MR and Mrs Robert Gilly v. Directeur des Services Fiscaux du Bas-Rhin (Case C-336/96) Before the Court of Justice of the European Communities ECJ (Presiding, RodrÍguez Iglesias, P.; Wathelet ( Rapporteur) and Schintgen PP.C.; Mancini, Moitinho de Almeida, Kapteyn, Murray, Puissochet, Hirsch, Sevón and Ioannou JJ.) Mr Ruiz-Jarabo Colomer, Advocate General. 12 May 1998 Reference from France by the Tribunal Administratif (Administrative Court), Strasbourg under Article 177 E.C. Taxation--bilateral double taxation convention between Member States-- applying nationality as a connecting factor--not contrary to Article 48 E.C. in absence of Community harmonisation--Article 6 E.C. not applicable since Article 48 specifically implemented principle of non-discrimination concerning free movement of workers--second indent of Article 220 E.C. listing elimination of double taxation as an objective--not directly effective. Mrs Gilly, a German national who resided in France and had acquired French dual nationality by marriage, taught in a State school in the frontier area of Germany. Article 14(1) of the double taxation convention of 21 July 1959 between France and Germany ("the Convention") provided that taxpayers receiving remuneration from the public sector were taxable in the paying State. Article 20(2)(a) provided, however, that income arising in Germany and taxable there was also to be taxable in France where it accrued to a person resident in France and that, although the German tax was not to be deductible in calculating the taxable income in France, the recipient was to be entitled to a tax credit to be set against the French tax charged on the taxable amount which included that income. The tax credit was, pursuant to Article 20(2)(cc), to be equal to the amount of the French tax on the relevant income. In fact, however, because of the greater progressivity of the tax scale in Germany than in France and the fact

that in such a situation German law took no account of a taxpayer's personal and family circumstances, the amount of the credit to be set against French tax could be less than the amount of tax actually paid in Germany. During certain tax years, Mrs Gilly's pay in Germany was indeed taxed there in accordance with Article 14(1) of the Convention *608 and was also taxed in France under Article 20(2)(a). The tax credit to which she was entitled in France was indeed less than the amount of German tax she had paid. She therefore brought proceedings before the Tribunal Administratif, Strasbourg, arguing that the relevant provisions of the Convention had led to excessive, discriminatory taxation contrary to Articles 6, 48 and 220 E.C. The court then referred several questions to the Court of Justice asking whether the second indent of Article 220 E.C. was directly effective and as to whether the regime applied to Mrs Gilly infringed Articles 6 or 48 E.C. Mrs Gilly argued (i) that by taking account of her nationality the tax arrangements had discriminated against her on grounds of nationality contrary to Article 7 EEC (now Article 6 E.C.) and Article 48 E.C.; and (ii) that, by permitting an element of double taxation, the tax credit mechanism penalised those who, like her, had exercised their freedom of movement. The French Government argued, inter alia, that Article 48 E.C. did not apply because Mrs Gilly had not exercised in France the rights conferred upon her by that Article and was instead to be regarded as a German national working in Germany. Held: (1) Whether the second indent of Article 220 E.C. had direct effect. The second indent of Article 220 E.C. did not have direct effect because, although abolition of double taxation was an objective of the E.C. Treaty, Article 220 was not intended to lay down a legal rule directly applicable as such but to define matters on which Member States were to enter negotiations "so far as necessary". The second indent merely indicated that the abolition of double taxation within the Community was an objective of such negotiations. [14]-[17] Mutsch (137/84): [1985] E.C.R. 2861; [1986] 1 C.M.L.R. 648, followed. (2) The applicability of Article 48 E.C. (a) Mrs Gilly had acquired French nationality by marriage and worked in Germany whilst residing in France. She was therefore to be treated in France as a worker exercising her freedom of movement under the Treaty to work in a Member State other than that in which she resided. That she had retained the nationality of the Member State in which she worked did not affect the fact that the French authorities were to treat her as a French national working in another Member State. She was therefore within the scope of Article 48 E.C. [19]-[22] Gullung v. Conseil de l'Ordre des Avocats du Barreau de Colmar et de Saverne (292/86): [1988] E.C.R. 111; [1988] 2 C.M.L.R. 57, followed. (b) The Community had not yet adopted harmonising measures to eliminate double taxation, nor had the Member States adopted any multilateral convention to that effect under Article 220 E.C. The Member States were therefore

