JUDGMENT OF THE COURT (Sixth Chamber)

28 October 1999 (1)

(Freedom to provide services - Income tax - Taxable income - Deduction ofexpenses for professional training courses - Distinction according to the locationof the courses)

In Case C-55/98,

REFERENCE to the Court under Article 177 of the EC Treaty (now Article 234EC) by the Højesteret (Supreme Court), Denmark for a preliminary ruling in theproceedings pending before that court between

Skatteministeriet

and

Bent Vestergaard

on the interpretation of Articles 6 and 59 of the EC Treaty (now, after amendment,Articles 12 EC and 49 EC),

THE COURT (Sixth Chamber),

composed of: R. Schintgen (Rapporteur), President of the Second Chamber, actingas President of the Sixth Chamber, P.J.G. Kapteyn and G. Hirsch, Judges,

Advocate General: A. Saggio,

Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

-    the Skatteministeriet, by P. Biering, Advocate, Copenhagen,

-    Mr Vestergaard, by T.V. Christiansen, Advocate, Åbyhøj,

-    the Netherlands Government, by A. Bos, Legal Adviser at the Ministry ofForeign Affairs, acting as Agent,

-    the Commission of the European Communities, by H.P. Hartvig, LegalAdviser, and H. Michard, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of the Danish Ministry of Fiscal Affairs,represented by P. Biering, of Mr Vestergaard, represented by L. Henriksen,Advocate, Åbyhøj, and of the Commission, represented by H.P. Hartvig, at thehearing on 11 March 1999,

after hearing the Opinion of the Advocate General at the sitting on 10 June 1999,

gives the following

Judgment

1.

    By order of 18 February 1998, received at the Court on 24 February 1998, theHøjesteret (Supreme Court), Denmark, referred to the Court for a preliminaryruling under Article 177 of the EC Treaty (now Article 234 EC) two questions onthe interpretation of Articles 6 and 59 of the EC Treaty (now, after amendment,Articles 12 EC and 49 EC).

2.

    The questions have been raised in proceedings between the DanishSkatteministeriet (Ministry of Fiscal Affairs) and Mr Vestergaard concerning therefusal of the Ministry to allow expenses incurred by Mr Vestergaard in taking partin professional training courses held abroad to be deducted as operating costs fromthe taxable income of the company Bent Vestergaard A/S, of which MrVestergaard is the sole shareholder.

Danish law

3.

    In Denmark, Article 4 of the Statsskatteloven (State Law Tax) No 149 of 10 April1922 (hereinafter 'the 1922 Law‘) provides that income, in the form of money orgoods evaluable in money, is liable to tax.

4.

    Article 6 of the 1922 Law provides:

'(1)    The following are to be deducted from taxable income:

(a)    operating costs, that is expenses which, during the course of the year, havebeen incurred with a view to acquiring, ensuring or maintaining income, includingordinary depreciation;

...

(2)    The fiscal income is taxable irrespective of the manner in which it is used,whether it is for personal or family purposes, the purchase of services, benefits orleisure, to increase assets, improve property, extend a business or a company, forsavings or funds of the same type, for gifts or in any other way.‘

5.

    The operating costs which are deductible under Article 6(1)(a) of the 1922 Law aredefined by administrative practice and case-law. Thus, the guidelines produced bythe Danish Ministry of Fiscal Affairs for the 1988 tax year stated:

'Expenditure relating to participation in professional courses is deductible in thecase of courses intended to maintain and update the professional knowledge andtraining of participants ...

In the case where a professional conference or course is transferred to a foreigncountry (generally ordinary tourist resorts), this will have the effect of setting asidethe right to deduct, unless the travel destination/course location can as such betreated as justified on professional grounds.‘

6.

    In the guidelines covering tax years after the year in question in the mainproceedings, such as 1996, the following statement also appears:

'It is thus presumed that the holding of the course in a foreign tourist resortinvolves such a significant tourism element that the course expenditure cannot beregarded as constituting deductible operating costs.‘

7.

    The file shows that this statement was added as a result of judgments of the VestreLandsret (Western Regional Court) of 17 April 1984 and 8 October 1984,published in the Tidsskrift for Skatteret 1984, Nos 238 and 471 respectively, whichwere subsequently upheld by the Højesteret in a judgment of 19 October 1994,published in the Ugeskrift for Retsvæsen 1994, p. 970. In its order for reference, thenational court states in this regard:

'When a course is held in an ordinary tourist resort abroad, and this locationcannot be justified as such on professional grounds, there is a presumption that thecourse involves such a significant tourism element that the course expenditurecannot be regarded as constituting deductible operating costs.

This presumption can be rebutted through information concerning, in particular,the content and duration of the course in relation to the duration of the stay ...

When the course is held in an ordinary tourist resort in Denmark, this presumptiondoes not exist.

There is no case-law, whether in the form of judicial rulings or decisions taken byadministrative authorities, to the effect that the right to deduct in connection withthe participation in courses held in Denmark should be set aside on the groundsthat a course was held in an ordinary tourist resort.‘

The facts and the main proceedings

8.

    Mr Vestergaard is a certified auditor and employed by the company BentVestergaard A/S which is an auditing company, of which he is the sole shareholder.

