JUDGMENT OF THE COURT

15 February 2000 (1)

(Social security - Finance - Legislation applicable)

In Case C-169/98,

Commission of the European Communities, represented by P. Hillenkamp, LegalAdviser, and H. Michard, of its Legal Service, acting as Agents, with an address forservice in Luxembourg at the Chambers of C. Gómez de la Cruz, of the sameservice, Wagner Centre, Kirchberg,

applicant,

v

French Republic, represented by K. Rispal-Bellanger, Head of Subdirectorate inthe Legal Affairs Directorate of the Ministry of Foreign Affairs, and C. Chavance,Secretary for Foreign Affairs in the same Directorate, acting as Agents,

defendant,

APPLICATION for a declaration that, by applying the general social contributionto the employment income and substitute income of employed and self-employedpersons resident in France but who, by virtue of Council Regulation (EEC) No1408/71 of 14 June 1971 on the application of social security schemes to employedpersons, to self-employed persons and to members of their families moving within

the Community, as amended and updated by Council Regulation (EC) No 118/97of 2 December 1996 (OJ 1997 L 28, p. 1), are not subject to French social securitylegislation, the French Republic has failed to fulfil its obligations under Articles 48and 52 of the EC Treaty (now, after amendment, Articles 39 and 43 EC) andArticle 13 of the said regulation,

THE COURT,

composed of: G.C. Rodríguez Iglesias, President, J.C. Moitinho de Almeida(Rapporteur), D.A.O. Edward, L. Sevón and R. Schintgen (Presidents ofChambers), C. Gulmann, J.-P. Puissochet, G. Hirsch, P. Jann, H. Ragnemalm andM. Wathelet, Judges,

Advocate General: A. La Pergola,

Registrar: H. von Holstein, Deputy Registrar,

having regard to the Report for the Hearing,

after hearing oral argument from the parties at the hearing on 4 May 1999,

after hearing the Opinion of the Advocate General at the sitting on 7 September1999,

gives the following

Judgment

1.

    By application lodged at the Court Registry on 7 May 1998, the Commission of theEuropean Communities brought an action under Article 169 of the EC Treaty (nowArticle 226 EC) for a declaration that, by applying the general social contribution('contribution sociale généralisée‘, 'the CSG‘) to the employment income andsubstitute income of employed and self-employed persons resident in France butwho, by virtue of Council Regulation (EEC) No 1408/71 of 14 June 1971 on theapplication of social security schemes to employed persons, to self-employedpersons and to members of their families moving within the Community, asamended and updated by Council Regulation (EC) No 118/97 of 2 December 1996(OJ 1997 L 28, p. 1, 'Regulation No 1408/71‘), are not subject to French socialsecurity legislation, the French Republic has failed to fulfil its obligations underArticles 48 and 52 of the EC Treaty (now, after amendment, Articles 39 and 43EC) and Article 13 of the said regulation.

The Community rules

2.

    Article 4 of Regulation No 1408/71 provides:

'1.    This Regulation shall apply to all legislation concerning the followingbranches of social security:

(a)    sickness and maternity benefits;

(b)    invalidity benefits, including those intended for the maintenance orimprovement of earning capacity;

(c)    old-age benefits;

(d)    survivor's benefits;

(e)    benefits in respect of accidents at work and occupational diseases;

(f)    death grants;

(g)    unemployment benefits;

(h)    family benefits.

2.    This Regulation shall apply to all general and special social securityschemes, whether contributory or non-contributory, and to schemes concerning theliability of an employer or shipowner in respect of the benefits referred to inparagraph 1.‘

3.

    Article 1(j) of Regulation No 1408/71 defines the term 'legislation‘ as meaning 'inrespect of each Member State statutes, regulations and other provisions and allother implementing measures, present or future, relating to the branches andschemes of social security covered by Article 4(1) and (2) or those specialnon-contributory benefits covered by Article 4(2a)‘.

4.

    Article 13 of the regulation provides:

    

'1. Subject to Article 14c, persons to whom this Regulation applies shall be subjectto the legislation of a single Member State only. That legislation shall bedetermined in accordance with the provisions of this Title.