competent to determine criteria for *609 taxation with a view to eliminating double taxation by means, inter alia, of bilateral agreements such as the Convention. Accordingly, although Article 14(1) of the Convention did apply the criterion of nationality for the purposes of fiscal jurisdiction, such differentiation could not be regarded as discrimination prohibited by Article 48 E.C. since it flowed, in the absence of any harmonising measure, from the contracting parties' competence to define the criteria for allocating powers of taxation as between themselves, with a view to eliminating double taxation. Furthermore, the taxpayer had not been disadvantaged by the choice of connecting factor itself but rather by the underlying differences in the level of taxation in the States concerned. [23]-[35] (3) The application of Article 7 EEC (now Article 6 E.C.). Article 6 E.C., which laid down a general principle prohibiting discrimination on grounds of nationality, applied independently only in situations covered by Community law in respect of which the Treaty laid down no specific prohibition of discrimination. Accordingly since Article 48 E.C. and measures of secondary legislation (including Regulation 1612/68) specifically implemented the principle of non discrimination in respect of freedom of movement for workers, Article 6 E.C. could not be relied upon. [36]-[39] Mora Romero v. Landesversicherungsanstalt Rheinprovinz (C-131/96): [1997] E.C.R. I-3659; [1997] 3 C.M.L.R. 1141, followed. (4) The legality of the tax credit mechanism under Article 48 E.C. Any unfavourable consequences entailed in the tax credit mechanism arose from the differences in the tax scales of the Member States concerned and, in the absence of harmonising measures, the determination of such scales was a matter for the Member States. Furthermore, the fact that personal and family circumstances had been taken into account in the State of residence but not the State of employment derived from the fact that, in relation to direct taxes, the situations of residents and non-residents were not, as a rule, comparable, since income received in a State by a non-resident was in most cases only a part of his total income, which was concentrated at his place of residence. This was true in Mrs Gilly's case and the German authorities were not therefore obliged to take account of her personal and family circumstances. [40]-[50], [54] Finanzamt Köln-Altstadt v. Schumacker (C-279/93): [1995] E.C.R. I-225; [1996] 2 C.M.L.R. 450, followed. Representation C. de Salins, Head of Sub-directorate in the Legal Directorate of the Ministry of Foreign Affairs, and G. Mignot, Foreign Affairs Secretary in the same directorate, acting as Agents, for the French Government. J. Devadder, General Adviser in the Ministry of Foreign Affairs, Trade and Cooperation with Developing Countries, acting as Agent, for the Belgian Government. *610 P. Biering, Legal Adviser and Head of Division in the Ministry of Foreign Affairs, and J. Molde, Legal Adviser and Head of Division in the same ministry, in oral argument, acting as Agents, for the Danish Government.

E. Röder, Ministerialrat in the Federal Ministry of Economic Affairs, acting as Agent, for the German Government. Professor U. Leanza, Head of the Legal Department of the Ministry of Foreign Affairs, acting as Agent, assisted by G. de Bellis, Avvocato dello Stato, for the Italian Government. H. Rotkirch, Ambassador, Head of the Legal Department of the Ministry of Foreign Affairs, acting as Agent, for the Finnish Government. E. Brattgård, Departmentsråd in the Department of Foreign Trade of the Ministry of Foreign Affairs, acting as Agent, for the Swedish Government. J. E. Collins of the Treasury Solicitor's Department, and R. Singh of the same department, in oral argument, acting as Agents, for the United Kingdom Government. M. Fierstra, Deputy Legal Adviser in the Ministry of Foreign Affairs, acting as Agent, in oral argument, for the Dutch Government. H. Michard and E. Traversa, of the Legal Service of the E.C. Commission, acting as Agents, for the Commission. Cases referred to in the judgment: 1. Criminal Proceedings against Mutsch (137/84), 11 July 1985: [1985] E.C.R. 2861; [1986] 1 C.M.L.R. 648. 2. Gullung v. Conseil de l'Ordre des Avocats du Barreau de Colmar et de Saverne (292/86), 19 January 1988: [1988] E.C.R. 111; [1988] 2 C.M.L.R. 57. 3. Romero v. Landesversicherungsanstalt Rheinprovinz (C-131/96), 25 June 1997: [1997] E.C.R. I-3659; [1997] 3 C.M.L.R. 1141. 4. Finanzamt Köln-Altstadt v. Schumacker (C-279/93), 14 February 1995: [1995] E.C.R. I-225; [1996] 2 C.M.L.R. 450. Further cases referred to by the Advocate General: 5. Ussl No. 47 di Biella (C-134/95), 16 January 1997: [1997] E.C.R. I-195. 6. Annunziata Matteucci v. Communaute Francaise of Belgium and Commissariat General aux Relations Internationales of the Communaute Francaise of Belgium (235/87), 27 September 1988: [1988] E.C.R. 5589; [1989] 1 C.M.L.R. 357. 7. Pigs Marketing Board v. Redmond (83/78), 29 November 1978: [1978] E.C.R. 2347; [1979] 1 C.M.L.R. 177. 8. Durighello v. Istituto Nazionale della Previdenza Sociale (C-186/90), 28 November 1991: [1991] E.C.R. I-5773. 9. Lourenço Dias v. Director Da Alfândega do Porto (C-343/90), 16 July 1992: [1992] E.C.R. I-4673. 10. Stephanie Robards v. Insurance Officer (149/82), 3 February 1983: [1983] E.C.R. 171; [1983] 2 C.M.L.R. 537 *611 . 11. Salonia v. Poidomani and Others (126/80), 16 June 1981: [1981] E.C.R. 1563; [1982] 1 C.M.L.R. 64. 12. Criminal Proceedings against Bernaldez (C-129/94), 28 March 1996: [1996] E.C.R. I-1829; [1996] 2 C.M.L.R. 889.

