it too, by providing that the cost of employing a household assistant cannot be deducted from taxable income for income tax purposes if the relevant social security contributions are paid outside Germany, creates a situation which is economically disadvantageous for a person originally resident in Germany who moves abroad to work but continues to be subject to income tax in Germany. If such a person decides to take on a household assistant, that will necessarily happen in the new country of residence and it will be there and not in the country of origin that social security contributions will be paid, whereby the benefit of the tax concession will be lost.

39. I therefore conclude that Paragraph 10(1)(8) of the EStG in principle constitutes an obstacle to the free movement of persons.

40. That having been established, however, it still has to be determined whether the obstacle may be regarded as objectively justified, and accordingly not contrary to Article 39 EC.

41. The Court in its case-law has repeatedly acknowledged that national taxing provisions which distinguish between taxpayers according to their place of residence may be compatible with Community law if the situations to which those provisions apply are different and not objectively comparable  (10) or if, alternatively, a difference in treatment can be justified by overriding reasons in the general interest and in particular by considerations relating to the cohesion of the tax system.  (11) It therefore has to be determined whether those conditions are met in the instant case.

42. To begin with the reasons of general interest, the national court takes the view that the obstacle to the free movement of persons arising from the application of Paragraph 10(1)(8) of the EStG may be justified on the basis of its objectives, detailed above (at point 27).

43. It appears to me, however, that none of the general-interest reasons justifying the provision allowing deduction of the costs of employing a household assistant may be adduced as justification for the difference in its application as between those who pay contributions in Germany and those who pay them in other Member States. It is clear that neither the objective of assisting large families nor that of combating black-market employment would be prejudiced were the German tax authorities to concede the same tax advantage to those who pay social security contributions in another Member State.

44. Likewise, I do not believe that the difference in the application of the tax concession in question is justifiable as a measure necessary to preserve the cohesion of the tax system concerned.

45. The Court's case-law shows that in the application of national direct taxation provisions, a distinction between taxpayers according to their place of residence such as that underlying the measure at issue  (12) may indeed prove to be necessary in order to preserve the cohesion of the tax system in view of the fact that the loss of revenue resulting from the deduction of particular insurance contributions from total taxable income is offset by the taxation of pensions, annuities or capital sums payable by the insurers only in the situation where these are paid to residents.  (13) That justification holds, however, only where there is a direct link between the grant of a tax advantage and the offsetting of that advantage by a corresponding levy and where both the advantage and the levy arise in relation to the same tax assessed on one (and the same) taxpayer.  (14)

46. Whatever the merits or otherwise, in the absence of harmonisation of direct taxation, of such a restrictive view of the justification of cohesion of a national tax regime, requiring taxpayer and tax to be one and the same, it must be concluded that in the instant case the conditions laid down by the case-law are not met.

47. There is clearly not a sufficiently direct link between tax advantage and levy in this case given that neither the taxpayer nor the tax are the same: whereas the tax advantage of deducting the costs of employing a household assistant accrues to the employer, the tax itself is suffered by the household assistant, in the first place on the income from the employment and eventually on the pension benefit.

48. Having eliminated the possibility that the difference in the application of the favourable tax provision according to place of residence is justified by overriding reasons in the general interest, there remains to be considered the other condition of compatibility mentioned above (at point 41). It has to be determined, in other words, whether or not the situations of resident and non-resident are comparable.

49. As mentioned above, the Court has consistently held that national tax provisions that differentiate between taxpayers according to their place of residence may be compatible with Community law if they apply to situations that are different and not objectively comparable.  (15)

50. It seems to me, however, that in the case at hand the situations are in fact not the same or comparable.

51. As the Court explained in Schumacker , [i]n relation to direct taxes, the situations of residents and of non-residents are not, as a rule, comparable,  (16) since [i]ncome received in the territory of a Member State by a non-resident is in most cases only a part of his total income, which is concentrated at his place [and hence his State] of residence.  (17)

52. It is therefore in the latter State, the State, that is, in which the taxpayer's personal and financial interests are centred, that his personal ability to pay tax can best be assessed, taking account of his personal and family circumstances, as is indeed the generally accepted practice under international tax law.  (18)

53. That having been said as a general proposition the question cannot yet be considered resolved. According to the Court's case-law in the area of tax benefits relating to direct taxation, a difference in treatment based on residence may prove discriminatory in practice where the non-resident receives no significant income in the State of his residence and obtains the major part of his taxable income from earnings in another Member State with the result that the State of his residence is not in a position to grant him the benefits resulting from the taking into account of his personal and family circumstances.  (19)

54. In such a situation, the Court held, it is a matter for the State in which the worker obtains the major part of his taxable income to take account of the taxpayer's family and personal circumstances,  (20) since it would be contrary to Article 39 EC for the national provisions to apply differently in such circumstances on the ground of the taxpayer's foreign residence.