9.

    From 3 to 10 October 1988 Mr Vestergaard attended a tax training course on theisland of Crete. It was organised solely for Danish participants by a firm of Danishauditors in conjunction with a travel agency. Out of the seven days spent inGreece, three whole days and two half days were devoted to the course.

10.

    The costs relating to Mr Vestergaard's participation in the course, his travel andaccommodation, amounting to DKK 5 516, were paid by the company BentVestergaard A/S. Mr Vestergaard's wife accompanied him on the trip and at thehotel, for which she paid a sum of DKK 3 700 privately.

11.

    By decision of 29 June 1993, the Landsskatteretten (National Tax Tribunal) decidedthat the expenses relating to Mr Vestergaard's participation in the course on Creteshould be treated as a salary bonus paid to him as sole shareholder in the companyBent Vestergaard A/S and could not therefore be deducted from his taxableincome under Article 6(1)(a) of the 1922 Law.

12.

    Mr Vestergaard instituted proceedings against this decision before the VestreLandsret (Western Regional Court), which, by judgment of 3 May 1995, found thathe had succeeded in overturning the presumption that the course had such asignificant tourism element that the costs could not be regarded as deductibleoperating costs and that, consequently, the tax administration was wrong in treatingthe costs of the course as a salary bonus for Mr Vestergaard.

13.

    The Skatteministeriet appealed against the judgment of the Vestre Landsret to theHøjesteret. When a new argument, that the taxation of the course fees in questionas a salary bonus was incompatible with Articles 6 and 59 of the Treaty, was raisedby Mr Vestergaard before the national court, it decided to stay proceedings and tosubmit the following two questions to the Court for a preliminary ruling:

'(1)    Is it in accordance with Articles 6 and 59 of the EC Treaty for Danish case-law (see the judgment of the Højesteret of 19 October 1994, published in theUgeskrift for Retsvæsen 1994, p. 970) to apply a presumption that, in cases in whicha course is held in an ordinary tourist resort outside Denmark, and the courselocation cannot, as such, be justified on professional grounds, the course involvessuch a significant tourism element that the costs relating to the course cannot betreated as constituting deductible operating costs?

(2)    If the answer is in the negative, can the position in domestic tax law, asdescribed above ..., be justified by reference to the case-law of the Court of Justice,in particular Case C-204/90 Bachmann v Belgium and Case C-250/95 FuturaParticipations and Singer v Administration des Contributions?‘

The questions referred for a preliminary ruling

14.

    By its two questions, which can be examined together, the national court asksessentially whether Articles 6 and 59 of the Treaty preclude rules of a MemberState which, for the purposes of determining taxable income, presume thatprofessional training courses held in ordinary tourist resorts located in otherMember States involve such a significant tourism element that the costs involvedin taking part in those courses cannot be treated as deductible operating costs,while such a presumption does not exist for training courses held in ordinary touristresorts located within the territory of that Member State.

15.

    It must be observed first of all that, although, as Community law stands at present,direct taxation does not as such fall within the purview of the Community, thepowers retained by the Member States must nevertheless be exercised consistentlywith Community law (see, in particular, Case C-118/96 Safir [1998] ECR I-1897, atparagraph 21).

16.

    Secondly, according to settled case-law, the first paragraph of Article 6 of theTreaty, which lays down the general principle of the prohibition of discriminationon grounds of nationality, applies independently only to situations governed byCommunity law in respect of which the Treaty lays down no specific rule againstdiscrimination (see, in particular, Case C-22/98 Becu and Others [1999] ECR I-0000,at paragraph 32).

17.

    With regard to freedom to provide services, this principle is given specificexpression and effect by Article 59 of the Treaty. There is therefore no need torule on the interpretation of Article 6 of the Treaty.

18.

    Thirdly, it is important to point out that in order for services such as those inquestion in the main proceedings, namely the organisation of professional trainingcourses, to fall within the scope of Article 59 of the Treaty, it is sufficient for themto be provided to nationals of a Member State on the territory of another MemberState, irrespective of the place of establishment of the provider or recipient of theservices.

19.

    Article 59 of the Treaty applies not only where a person providing a service andthe recipient are established in different Member States, but also whenever aprovider of services offers those services in a Member State other than the one inwhich he is established (see Case C-381/93 Commission v France [1994] ECRI-5145, at paragraph 14), wherever the recipients of those services may beestablished (see Case C-398/95 SETTG [1997] ECR I-3091, at paragraph 8).

20.

    In addition, the right to exercise freedom to provide services includes the freedomfor the recipients of services to go to another Member State in order to receive aservice there, without being obstructed by restrictions (see, in particular, CaseC-224/97 Ciola [1999] ECR I-0000, at paragraph 11).

21.

    As regards the question whether the rules of a Member State, such as at issue inthe main proceedings, contains a restriction prohibited under Article 59 of theTreaty, it must be observed that, by making the right to deduct costs relating toparticipation in professional training courses held in an ordinary tourist resortabroad conditional upon the rebuttal, by the taxpayer, of a presumption that suchcourses involve such a significant tourism element that the costs cannot be treatedas deductible operating costs, while such a presumption does not exist for coursesheld in ordinary tourist resorts located in the said Member State, those rulessubject the provision of services constituted by the organisation of professionalcourses to different tax arrangements depending on whether the services areprovided in other Member States or in the Member State concerned.

