OPINION OF ADVOCATE GENERAL
JACOBS
delivered on 20 January 2005 (1)
Case C-464/02
Commission of the European Communities
v
Kingdom of Denmark
1.In the present case the Commission has brought an action under Article 226 EC against Denmark concerning the legislation and practice governing the use in that State by its residents of vehicles registered in another MemberState.
2.That situation most frequently arises where a resident of Denmark is employed by an undertaking established in another MemberState and that employer seeks to make available to the employee a car registered in the employer’s name in the State of the employer’s establishment, for either wholly professional or mixed private and professional use.
Background to the proceedings
3.Denmark imposes a registration tax on the acquisition of a new vehicle, calculated on the basis of its value. The rate of tax is 105% of the purchase price (including VAT and other taxes totalling 34%) up to a threshold determined each year and 180% of the remainder.(2) Although some other Member States provide for a similar tax – albeit at a very substantially lower level – Sweden and Germany, the Member States with direct road links to Denmark, have no such tax.
4.Under the legislation generally applicable in Denmark before 1 July 1999,(3) and still applicable in certain cases (‘the original legislation’), a resident of Denmark may not use a vehicle registered in another Member State without authorisation, which may be given only if the car is principally used outside Denmark and there are very specific reasons not to require registration in Denmark. It is common ground that authorisation is essentially given only for direct journeys made at weekends and holidays between the German or Swedish border and the driver’s residence; it does not permit the vehicle to be otherwise used for private purposes. Contravention is punishable by a fine. If a Danish resident wishes to use a company car provided by an employer established in another MemberState in circumstances where the proposed use does not satisfy the conditions for authorisation, his only option under the original legislation is to re-register the car in Denmark and pay the registration tax in full.
5.In 1999 the original legislation was amended(4) so as to permit a resident of Denmark to use in Denmark a vehicle registered in another Member State in the name of his employer provided that the resident obtains a permit and that his ‘principal employment’ is with that employer. The condition is satisfied where the employee either works full time for that employer or receives at least half his income from that employment. According to Denmark, the criterion of ‘principal employment’ was chosen with a view to reducing as far as possible the risk of abuse of the provisions.
6.The permit, which must be kept in the vehicle and produced to the police on request, is issued only on payment of a tax reflecting a proportion of the Danish registration tax. That tax is calculated in one of two ways.
7.First, where the vehicle is used only for the purposes of the employment, the tax is a daily tax of either DKK 60 (approximately EUR 8), in the case of cars and motorcycles, or DKK 30 (approximately EUR 4), in the case of goods vehicles, payable for each day the vehicle is used in Denmark.
8.Second, where and for so long as the vehicle is used for both private and employment purposes, the entire tax which would be imposed on re-registration in Denmark is due, payable by quarterly instalments each of 3% of that total, together with a surtax representing 1.5% of the balance of the total remaining due; in addition a one-off deposit representing one quarterly instalment of the tax and the surtax must be paid. A circular(5) specifies that daily commuting by the employee between his Danish residence and his place of employment in another MemberState is regarded as private use; any such intended use will consequently mean that the daily tax is inapplicable.
9.In both cases the tax is payable by the employer.
10.The procedure for obtaining authorisation under the amended legislation is as follows. Application must be made in writing to the local customs and tax authorities, specifying whether it relates to the daily or the quarterly tax. A certificate by the employer must be enclosed, giving details of the conditions of employment and in particular stating that it is the employee’s ‘principal employment’.
11.Where the quarterly tax – assessed by reference to the value of the vehicle – is payable, the customs authorities undertake a provisional valuation, which does not normally require the vehicle itself to be produced; the authorisation is issued shortly thereafter. Subsequently a definitive valuation is carried out by the vehicle valuation authority, which is independent of the customs authorities.
12.If the application is in order, the permit is issued automatically. In addition, windscreen stickers bearing the vehicle’s registration number are supplied. Where the daily tax is payable, the employer or the employee must write the date of use on a sticker in order for the vehicle to be lawfully used in Denmark on that date. Where the quarterly tax is payable, one sticker is supplied for each period of authorised use (up to a maximum of two years).
13.If a Danish resident driving a vehicle registered abroad cannot produce the permit and window stickers, a fine is payable; in addition, the vehicle may be impounded.
14.The original legislation remains applicable where the condition of ‘principal employment’ required by the amended legislation is not satisfied.
15.The Commission seeks a declaration that Denmark is in breach of its obligations under the combined provisions of Articles 10 and 39 EC in so far as its legislation and administrative practice (1) do not permit Danish residents who are employed in a neighbouring Member State to use for commercial or private purposes a company car registered in the neighbouring State where their employer is established and (2) permit Danish residents who are employed in another EU Member State to use for commercial and/or private purposes a motor vehicle, in particular a company car, which is registered in another Member State in which their employer is established only subject to the conditions that (i) that employment is their principal employment and (ii) duty is paid on that vehicle.
