Discrimination of migrating workers in area of social benefits26/02/05 / cata_european-union-news

Judgment of the European Court of Justice in Merida (C-400/02) of 16 September 2004

The European Court of Justice (the “ECJ”) was asked to review the provisions of the German social security regulations applicable to nationals of other Member States employed in Germany in the armed forces.

Under the German legislation, retired employees had the right to a specific social benefit. The benefit was supposed to compensate for any difference between the former employment income, as had been affectively received by an employee net of any income taxes due on his remuneration, and his income after the termination of employment.

Therefore, as the ECJ observed, the purpose of the benefit was to ensure that the target employees received, at least for some time after the retirement, total income equal to that which they would have effectively obtained as employees.

The proceedings before the ECJ involved a French national, previously employed in the armed forces in Germany who, during the employment, was liable to personal income tax on his salary in France only, pursuant to the applicable tax treaty. Under the French laws, his tax liabilities were lower than they would have been should he had been taxable in Germany.

Upon retirement from the service, the claimant was granted the social benefit. However, as the contested German rules required, the basis for calculation of that benefit was reduced by notional German tax potentially due on his former remuneration.

The ECJ held that the German rules were likely to affect migrant workers more than German nationals. In the present case, the claimant did not receive benefits equal to his actual net salary, since deduction was made for the notional German tax and not for the actual French taxes paid. In case of German nationals, however, these rules allowed for exact compensation since they would have paid their taxes in Germany.

Consequently, the ECJ found German rules in breach of the freedom of workers, as also further implemented by the provisions of the Regulation 1612/68 of 15 October 1968 on freedom of movement for workers within the Community.

The ECJ accepted no justifications for the infringement of Community law. In particular, the ECJ ruled that any administrative difficulties, which German authorities might have been faced with when accounting for taxes actually paid by migrant workers in their Member States of residence, may not affect the proper application of the Treaty freedoms.