22.

    Rules of a Member State which, like those in question in the main proceedings,make it more difficult to deduct costs relating to participation in professionaltraining courses organised abroad than to deduct costs relating to such coursesorganised in that Member State involve a difference in treatment, based on theplace where the service is provided, prohibited by Article 59 of the Treaty.

23.

    Such a difference in treatment is not justified by the need to preserve the cohesionof a tax system nor by the effectiveness of fiscal supervision, which, in thejudgments in, respectively, Bachmann (Case C-204/90 [1992] ECR I-249) andFutura Participations and Singer (Case C-250/95 [1997] ECR I-2471), mentioned bythe referring court, have been recognised as capable of justifying the regulationsand thus restricting the fundamental freedoms guaranteed by the Treaty.

24.

    In the cases which led to the judgment in Bachmann, cited above, and to thejudgment delivered on the same day in Case C-300/90 Commission v Belgium [1992]ECR I-305, there was a direct link between the deductibility of contributions andthe taxation of sums payable by insurers under pension and life assurance contracts,and that link had to be maintained to preserve the cohesion of the tax system inquestion (see C-484/93 Svensson and Gustavsson [1995] ECR I-3955, at paragraph18; Case C-107/94 Asscher [1996] ECR I-3089, at paragraph 58, and Case C-264/96ICI [1998] ECR I-4695, at paragraph 29). In the present case, as the AdvocateGeneral observes in paragraph 39 of his Opinion, there is no such direct linkbetween any taxation and the deductibility of costs relating to participation inprofessional training courses.

25.

    Furthermore, while a Member State may, in the interests of the effectiveness offiscal supervision, apply measures which allow the amount of costs deductible inthat State as operating costs to be ascertained clearly and precisely, and inparticular those incurred in taking part in professional training courses (see FuturaParticipations and Singer, cited above, at paragraph 31, and Case C-254/97 Baxterand Others [1999] ECR I-0000, at paragraph 18), it cannot however provide anyjustification for that Member State to make the deduction subject to differentconditions according to whether the courses take place in that State or in anotherMember State.

26.

    In that regard, it should be remembered that Council Directive 77/799/EEC of 19December 1977 concerning mutual assistance by the competent authorities of theMember States in the field of direct taxation (OJ 1977 L 336, p. 15) can be invokedby a Member State in order to obtain from the competent authorities of anotherMember State all the information enabling it to ascertain the correct amount ofincome tax. In addition, there is nothing to prevent the tax authorities concernedfrom requiring the taxpayer himself to produce the proof which they considernecessary to assess whether or not the deduction requested should be allowed (seeBachmann and Commission v Belgium, cited above, at respectively paragraphs 18and 20 and paragraphs 11 and 13).

27.

    The Skatteministeriet argues that the exchange of information between national taxauthorities provided for by Directive 77/799 is not sufficient to enable them toresolve problems which, like those in the instant case, would require an assessment,in particular, of the nature of the training in question and its duration in relationto the duration of the stay, having regard to the rules and case-law of the MemberState to which those authorities belong.

28.

    However, it should be emphasised that the information which Directive 77/799allows the competent authorities of a Member State to request is in fact all theinformation which appears to them to be necessary to ascertain the correct amountof revenue tax payable by a taxpayer in relation to the legislation which they haveto apply themselves (see, to this effect, Futura Participations and Singer, atparagraph 41) and that the directive does not in any way affect the competence ofthose authorities to assess in particular whether the conditions to which thatlegislation subjects the deduction of certain costs are fulfilled.

29.

    The answer to be given to the questions submitted must therefore be that Article59 of the Treaty precludes a Member State from having rules which, for thepurposes of determining taxable income, presume that professional training coursesheld in ordinary tourist resorts located in other Member States involve such asignificant tourism element that the costs of taking part in those courses cannot betreated as deductible operating costs, while such a presumption does not exist inthe case of professional training courses held in ordinary tourist resorts locatedwithin the territory of that Member State.

Costs

30.

    The costs incurred by the Netherlands Government and by the Commission, whichhave submitted observations to the Court, are not recoverable. Since theseproceedings are, for the parties to the main proceedings, a step in the actionpending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the Højesteret by judgment of 18February 1998, hereby rules:

Article 59 of the EC Treaty (now, after amendment, Article 49 EC) precludes aMember State from having rules which, for the purposes of determining taxableincome, presume that professional training courses held in ordinary tourist resortslocated in other Member States involve such a significant tourism element that thecosts of taking part in those courses cannot be treated as deductible operatingcosts, while such a presumption does not exist in the case of professional trainingcourses held in ordinary tourist resorts located within the territory of that MemberState.

SchintgenKapteyn Hirsch

Delivered in open court in Luxembourg on 28 October 1999.

R. Grass

J.C. Moitinho de Almeida

Registrar

President of the Sixth Chamber

1: Language of the case: Danish.