16.I assume that the first limb of the ruling requested concerns the original legislation while the second concerns the amended legislation.
The scope of Article 39 EC
17.The Commission’s principal submission is that both the original and the amended legislation are contrary to the freedom of movement for workers enshrined by Article 39 EC on the basis that they restrict both the right of employees to seek employment in another Member State and the freedom of employers in other Member States to take on employees resident in Denmark.
18.Denmark, supported by Finland which has intervened in the proceedings, submits first that the legislation – both original and amended – falls outside the scope of Article 39 EC since it does not affect access to the employment market. In particular, Denmark asserts that the legislation neither hinders access by a Danish resident to other Member States’ employment markets nor restricts undertakings established in other Member States from recruiting Danish residents: it simply regulates the conditions of use in Denmark by Danish residents of company cars registered in another MemberState.
19.After the Commission and Denmark had lodged their pleadings in the present case, the Court delivered judgment in Van Lent.(6) In that case, which concerned the use by a Belgian resident of a car made available to him by his Luxembourg employer, the Court ruled that Article 39 EC precludes national rules which prohibit a worker who is resident in one Member State from using on its territory a vehicle registered in a neighbouring Member State, belonging to a leasing company and made available to the worker by his employer, who, together with the leasing company, is established in the latter State.
20.At the hearing in the present case Denmark sought to distinguish Van Lent on the basis essentially that the user of the car in question was, under the Belgian rules then in force, unable to register the car in Belgium in his name; application for registration could be made only by the owner who had to have a Belgian VAT number or a registered office in Belgium. Under the amended Danish legislation, in contrast, the user of a company car is permitted to register a car owned by his employer.
21.I do not however consider that to be a relevant distinction. Admittedly the Court in Van Lent stated that it followed from the Belgian legislation that the worker could not register the vehicle in Belgium because he was not the owner and that the owner, a leasing company, could not register it either because it was not established in Belgium and did not have a Belgian VAT number.(7) The Court then continued, however, by stating that ‘such rules could discourage an employer based in one Member State from engaging a worker residing in another Member State because of the higher costs and administrative difficulties involved’.(8)
22.That analysis applies equally to the present case, where an employer established in another Member State can provide an employee resident in Denmark with a company car – even for solely business use – only if the employer is prepared either (i) to re-register the car in Denmark and pay the prohibitive registration tax or (ii) to follow the procedure for obtaining a permit and pay either the daily tax or the equivalent of potentially the entire registration tax in quarterly instalments, together with interest supplement and deposit.
23.As the Commission notes, provisions preventing or making more difficult the exercise by a worker of his profession, in the present case by imposing an administrative and financial burden upon his potential employer, affect access to employment. More generally, the Court has stated that the provisions of the Treaty relating to freedom of movement for 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.(9)
24.Although Denmark accepts that the legislation, taken in isolation, may seem liable to discourage an employer in another Member State from taking on an employee resident in Denmark, it contends that it should not be taken in isolation and that, viewed in the broader context of remuneration and other benefits, it does not have that effect.
25.I do not consider it necessary however to deal with that argument separately. As the Court stated in Clean Car Autoservice,(10) the right of workers to be engaged and employed without discrimination necessarily entails as a corollary the employer’s entitlement to engage them in accordance with the rules governing freedom of movement of workers; those rules could easily be rendered nugatory if Member States could circumvent them merely by imposing on employers requirements to be met by any worker whom they wish to employ which, if imposed directly on the worker, would constitute restrictions on the exercise of the worker’s right of freedom of movement under Article 39 EC.
26.Those principles apply equally in my view to a case such as the present, where a MemberState’s legislation imposes, rather than discriminatory requirements to be met, conditions for an element of remuneration or benefits which are liable to deter employers in another MemberState from employing a resident of the first MemberState. It may be added that a permit and payment of the daily tax are required even where the company car is intended solely for business use; even in such cases, therefore – in which the provision of the car cannot be seen as part of an overall remuneration and benefits package – it seems almost certain that, as the Commission submits, an employer in Germany (or Sweden) will prefer to recruit its own residents for a job which requires the employee to make business trips to or through Denmark.
27.I accordingly consider that the legislation at issue in the present case both falls within the scope of Article 39 EC and is in principle contrary to that provision.