13. Kontogeorgas v. Kartonpak AE (C-104/95), 12 December 1996: [1996] E.C.R. I-6643; [1997] 1 C.M.L.R. 1093. 14. Meilicke v. ADV/ORGA F. A. Meyer AG (C-83/91), 16 July 1992: [1992] E.C.R. I-4871. 15. Foglia v. Novello (244/80), 16 December 1981: [1981] E.C.R. 3045: [1982] 1 C.M.L.R. 585. 16. Scholz v. Opera Universitaria di Cagliari (C-419/92), 23 February 1994: [1994] E.C.R. I-505; [1994] 1 C.M.L.R. 873. 17. Criminal Proceedings against Skanavi and Chryssanthakopoulos (C-193/94), 29 February 1996: [1996] E.C.R. I-929; [1996] 2 C.M.L.R. 372. 18. E.C. Commission v. France (270/83), 28 January 1986: [1986] E.C.R. 273; [1987] 1 C.M.L.R. 401. 19. Wielockx v. Inspecteur der Directe Belastingen (C-80/94), 11 August 1995: [1995] E.C.R. I-2493. 20. Asscher v. Staatssecretaris Van Financiën (C-107/94), 27 June 1996: [1996] E.C.R. I-3089; [1996] 3 C.M.L.R. 769. 21. Futura Participations SA and Singer v. Administration des Contributions (C250/95), 15 May 1997: [1997] E.C.R. I-2471; [1997] 3 C.M.L.R. 483. 22. Biehl v. Administration des Contributions du Grand-Duche de Luxembourg (C-175/88), 8 May 1990: [1990] E.C.R. I-1779; [1990] 3 C.M.L.R. 143. 23. E.C. Commission v. Luxembourg (C-111/91), 10 March 1993: [1993] E.C.R. I-817. 24. Union Royale Belge des Societes de Football Association and Others v. Bosman and Others (C-415/93), 15 December 1995: [1995] E.C.R. I-4921; [1996] 1 C.M.L.R. 645. 25. Esso Espanola SA v. Comunidad Autonoma de Canarias (C-134/94), 30 November 1995: [1995] E.C.R. I-4223; [1996] 5 C.M.L.R. 154. Opinion of Mr Advocate General Colomer 1. The Tribunal Administratif, Strasbourg, has referred to the Court, pursuant to Article 177 E.C., various questions concerning the interpretation of Articles 6, 48 and 220 E.C. in order to give judgment in actions brought by Mr and Mrs Gilly against decisions of the Directeur des Services Fiscaux du Bas-Rhin requiring them to pay additional personal income tax for the years 1986, 1988, 1990, 1991, 1992 and 1993. 2. According to the findings of the national court in the order for reference, Mr Gilly is a French natonal and works as a teacher in the French State education system. His wife, who was originally a German *612 national and acquired French nationality by marriage, is employed as a teacher in the German State education system. The couple reside in France. 3. Mrs Gilly's income tax liability is governed by the Convention of 21 July 1959 between France and Germany for the avoidance of double taxation ("the FrancoGerman Convention"), [FN1] by the additional protocols to the Convention dated 9 June 1969 and 28 September 1989 and by Instruction 14-B- 2-93 of the French tax authorities containing detailed rules for application.