55. The situation in the instant case is unusual, of course, since Mr and Mrs Schilling, being employees of the Community, have no income in their State of residence (Luxembourg) on which they are liable to tax there, and that State is therefore not in a position to grant them the benefits resulting from the taking into account of their personal and family circumstances. What is clear, however, and what matters for present purposes, is that the major part of their taxable income does not consist of the income taxed in Germany and that, therefore, according to the case-law cited, it is not a matter for that State to take account of the family and personal circumstances of those taxpayers.

56. It therefore seems to me that the situations are not comparable and that the conditions are therefore met for treating the measure at issue as objectively justifiable.

57. I therefore propose that the question concerned should be answered to the effect that Article 39 EC does not preclude the application of Paragraph 10(1)(8) of the EStG, under which the cost of employing a household assistant whose social security contributions are paid outside Germany cannot be deducted from the taxable income for income tax purposes of taxpayers not actually resident in Germany and not deriving the preponderance of their taxable income there.

The first question

58. I now come to the first question, by which the national court asks whether Article 14 of the Protocol precludes the application of the German provision in question.

Arguments of the parties

59. In explaining the reasons that led it to refer this question, the BFH notes that there are essentially two possible interpretations of the provision under Article 14(1) of the Protocol whereby Community officials who have moved residence to another Member State because of their employment retain a deemed or notional domicile for tax purposes in their State of origin.

60. According to the first interpretation, the provision would have the limited effects of maintaining a taxpayers' assessability on worldwide income in their State of origin and of determining place of residence for the purposes of double-taxation conventions.

61. Alternatively, the BFH goes on, the provision in question could be given a broad interpretation. That would mean not simply treating the persons concerned as tax-resident in their State of origin, but also deeming all matters necessarily incidental to residence to be notionally located in that State. In the instant case, that legal fiction would apply to the payment of social security contributions for a household assistant, which would then be deemed paid to a German social security institution even though in reality they went to a Luxembourg institution.

62. For its part, the national court favours the first interpretation. That preference is based in the first place on the fact that the second paragraph of the same article would otherwise be redundant, providing as it does that the movable property of Community officials situated in the country where they have taken up residence are, for the purposes of the assessment of death duties, to be considered as being situated in the country of deemed domicile for tax purposes.

63. In the second place, a broad interpretation would mean Community officials unjustifiably gaining the benefit of a multiplicity of tax concessions conceived for internal situations only.

64. Finally, such an interpretation would seem all the more indefensible given that Community officials already enjoy a favourable tax environment as a result of the low level of taxation on their Community salaries and therefore have no need of the added assistance of the German Treasury.

65. For their part, the applicants in the main proceedings argue that Article 14 of the Protocol is aimed essentially at maintaining unchanged the tax relationship between officials and their State of origin.

66. In particular, as far as concerns us here, Article 14 is intended to prevent expatriate officials paying more tax than they would if they had continued to reside in their country of origin. Accordingly, the applicants argue, Community officials must be accorded all the tax concessions to which they would have been entitled had they never left the country.

67. That interpretation, according to Mr and Mrs Schilling, is ordained by the prohibition of discrimination, which requires that similar situations shall not be treated differently unless differentiation is objectively justified.  (21) Applied to the instant case, that prohibition required that the Community official who, albeit having moved residence to Luxembourg for reasons of work, remains domiciled in Germany for tax purposes under the Protocol be treated the same as the official who continues to reside in Germany as well as having tax domicile there. What mattered was that the tax domicile was the same in both cases; but, that being so, it must follow that a difference in tax treatment between the two cases constitutes discrimination.

68. There is no valid justification for that discrimination, Mr and Mrs Schilling continue, because it is not at all necessary to the social policy ends referred to in the order for reference and is indeed in conflict with those ends. In that light, the only real objective of the discriminatory measure was to protect the finances of the German social security system.

69. The Commission, for its part, analyses Article 14 of the Protocol from a different angle. It argues, as we have seen, that Article 39 EC precludes tax treatment which would weigh against a worker's decision to migrate to another country. It raises the question, however, as to whether the provisions of the Protocol might not lead to a different result justifying unfavourable tax treatment in the case of a migrant worker who is a Community official.

70. Having determined that the Protocol provides no basis for such a conclusion, the Commission points out that, on the contrary, in considering the taxation of the income and wealth of Community officials, the Court has had occasion to affirm that, in so far as they are subject to national taxes, those officials must not be discriminated against by reason of their status as Community officials. In particular, if they satisfy the objective criteria governing eligibility for particular tax advantages under national legislation, they must be accorded those advantages on the same terms as other taxpayers.  (22)

Discussion

71. For my part, I favour the first of the interpretations suggested by the national court, to the effect that the object of the first paragraph of Article 14 of the Protocol is simply to establish the criterion of country-of-origin domicile for the purposes of the application to Community officials of national tax legislation and double-taxation conventions. I believe, in other words, that it does no more than to establish a legal fiction to prevent the application of the default criterion according to which Community officials would otherwise be assigned to the tax jurisdiction of the State of the institution, an inevitably fortuitous and potentially changeable assignment.