28.Since the legislation is contrary to Article 39 on the basis of its restrictive effect, I do not consider it necessary to deal with Denmark’s submission in the alternative that the legislation is not discriminatory. Whatever the merits of that submission, it is clear that Article 39 prohibits not only all discrimination based on nationality between workers of the Member States as regards employment, remuneration and other conditions of work and employment but also national rules which, although they apply without regard to the nationality of the workers concerned, constitute an obstacle to their freedom of movement.(11) Even therefore if Denmark is correct in its assertion that the legislation is not discriminatory, it must still be contrary to Article 39.
29.On the basis that the Commission’s application can be upheld under Article 39 EC, I do not propose to deal separately with the Commission’s submission that the Danish legislation is contrary to Article 10 EC.
Possible justification
30.Denmark submits in the further alternative that the legislation at issue is justified.
31.Certainly, national measures which would otherwise be contrary to Article 39 EC may none the less be lawful if they pursue a legitimate aim compatible with the Treaty and are justified by overriding reasons relating to the public interest, provided that they are suitable for securing the attainment of the objective which they pursue and do not go beyond what is necessary in order to attain it.(12) Denmark submits in particular that the legislation pursues legitimate interests and is not disproportionate.
32.Denmark notes first that it follows from the case-law of the Court that the Danish car registration tax is compatible with Community law,(13) that registration is the natural corollary of the exercise of powers of taxation and that in a situation where a vehicle leased from a company established in one Member State is actually used on the road network of another Member State, the latter may impose an obligation for that vehicle to be registered in its territory. (14) It follows, according to Denmark, that it is also lawful for Member States to ensure that their legislation in this area is correctly applied, and in particular to ensure payment of the tax.
33.The fact that the Court in Commission v Denmarkand De Danske Bilimportører ruled that the Danish car registration tax is not contrary to Article 28 or 90 EC does not however necessarily mean that it does not restrict the freedom of movement for workers contrary to Article 39 EC or that any such restriction is necessarily justified and proportionate. It may also be noted that the present case concerns not the normal operation of the tax but its application to vehicles registered in another Member State by an owner established in that Member State. It is clear moreover that Member States must exercise their powers of taxation in the non-harmonised area of car tax in compliance with Community law; indeed the Court in Cura Anlagen, one of the cases relied on by Denmark, expressly stated as much.(15) It is not therefore sufficient for Denmark to invoke its power to levy registration tax; it must also demonstrate that it has properly exercised that power.
34.The same argument applies to the submission of Finland that the taxation of motor vehicles is a matter of MemberState competence.
35.Denmark submits second that any restrictive effect of the legislation is based on the need to ensure that the liability of Danish residents to registration tax is not circumvented. Without the rules, Danish residents might avoid paying the tax by setting up companies or branches in another MemberState through which to acquire and use in Denmark cars registered in the other State.
36.It is true that Member States may deny the benefit of the free movement provisions to persons guilty of abuse or fraud. That may however be done only on a case-by-case basis where there is evidence of such conduct. The mere risk of abuse or fraud cannot justify a general restriction, which would prevent the bona fide exercise of Community rights.(16) Such restrictions are necessarily disproportionate, since they make impossible the legitimate exercise of Community rights.
37.Third, Denmark submits that the legislation protects against erosion of the tax yield, which it estimates at some DKK 15 billion (1997 figures). It is settled case-law however that a loss of tax revenue can never be relied upon to justify a restriction on the exercise of a fundamental freedom.(17)
38.Fourth, Denmark submits that the condition of ‘principal employment’, which must be satisfied in order for the amended legislation to be applicable, is proportionate. That condition seeks to ensure that an employee benefiting from a company car is genuinely employed by the provider; a purely formal employment relationship is not sufficient. The condition is objective and easy to verify.Denmark adds that if the amended legislation were applicable to any Danish resident employed, whether full or part time, in another MemberState, it would be much more difficult to guard against abuse. It considers that if that were the case the police would have to check every foreign-registered car driven in Denmark by a resident of that State with a view to verifying that such drivers were genuinely employed, whether full or part time, in another Member State, which would be inappropriate.
39.I am not convinced by that argument. It seems to me that a workable and less restrictive alternative would be to have a permit system which enabled the genuineness of the employment link to be evaluated, with no requirement of tax to be paid where that link was genuine.
40.Moreover, if the employee’s ‘principal employment’ is not with the employer providing the company car, then in order to use that car for any private purposes – including daily commuting – the car must be re-registered in Denmark. It is hard to see any justification for that approach. It is settled case-law that Article 39 EC also protects part-time workers and those with low incomes;(18) to the extent that the legislation at issue restricts the freedom of movement of such workers, it is contrary to the Treaty notwithstanding that the employment giving rise to the company car is not their ‘principal employment’ as defined by national legislation.