FN1 Convention signed in Paris on 21 July 1959 between France and Germany for the avoidance of double taxation and the establishment of rules for mutual legal and administrative assistance in the field of income and wealth tax and in the field of business tax and land tax. 4. In the present case, Mrs Gilly's income from employment, which was paid by Land Baden-Württemberg, was taxed in Germany in accordance with the first sentence of Article 14(1) of the Franco-German Convention because it was public-service remuneration and the recipient was a German national. 5. To avoid double taxation, while Article 20(a) in the version of the Additional Protocol of 1969 was in force, France did not include Mrs Gilly's income in the couple's taxable income but took it into account when calculating the rate of tax applying to income received in France. When this provision was amended by the 1989 Protocol, such income was also taxed in France, although in respect of tax paid abroad there was a right to a tax credit equal to the amount of the French tax on the relevant income. 6. In their actions Mr and Mrs Gilly contend that application of the FrancoGerman Convention entails in their case excessive, unjustifed and discriminatory taxation which is incompatible with Articles 3(c), 6, 48, 73d and 220 of the Treaty. They claim that the additional tax assessments by the French tax authorities should be annulled and that Mrs Gilly should be granted the status of a frontier worker for tax purposes. Alternatively, they seek an order that the tax credit granted in France in respect of tax paid abroad should be equal to the amount of the actual tax paid in Germany and, if not, that Mrs Gilly's income in Germany should not be taken into account in calculating the couple's tax in France. Finally, they seek repayment of the tax wrongfully paid. The questions referred 7. Taking the view that the outcome of the proceedings depended on the interpretation of Articles 6, 48 and 220 of the Treaty, the Tribunal Administratif, Strasbourg, stayed the proceedings and requested the Court to give a preliminary ruling on: (1) whether the principle of freedom of movement for workers, as embodied in the Treaty of Rome and the implementing legislation, is contravened by a tax regime, applicable to frontier workers, of the kind provided for by the FrancoGerman Convention, in so far as the *613 latter lays down taxation arrangements which are different for people whose remuneration is paid by a public entity as compared with those whose remuneration is paid by private persons and as a result is liable to have an impact on access to posts in the public or private sectors depending on residence in one State or another; (2) as to the compatibility, in view of the Court's interpretation of the Treaty, with the principle of the freedom of movement and the abolition of all discrimination on grounds of nationality of a rule under which a frontier worker receiving remuneration from a State or an agency thereof governed by public law is

taxable in that State whereas, if the frontier worker has the nationality of the other State but is not at the same time a national of the first State, his remuneration is taxable in the State where the frontier worker resides; (3) as to the compatibility with Article 7 [now Article 6] [FN2] of the Treaty of a tax provision which lays down for frontier workers employed by persons governed by public law and residing in one of the Member States a tax regime which differs according to whether they are nationals only of that State or have dual nationality; (4) whether the principle of freedom of movement for workers, as embodied in the Treaty, is contravened by tax rules which are liable to affect the choice made by teachers in the contracting States as to whether to work on a more or less long-term basis in another State having regard to the differences, based on the duration of employment, in the tax regimes of the States in question; (5) whether the objective of abolishing double taxation laid down in Article 220 of the Treaty must be regarded, in view of the time which the Member States have had to implement it, as now having the status of a directly applicable rule under which double taxation may no longer take place and, secondly, whether the objective of avoiding double taxation assigned to the Member States by Article 220 is contravened by a tax convention under which the tax regime applicable to frontier workers of States party to the convention varies according to their nationality and the public or private nature of the post held and whether a tax credit regime applicable to a household living in one State which does not take into account the exact amount of the tax paid in another State but only a tax credit, which may be lower, meets the objective assigned to the Member States of abolishing double taxation; (6) whether Article 48 must be interpreted as meaning that nationals of a Member State who are frontier workers in another Member State may not, by reason of a tax credit mechanism of the type provided for by the Franco-German Convention, be taxed more heavily than persons whose occupational activity is pursued in their State of residence. FN2 Amended by Article G(8) of the Treaty on European Union. The contested provisions of the Franco-German Convention 8. Article 13(1) lays down the basic principle that income from employment is taxable only in the contracting State where the personal activity giving rise to the income is carried on. This rule does not apply to what is referred to as "public service remuneration". 9. Article 13(5)(a) provides for an exception to the abovementioned rule in that income from employment earned by persons who work in the frontier area of one contracting State and who have their *614 permanent home in the frontier area of the other contracting State to which they normally return each day is taxable only that other State. 10. Article 14(1) sets out the criteria governing the taxation of public-service remuneration. The first sentence lays down the general rule that remuneration