2. Subject to Articles 14 to 17:

(a)    a person employed in the territory of one Member State shall be subject tothe legislation of that State even if he resides in the territory of another

Member State or if the registered office or place of business of theundertaking or individual employing him is situated in the territory ofanother Member State;

(b)     a person who is self-employed in the territory of one Member State shall besubject to the legislation of that State even if he resides in the territory ofanother Member State;

...‘.

The national rules

5.

    The CSG was introduced by Finance Law No 90-1168 of 29 December 1990(Journal Officiel de la République Française, 30 December 1990, p. 16367). Therelevant provisions relating to the CSG, namely Articles 127 to 135 of that Law,were incorporated in the Social Security Code (Articles L.136-1 to L.136-9) by LawNo 93-936 of 22 July 1993 on retirement pensions and the safeguarding of socialprotection (JORF, 23 July 1993, p. 10374).

6.

    All natural persons domiciled in France for income tax assessment purposes areliable to pay the CSG, in particular on their employment income or substituteincome.

7.

    For the purposes of Article 4B of the General Tax Code, persons whose home orprincipal place of residence is in France, persons who are employed or self-employed in France, unless they prove that that employment is on an ancillarybasis, and persons for whom France is the centre of their economic activities aredeemed to be domiciled in France for tax purposes.

8.

    The CSG is charged on income from assets, investment income, sums wagered orwinnings, as well as employment income and substitute income, including thatreceived abroad or from a foreign source, subject to international conventions onthe avoidance of double taxation concluded by the French Republic.

9.

    Law No 96-1160 of 27 December 1996 on the funding of social security for 1997(JORF, 29 December 1996, p. 19369) enlarged the assessment basis for the CSGas regards employment income and substitute income, so as to align it for the mostpart with the assessment basis for the social debt repayment contribution which isthe subject of another case in which judgment has been delivered today (CaseC-34/98 Commission v France). The CSG thus applies to wages, professional fees,retirement and invalidity pensions and unemployment allowances.

10.

    Pursuant to Article L. 136-8 III of the Social Security Code, as amended by LawNo 96-1160, the proceeds of the CSG are paid to the Caisse Nationale desAllocations Familiales (National Family Allowances Fund), the Fonds de Solidarité

Vieillesse (Old-Age Solidarity Fund) and the compulsory sickness insuranceschemes.

11.

    In so far as it applies to employment income and substitute income, the CSG iscollected by the institutions responsible for collecting contributions to the generalsocial security scheme, according to the rules and with the guarantees and penaltiesapplicable to the collection of contributions to the general scheme for the samecategory of income. For the purposes of applying those provisions, frontier workerswere asked to register with the agencies of the Union de Recouvrement desCotisations de Sécurité Sociale et d'Allocations Familiales (Union for the Collectionof Social Security and Family Allowance Contributions).

Pre-litigation procedure

12.

    By letter of formal notice of 25 November 1994, the Commission requested theFrench Government to submit observations on the compatibility with Communitylaw of applying the CSG to the employment income and substitute income ofemployed and self-employed persons residing in France but working in anotherMember State, who are not, by virtue of Regulation No 1408/71, subject to Frenchsocial security legislation.

13.

    By letter of 22 March 1995, the French authorities replied that they did not sharethe Commission's views with regard to the connection between the CSG, a socialcontribution, and the scope of Regulation No 1408/71, particularly the rule inArticle 13 that the legislation of a single Member State is to apply. On 28November 1994 the French Government nevertheless decided to suspend theadministrative procedures for the collection of the CSG as regards persons withemployment income and income substitution benefit from a foreign source with aview to reforming the legislation in question.

14.

    Following that the suspension, the Commission deferred a decision on bringing anaction under Article 169 of the Treaty for failure to fulfil Treaty obligations and,by letter of 21 March 1996, Commission staff asked the French authorities toinform them of the situation with regard to the collection of the CSG from theworkers concerned and the reforms which had been announced.

15.

    The Commission considered the French Government's reply to be unsatisfactoryand, by letter of 6 October 1997, again asked the French authorities to inform itwithin one month of the situation with regard to the collection of the CSG from theworkers concerned and the reforms envisaged. No reply to that letter was received.

16.

    On 16 December 1997, the Commission sent the French authorities a reasonedopinion to the effect that, by applying the CSG to the employment income andsubstitute income of workers resident in France but who, by virtue of Regulation

No 1408/71, were not subject to French social security legislation, the FrenchRepublic was failing to comply with Articles 48 and 52 of the Treaty and Article13 of that Regulation. The Commission asked the French Republic to comply withthe reasoned opinion within two months of its notification.