41.Even where the amended legislation is applicable, it requires a permit to be obtained for a company car registered in another MemberState before a Danish resident can use the car in Denmark, however briefly and even if the car is regularly returned to the employer. Even daily commuting between the employee’s residence and his place of employment is apparently regarded as private use; hence quarterly tax will be payable even if that is the only use of a company car. Again that requirement would appear to go beyond what is necessary to achieve the objectives invoked by Denmark. Similar considerations apply to the fact that the legislation makes no provision for taking account of the different proportions of private and business use.
42.Finally, Denmark argues that in Cura Anlagen(19)the Court accepted that a consumption tax proportionate to the duration of the registration of the vehicle in the State where it is used would be proportionate; its ruling that the consumption tax at issue in that case was unlawful appeared particularly to be prompted by the fact that the amount of the tax was not proportionate to the duration of that registration. Denmark concludes from those statements that its legislation on the registration tax applicable to vehicles registered in another MemberState is not incompatible with the Treaty provisions on freedom of movement.
43.I do not consider however that the Court’s ruling as to the lawfulness of the consumption tax at issue in Cura Anlagen, payment of which was a condition of registration,is relevant to the present case. A consumption tax is different in kind from a car registration tax; the aim of the consumption tax at issue in Cura Anlagen was to ensure environmentally friendly conduct in the purchase and leasing of private vehicles, the rate of the tax being fixed in relation to the vehicle’s fuel consumption.
44.In the context of proportionality I would make the following comment by way of conclusion. It must be borne in mind that the registration tax is – as indeed Denmark accepts – set at a particularly high level and is consequently, for the reasons discussed above, liable to have a substantial deterrent effect on the employment of Danish residents by undertakings established in other Member States. Even therefore if the legislation pursued a legitimate aim compatible with the Treaty and were justified by overriding reasons relating to the public interest, which has not to my mind been demonstrated in the present proceedings, it seems to me that it would be extremely difficult to argue that it was suitable for securing the attainment of the objective which it pursues and did not go beyond what was necessary in order to attain it.
Conclusion
45.I am therefore of the opinion that the Court should:
(1)declare that the Kingdom of Denmark is in breach of its obligations under the combined provisions of Articles 10 and 39 EC in so far as its legislation and administrative practice (1) do not permit Danish residents who are employed in a neighbouring Member State to use in Denmark for commercial or private purposes a company car registered in the neighbouring State where their employer is established and (2) permit Danish residents who are employed in another EU Member State to use in Denmark for commercial and/or private purposes a motor vehicle, in particular a company car, which is registered in another Member State in which their employer is established only subject to the conditions that (i) that employment is their principal employment and (ii) duty is paid on that vehicle;
(2)order the Kingdom of Denmark to bear the costs of the Commission;
(3)order the Republic of Finland, as intervener, to bear its own costs.
1 – Original language: English.
2 – For further details of the tax, see my Opinion in Case C-383/01 De Danske Bilimportører [2003] ECR I-6065, point 11.
3 – In particular Articles 105a and 106 of Decree No 18 of the Ministry of Justice of 10 January 1992, replaced by Decree No 592 of the Ministry of Transport of 24 June 1996.
4 – By Law No 385 of 2 June 1999 and Decree No 502 of the Ministry of Transport of 21 June 1999.
5 – Circular No 102 of 28 June 1999, replaced by the Guide to excise duties and by Circular No 172 of 20 September 2001.
6 – Case C-232/01 [2003] ECR I-11525.
7 – Paragraph 18.
8 – Paragraph 20.
9 – See Case C-387/01 Weigel and Weigel, paragraph 52 of the judgment delivered on 29 April 2004 and the cases there cited.
10 – Case C-350/96 [1998] ECR I-2521, paragraphs 20 and 21.
11 – Weigel and Weigel, cited in footnote 9, paragraphs 50 and 51.
12 – Case C-415/93 Bosman [1995] ECR I-4921, paragraph 104 and cases there cited.
13 – Case 47/88 Commission v Denmark[1990] ECR I-4509 and De Danske Bilimportører, cited in footnote 2.
14 – Case C-451/99 Cura Anlagen [2002] ECR I-3193, paragraphs 41 and 42.
15 – Cited in footnote , paragraph 40.
16 – See for example Case C-28/95 Leur-Bloem [1997] ECR I-4161, paragraphs 39 to 44, Case C-478/98 Commission v Belgium[2000] ECR I-7587, paragraph 45, and Case C-436/00 X and Y [2002] ECR I-10829, paragraph 62.
17 – Case C-385/00 De Groot [2002] ECR I-11819, paragraph 103 and the cases there cited, and X and Y, cited in footnote16, paragraph 50.
18 – Case 53/81 Levin [1982] ECR 1035; Case 139/85 Kempf [1986] ECR 1741 and Case 66/85 Lawrie-Blum [1986] ECR 2121.
19 – Cited in footnote , paragraph 69 and operative part.