72. On the other hand, I find unconvincing the argument of the applicants in the main proceedings according to which, in substance, the first paragraph of Article 14 of the Protocol, by maintaining officials' notional tax domicile in the State of origin, is intended to secure for them exactly the same tax treatment as that to which they would been entitled had they not moved residence abroad; a tax treatment, in other words, whereby an expatriate official would under no circumstances have to pay more tax in the country of origin than an actual resident.

73. It does not seem to me that any trace of this supposed legislative intent can be found in the wording of the article in question. Moreover, where the Protocol did seek to achieve the result in question it did so explicitly, in the second paragraph of Article 14,  (23) laying down a provision to prevent double taxation and extending the legal fiction to matters other than tax domicile.

74. As regards Mr and Mrs Schilling's claim that they suffered discrimination by being treated less favourably than a hypothetical official who had continued actually to reside in Germany, I would first of all observe that, according to settled case-law, the first paragraph of Article 6 of the Treaty [now Article 12 EC], which lays down as a general principle the prohibition of discrimination on grounds of nationality, applies independently only to situations governed by Community law for which the Treaty lays down no specific rules prohibiting discrimination.  (24)

75. In the case of freedom of movement for workers, that principle has been given effect by Article 39 EC. That being so, however, since the German rules at issue do not, as we have seen, constitute discrimination prohibited by Article 39 EC, they must by the same token be held not to infringe the more general principle of equal treatment of which that article is the expression.

76. As regards the observations of the Commission, finally, it seems to me that it is correct in pointing out that if Community officials satisfy the objective criteria governing eligibility for particular tax advantages under national legislation, they must be accorded those advantages on the same terms as other taxpayers.

77. In the instant case, however, the fact of the matter is that Mr and Mrs Schilling do not meet the objective criteria which the German legislation requires to be met in order for social security contributions paid in respect of a household assistant to be deductible, and that those criteria are, as set out in response to the third question, objectively justified and non-discriminatory.

78. As I have observed in that regard, the preponderance of the taxable income of the applicants in the main proceedings does not consist of their income taxed in Germany but of their earnings as Community officials, which means that, in line with Schumacker , it is not a matter for the German State to take account of the family and personal circumstances of those taxpayers.

79. I would now add that, applying exactly the same logic, it is instead a matter and an obligation for the autonomous tax regime that applies to the income of Community officials, which in this case constitutes the preponderance of the taxable income of the applicants in the main proceedings, to take account of the family and personal circumstances of those taxpayers by according them all the tax advantages available under that regime.

80. Since that regime does in fact provide a series of financial benefits for families, in particular families with children, by which I refer to the family allowances provided for under Articles 62 and 67 of the Staff Regulations of Officials of the European Communities, consisting of a household allowance, a dependent child allowance and an education allowance, the rules governing which are set out in Articles 1, 2 and 3 of Annex VII to the Staff Regulations, it must be presumed, in the absence of proof to the contrary, that the regime in question does effectively take account of the family and personal needs of taxpayers. In those circumstances, it seems to me, to interpret Article 14 of the Protocol in the manner suggested by the applicants would not be to eliminate any discrimination against them but rather to secure for them an economic benefit for which there is no objective justification.

81. I therefore propose that the Court should answer the first question referred to the effect that Article 14 of the Protocol on the Privileges and Immunities of the European Communities does not preclude the application of a national provision such as Paragraph 10(1)(8) of the EStG to taxpayers not residing in Germany and not deriving the preponderance of their income there, albeit the taxpayers in question are Community officials and, as such, have retained their domicile for tax purposes in that State.

The fourth question

82. By the fourth question, the national court asks, essentially, whether the judgment in Case C-112/91 Werner contains principles relevant to the resolution of the instant case.

83. I believe it is sufficient in this regard to observe that, as the Commission has also noted, the Court in Werner did no more than to uphold the principle according to which Community law does not apply to situations in which the key elements are purely internal to a Member State.  (25)

84. It is common ground that in the present case Mr and Mrs Schilling have exercised their right to freedom of movement under the Treaty, having migrated from their country of origin in order to engage in gainful employment in another Member State.

85. I therefore conclude that Werner does not contain any principle relevant to the resolution of the dispute pending in the national court.

86. I therefore propose that the Court should answer the fourth question to the effect that the judgment in Case C-112/91 Werner does not contain any principle relevant to the resolution of the dispute pending in the national court.