17.

    Since the French authorities failed to comply with the reasoned opinion within theperiod allowed, the Commission decided to bring the present action.

The action

18.

    This action concerns the levying of the CSG only in so far as it relates to theemployment income and substitute income obtained by employed and self-employed persons resident in France and taxable in that Member State, inconnection with employment, present or past, in another Member State. Suchpersons are covered by the social security scheme of the State of employment inaccordance with Regulation No 1408/71.

19.

    According to the Commission, that charge is a double social security levy contraryboth to Article 13 of Regulation No 1408/71 and to Articles 48 and 52 of theTreaty.

Infringement of Article 13 of Regulation No 1408/71

20.

    The Commission submits that the CSG, which is intended to contribute to thefinancing of several branches of the general French social security scheme listed inArticle 4 of Regulation No 1408/71, is a social security contribution which fallswithin the scope of that regulation. In that connection the means of collecting theCSG and the rules governing disputes arising from liability to pay that contribution,which are those applicable to social security contributions, confirm that connectionbetween the CSG and Regulation No 1408/71. Moreover, the fact that the CSGassessed on employment income and substitute income is, pursuant to Finance LawNo 96-1181 of 30 December 1996 (JORF, 31 December 1996, p. 19490), in partdeductible from income tax reinforces the view that the levy is in the nature of asocial security contribution falling within the scope of Regulation No 1408/71.

21.

    Consequently, according to the Commission, by levying the CSG on theemployment income and substitute income of employed and self-employed personsresident in France obtained in relation to employment in another Member State,the French Republic is disregarding the rule set out in Article 13 of Regulation No1408/71 that the legislation of a single State is to apply, in so far as that sameincome has already borne all the social charges imposed in the Member State ofemployment, whose legislation is the sole legislation applicable by virtue of Article13.

22.

    The French Government contends that the right to social protection is one of thecitizen's fundamental rights. Such protection must at the same time cover the entirepopulation and be at a high level, whilst its cost must be shared equitably betweencitizens.

23.

    It considers that the latter objective should not be attained by financing foundedon social security contributions based on employment income alone but mustinvolve all income. The CSG, together with the social debt repayment contributionwhich is the subject of the judgment in Case C-34/98 Commission v France, referredto above, constitute measures adopted in the context of the move towards fundingsocial security by taxation.

24.

    By reason of its characteristics and purpose, the CSG should be categorised as atax, thereby falling outside the scope of Regulation No 1408/71 and remainingwithin the ambit of the Member States' own responsibilities in budgetary and socialpolicy matters.

25.

    In support of its argument, the French Government points out in particular that theCSG is payable on the basis of the single criterion of domicile for tax purposes inFrance, whatever the occupational status of the person concerned or social securitysystem to which he belongs. Moreover, persons subject to the CSG do not receiveany social security benefit in return for that contribution, whereas all personsresident in France, whether or not they are employed, may, on account of thatresidence, enjoy the social benefits financed by the CSG and which form part of thenational solidarity scheme, namely family benefits and benefits from the Fonds deSolidarité Vieillesse. Neither the means of collecting the proceeds of the CSG northe way in which they are allocated constitutes a relevant criterion for applicationof the principle that the legislation of a single Member State is to apply.

26.

    The French Government points out that Regulation No 1408/71 does not containany definition of the term 'social contributions‘ and leaves the Member States freeto choose the various methods of organisation and funding for their social securitysystems.

27.

    If, as the Commission states, the system of social security funding in Denmark,which is based mainly on tax, is compatible with Community law, the same shouldapply in respect of the CSG. It would, of course, have been possible to ensure thatthe social security branches concerned were financed by an increase inter alia inincome tax, which would have to be paid by frontier workers resident in France aswell. The French Republic did not choose such a system, which would lack'visibility‘ as far as taxpayers were concerned and would therefore be likely to alarge extent to frustrate the objective pursued.

28.

    Lastly, the French Government contends that the CSG does not constitute ameasure the purpose of which is to compensate for the fact that frontier workers

do not belong to and therefore do not contribute to the French social securityscheme, pursuant to Regulation No 1408/71. The rate of the CSG represents 7.5%of pay, whilst the total of the sums levied relating to social contributions amountsto 42% of the pay of those liable.