paid by one of the contracting States or by a Land or by a legal person of that State governed by public law to natural persons resident in the other State in consideration for military or administrative services is taxable only in the first State. There is also an exception to this rule, set out in the second sentence, which is to the effect that where remuneration is paid to persons having the nationality of the other State without being at the same time nationals of the first State, the remuneration is taxable only in the State where they reside. 11. Article 16 contains a special rule applying to teachers who go from one State to work in the other for a limited period, in which case they remain taxable in the State in which they habitually reside. According to this provision, teachers habitually residing in one of the contracting States who, in the course of a temporary stay not exceeding two years in the other State, receive remuneration for teaching activity in a university, college, school or other teaching establishment are taxable on that remuneration only in the first State. 12. Article 20(2) lays down detailed rules for the avoidance of double taxation of persons residing in France. As worded by the Additional Protocol of 9 June 1969, it provided as follows: (a) Subject to the provisions of (b) and (c), income arising in Germany which, under this Convention, is taxable in Germany shall be excluded from the basis of assessment in France. However, this rule shall not limit the right of France to take account of the income thus excluded when determining its rates of taxation. Since the entry into force of the Additional Protocol of 28 September 1989, the wording of the provision for the avoidance of double taxation of persons residing in France has been as follows: (a) Profits and other positive income arising in Germany and taxable there under the provisions of this Convention shall also be taxable in France where they accrue to a person resident in France. The German tax shall not be deductible for calculation of the taxable income in France. However, the recipient shall be entitled to a tax credit which may be set against the French tax charged on the taxable amount which includes that income. That tax credit shall be equal: ... (cc) for all other income, to the amount of the French tax on the relevant income. This provision shall apply in particular to the income referred to in Articles ... 13(1) and (2) and 14. 13. Article 21(1) provides for equal treatment of taxpayers in that nationals of one contracting State are not to be liable in the other contracting State for any tax or obligation relating thereto which is different from or more onerous than the taxes or obligations relating *615 thereto to which nationals of that other State are of may be liable in the same situation. The Community legislation 14. The provisions which are the subject of the national court's request for interpretation all form part of the E.C. Treaty and are as follows: Article 6

Within the scope of application of this Treaty, and without prejudice to any special provisions contained therein, any discrimination on the grounds of nationality shall be prohibited. ... Article 48 ... 2. [Freedom of movement for workers] shall entail the abolition of any discrimination based on natonality between workers of the Member States as regards employment, remuneration and other conditions of work and employment. ... Article 220 Member States shall, so far as is necessary, enter into negotiations with each other with a view to securing for the benefit of their nationals: ... -- the abolition of double taxation within the Community; ... 15. In addition, Article 7 of Regulation 1612/68 [FN3] provides as follows: 1. A worker who is a national of a Member State may not, in the territory of another Member State, be treated differently from national workers by reason of his nationality in respect of any conditions of employment and work, in particular as regards remuneration, dismissal, and should he become unemployed, reinstatement or re-employment. FN3 Regulation 1612/68 of the Council on freedom of movement for workers within the Community ([1968] O.J. English Spec. Ed. (II), p. 475). 2. He shall enjoy the same social and tax advantages as national workers. ... The different views put forward in the proceedings on the reference 16. Within the time-limit laid down for the purpose by Article 20 of the E.C. Statute of the Court of Justice, written observations were submitted by the plaintiffs in the main proceedings, the Governments of Belgium, Denmark, Germany, France, Italy, Finland, Sweden and the United Kingdom, and the Commission. During the oral procedure observations were submitted by the plaintiffs in the main proceedings and by the representatives of the Governments of Denmark, France, Italy, the Netherlands and the United Kingdom, and by the Commission. *616 17. The plaintiffs consider Mrs Gilly's tax situation to be discriminatory for three reasons: first, because Article 14(1) of the Franco-German Convention