IV ─ Conclusion

87. In the light of the foregoing considerations, I am of opinion that the Court should answer the questions referred by the Bundesfinanzhof by order of 21 February 2001 in the following terms:

(1) Community officials may rely, in principle, on the rules on free movement laid down in Article 39(1) to (3) EC, notwithstanding paragraph (4) of that article.

(2) Article 39 EC does not preclude the application of Paragraph 10(1)(8) of the EStG, under which the cost of employing a household assistant whose social security contributions are paid outside Germany cannot be deducted from the taxable income for income tax purposes of taxpayers not actually resident in Germany and not deriving the preponderance of their taxable income there.

(3) Article 14 of the Protocol on the Privileges and Immunities of the European Communities does not preclude the application of a national provision such as Paragraph 10(1)(8) of the EStG to taxpayers not residing in Germany and not deriving the preponderance of their income there, even though the taxpayers in question are Community officials and, as such, have retained their domicile for tax purposes in that State.

(4) The judgment in Case C-112/91 Werner [1993] ECR I-429 does not contain any principle relevant to the resolution of the dispute pending before the national court.

1 – Original language: Italian.

2 – Of the many judgments in point, see Case 66/85 Lawrie-Blum [1986] ECR 2121, paragraph 27, Case 33/88 Allué and Coonan [1989] ECR 1591, paragraph 9, Case C-4/91 Bleis [1991] ECR I-5627, paragraph 7.

3 – Case C-411/98 Ferlini [2000] ECR I-8081, paragraph 42. See also the earlier judgments in Joined Cases 389/87 and 390/87 Echternach and Moritz [1989] ECR 723, paragraph 11, and in Case C-310/91 Schmid [1993] ECR I-3011, paragraph 20.

4 – Case C-204/90 [1992] ECR I-249.

5 – Case C-279/93 [1995] ECR I-225.

6 – Of the many judgments in point, see Schumacker , paragraphs 21 and 26, Case C-391/97 Gschwind [1999] ECR I-5451, paragraph 20, and Case C-385/00 De Groot [2002] ECR I-11819, paragraph 75.

7 – See the judgments in: Case C-370/90 Singh [1992] ECR I-4265, paragraph 16; Case C-18/95 Terhoeve [1999] ECR I-345, paragraph 37; Case C-190/98 Graf [2000] ECR I-493, paragraph 21; Case C-302/98 Sehrer [2000] ECR I-4585, paragraph 32; De Groot , paragraph 77.

8 – See Case C-10/90 Masgio [1991] ECR I-1119, paragraphs 18 and 19, Terhoeve , paragraph 39, Sehrer , paragraph 33, and De Groot , paragraph 78.

9 – . Bachmann , paragraphs 9 to 11. The Court expresses itself in more nuanced terms in its judgment in the infringement proceedings concerning the same national legislation: see Case C-300/90 Commission v Belgium [1992] ECR I-305, paragraph 7.

10 – See, in particular, Schumacker , paragraph 31 et seq., and Case C-35/98 Verkooijen [2000] ECR I-4071, paragraph 43.

11 – See Bachmann , Commission v Belgium , and Verkooijen , paragraph 43.

12 – See point 38 above.

13 – . Commission v Belgium , paragraph 15.

14 – . Verkooijen , paragraph 57, and Case C-136/00 Danner [2002] ECR I-8147, paragraph 36 et seq.

15 – See, in particular, Schumacker , paragraph 31 et seq., and Verkooijen , paragraph 43.

16 – . Schumacker , paragraph 31.

17 – . Schumacker , paragraph 32.

18 – Ibid. See also the recent judgment in De Groot , paragraph 90.

19 – . Schumacker , paragraph 36.

20 – . Schumacker , paragraphs 36 to 38 and 47. Emphasis added.

21 – Of the many cases in point, the appellants cite Joined Cases 17/76 and 16/77 Ruckdeschel [1977] ECR 1753, paragraph 7.

22 – Case 260/86 Commission v Belgium [1988] ECR 955, paragraph 12; Case C-229/98 Vander Zwalmen [1999] ECR I-7113, paragraph 25.

23 – Which provides, it will be recalled, that [m]ovable property belonging to persons referred to in the first paragraph and situated in the territory of the country where they are staying shall be exempt from death duties in that country; such property shall, for the assessment of such duty, be considered as being in the country of domicile for tax purposes ....

24 – See, inter alia, Case C-179/90 Merci Convenzionali Porto di Genova v Siderurgica Gabrielli [1991] ECR I-5889, paragraph 11, Case C-379/92 Peralta [1994] ECR I-3453, paragraph 18, Case C-176/96 Lehtonen and Castors Braine v FRBSB [2000] ECR I-2681, paragraph 37, and Ferlini , paragraph 39.

25 – See, in particular, paragraph 16.