29.

    As the Court has held, however, the fact that a worker is required to pay, inrespect of the same earned income, social charges arising under the legislation ofseveral States, although he can be an insured person only in respect of thelegislation of one State, means that the worker must pay contributions twice over,contrary to the provisions of Regulation No 1408/71 (see in particular Case 102/76Perenboom [1977] ECR 815, paragraph 13, and Case C-60/93 Aldewereld [1994]ECR I-2991, paragraph 26) .

30.

    It is common ground that the persons concerned by this infringement action,namely Community nationals resident in France but who, because they work inanother Member State, pursuant to the provisions of Article 13 of Regulation No1408/71, are insured persons under the legislation of the State of employmentalone, are required, subject, where applicable, to conventions on the avoidance ofdouble taxation concluded by the French Republic, to pay, in respect of incomerelating to their work in the Member State of employment, not only the socialcharges arising from the latter's social security legislation, but also the socialcharges, in this case the CSG, arising from the application of the legislation of theMember State of residence.

31.

    The argument of the French Government to the effect that since the CSG is reallyto be categorised as a tax it falls outside the scope of Regulation No 1408/71 andaccordingly is not caught by the prohibition against overlapping legislation cannotbe accepted.

32.

    The fact that a levy is categorised as a tax under national legislation does not meanthat, as regards Regulation No 1408/71, that same levy cannot be regarded asfalling within the scope of that regulation and caught by the prohibition againstoverlapping legislation.

33.

    As the Court has held, in particular in Case C-327/92 Rheinhold & Mahla [1995]ECR I-1223, paragraph 15, Article 4 determines the matters covered by RegulationNo 1408/71 in terms which make it clear that the national social security schemesare subject in their entirety to the application of the rules of Community law. Atparagraph 23 of that judgment the Court stated that the decisive factor for thepurposes of applying Regulation No 1408/71 is that there must be a link betweenthe provision in question and the legislation governing the branches of socialsecurity listed in Article 4 of Regulation No 1408/71, and that link must be directand sufficiently relevant.

34.

    As the Commission rightly maintains, there is such a direct and sufficiently relevantlink between the CSG and the legislation governing the branches of social security

listed in Article 4 of Regulation No 1408/71 so that it can be regarded as a levycovered by the prohibition against double contributions.

35.

    As the Advocate General noted at points 25 and 26 of his Opinion, in contrast tolevies designed to meet general public charges, the CSG is allocated specifically anddirectly to financing social security in France, the corresponding revenue beingallocated to the Caisse Nationale des Allocations Familiales, the Fonds deSolidarité Vieillesse and the compulsory sickness schemes. The purpose of the CSGis therefore to finance more particularly the branches which concern old-age,survivors', sickness and family benefits, which are covered by Article 4 ofRegulation No 1408/71.

36.

    That link between the CSG and the legislation governing social security in Franceis also clearly revealed by the fact that, as the French Government itself asserts, thelevy replaces in part social security contributions which were a heavy burden on lowand medium levels of pay, and means that an increase in existing contributions canbe avoided.

37.

    The fact that payment of the CSG does not give entitlement to any direct andidentifiable benefit in return does not undermine that conclusion.

38.

    For the purposes of the application of Article 13 of Regulation No 1408/71, thedecisive criterion is that of the specific allocation of a contribution to the fundingof the social security scheme of a Member State. Whether benefits are obtained inreturn or not is therefore irrelevant in this connection.

39.

    In the light of those considerations, the first of the Commission's objections is wellfounded.

Infringement of Articles 48 and 52 of the Treaty

40.

    According to the Commission, taxpayers resident in France and covered by theFrench social security scheme are in a situation that is different from that oftaxpayers who are resident in that Member State but, having exercised their rightsto free movement and freedom of establishment laid down in Articles 48 and 52of the Treaty respectively, are required to contribute to the funding of the socialsecurity scheme of another Member State pursuant to Regulation No 1408/71. Byfailing to take that difference into account, the French Republic is in breach of theprinciple of equal treatment laid down in those provisions.

41.

    For the French Government, in contrast, workers in receipt of employment incomeor substitute income in another Member State are, as regards the CSG, in asituation comparable to that of workers receiving such income in France, so thatno discrimination has been introduced with regard to the former. First of all, the

rate of and assessment basis for the CSG are identical for all residents in France,whatever their nationality, who are subject to tax on their income from a foreignsource. According to the French Government, the CSG is thus an integral part ofa tax system that is wholly consistent with regard to residents taxable in France.Secondly, the CSG falls within the scope of the bilateral conventions on theavoidance of double taxation concluded by the French Republic which giveentitlement to tax credits or exemption for income from a foreign source in orderto eliminate any double taxation. Lastly, the French Government points to the lowrate of the levy in question which, since 1 January 1998, has been 7.5% on pay and6.2% on substitute income.

42.

    Even if the CSG is applicable in the same way to all residents in France, however,those who work in another Member State and who, in accordance with Article 13of Regulation No 1408/71, contribute to the funding of the social security schemeof that State are being required in addition to finance, even if only partially, thesocial security scheme of the State of residence, whereas all other residents areexclusively required to contribute to the latter State's scheme.

43.

    The rule laid down in Article 13 of Regulation No 1408/71 that the legislation ofa single Member State is to apply in matters of social security is aimed specificallyat eliminating unequal treatment which is the consequence of partial or totaloverlapping of the legislation.

44.

    As is clear from the tenth recital in the preamble to Regulation No 1408/71, theprinciple that the legislation of a single Member State is to apply is aimed atguaranteeing 'the equality of treatment of all workers occupied on the territory ofa Member State as effectively as possible‘.

45.

    It follows from the foregoing that, as the Advocate General noted in point 35 ofhis Opinion, in putting forward this objection the Commission is only focusing, inthe light of Articles 48 and 52, on the same infringement as that found in thecontext of Article 13 of Regulation No 1408/71. Since the CSG scheme is at theorigin of the unequal treatment contrary to that Article, it disregards to the samedegree the provisions of the Treaty that Article 13 is designed to implement. Theunequal treatment thus found constitutes an obstacle to the free movement ofworkers for which, in view of Article 13 of Regulation No 1408/71, there can be nojustification.

46.

    As regards the argument of the French Government to the effect that in any eventthe CSG only affects a limited number of the workers concerned by this action onaccount of bilateral conventions on the avoidance of double taxation concluded bythe French Republic, and that the rate of the contested levy is minimal, it needmerely be observed that, according to the case-law of the Court, the articles of theTreaty concerning the free movement of goods, persons, services and capital arefundamental Community provisions and any restriction, even minor, of that

freedom is prohibited (see in particular Case C-49/89 Corsica Ferries France [1989]ECR 4441, paragraph 8).

47.

    The Commission's second objection is therefore also well-founded.

48.

    It follows from all the above considerations that, by applying the CSG to theemployment income and substitute income of employed and self-employed personsresident in France but who, by virtue of Regulation No 1408/71, are not subject toFrench social security legislation, the French Republic has failed to fulfil itsobligations under Article 13 of that regulation and under Articles 48 and 52 of theTreaty.

Costs

49.

    Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to beordered to pay the costs if they have been applied for in the successful party'spleadings. Since the Commission has asked that the French Republic be orderedto pay the costs and the latter has been unsuccessful, it must be ordered to pay thecosts.

On those grounds,

THE COURT

hereby:

1.    Declares that, by applying the general social contribution to theemployment income and substitute income of employed and self-employedpersons resident in France but who, by virtue of Council Regulation (EEC)No 1408/71 of 14 June 1971 on the application of social security schemesto employed persons, to self-employed persons and to members of theirfamilies moving within the Community, as amended and updated byCouncil Regulation (EC) No 118/97 of 2 December 1996, are not subject toFrench social security legislation, the French Republic has failed to fulfilits obligations under Article 13 of that regulation and under Articles 48 and52 of the EC Treaty (now, after amendment, Articles 39 and 43 EC);

2.    Orders the French Republic to pay the costs.

Rodríguez IglesiasMoitinho de Almeida Edward Sevón                Schintgen            Gulmann Puissochet Hirsch            Jann                Ragnemalm Wathelet

Delivered in open court in Luxembourg on 15 February 2000.

R. Grass

G.C. Rodríguez Iglesias

Registrar

President

1: Language of the case: French.