provides for treatment which differs according to the nationality of the taxpayer in so far as that nationality determines whether the income from employment paid by a public agency is taxable in the State which pays it or in the State of residence; secondly, because the same provision differentiates between frontier workers according to whether they work in the public or the private sector; and, thirdly, because Article 16 of the Franco-German Convention distinguishes between teachers residing in France according to whether they go to teach in Germany for a period of less or more than two years. In addition, they assert, Mrs Gilly suffers double taxation in so far as, under the Franco-German Convention, her income from employment is taxable both in Germany, where she is deemed to be a single taxpayer without children (whereas in fact she is married and has two dependent children) and in France, where the income she receives in Germany is added to her husband's income for the purpose of calculating the total taxable income of the household. In this connection the plaintiffs add that the tax credit for tax paid abroad, laid down by the Convention for income from work as employees, reduces the double taxation slightly but does not eliminate it. 18. All the Member States which have submitted observations agree that the provisions of the Franco-Geman Convention which are regarded by the plaintiffs in the main proceedings as discriminatory and contrary to Article 48 of the Treaty are in reality entirely compatible with it and that Article 220 does not have direct effect. 19. Article 48, they maintain, does not prevent two Member States from applying, in order to eliminate double taxation on the income from employment of persons residing in one State and working in the other, different tax criteria depending on whether the taxpayers are employed in the public or the private sector, nor does it prevent such States from applying, for the same purpose, different tax criteria to public sector employees of one of them, depending on whether the taxpayer is or is not a national of that State or whether teachers residing in one State go to the other to work there for a period longer than two years or not. Nor does Article 48 preclude, in the framework of a convention between two States for the avoidance of double taxation, the State where the taxpayer resides from taxing all his income, including that received in the other Member State, and granting him, in relation to the latter, a tax credit for tax paid abroad equal to the amount of the national tax on the relevant income. Several Member States observe that the problem confronting the plaintiffs in the main proceedings does not arise from discriminatory treatment under French tax law, but from the difference between tax rates in the two countries, the rate being higher in Germany than in *617 France. Some States draw the Court's attention to the repercussions which would ensue from a judgment interpreting Article 48 as precluding the provisions in question of the Franco-German Convention, because all those provisions conform with the model convention of the Organisation for Economic Co-operation and Development (OECD) for the avoidance of double taxation, on which most bilateral conventons signed by the Member States among themselves are based.

Article 220, they consider, does not have direct effect because it is not sufficiently clear and unconditional and does not confer upon individuals a right to the abolition of all double taxation within the Community. 20. The Commission begins with a detailed examination of the consequences of applying the Franco-German Convention to the tax situation of Mr and Mrs Gilly. In France, where they reside, income tax is payable on the entire income of the couple (who constitute a household for tax purposes) irrespective of where the income is received. The French scale of tax rates and the French system of progressive tax are applied, and spouses cannot opt to be taxed separately. When calculating allowances and deductions for family commitments, account is taken of the taxable income in France, that is to say, the couple's total income. In the present case, as the income received in France is less than one half of the total income (Mr Gilly's income being 45 per cent), he ends up by paying more income tax than if he were taxed separately. In Germany, Mrs Gilly, whose income is approximately 55 per cent of the couple's total income, is not entitled to the preferential scale for married couples, which is known as the "Splittingtarif". [FN4] She is automatically deemed to be single because her husband does not reside in Germany. In her case, application of the preferential scale would have resulted in reducing her tax liability in Germany because her income is more than one half of the couple's total income. FN4 "Splitting" consists in aggregating the spouses' income and notionally attributing 50 per cent to each. If the income of one spouse is greater than that of the other, this system levels out the taxable income and reduces the progressive increase in the scale of the tax. On that basis, the Commission considers that in Germany Mrs Gilly's liability to tax should have regard to her marital status, so that her husband's income in France should be taken into account. That would certainly ensure consistency in each State with regard to application of the progressive scale of its tax. 21. The Commission goes on to discuss Article 20(2)(a)(cc) of the FrancoGerman Convention in the light of Article 220 of the Treaty. It submits that Article 220 imposes on the Member States an obligation to act, namely to enter into negotiations if necessary, but not an obligation to achieve a specific result, and that bilateral conventions for the avoidance of double taxation meet the objective of Article 220. The Commission adds that, in its opinion, the machinery of the *618 Convention avoids double taxation and that Community law does not prevent Mr and Mrs Gilly from being subject to a higher tax burden in so far as this is due to the higher rate of tax in Germany. 22. It concludes that the application of French law to the couple's total income and of German law to Mrs Gilly's income in Germany constitutes, by reason of the way in which her marital status is taken into account, an obstacle which is incompatible with the principles governing the freedom of movement of workers. Preliminary observations 23. Before discussing the questions referred by the Tribunal Administratif,

Strasbourg, I think it is necessary to comment on the following points: A. The Court's jursidiction, in the framework of the procedure laid down by Article 177, to give a ruling on the compatibility of the Franco-German Convention with Community law; B. The admissibility of the fourth question from the national court, asking whether the principle of freedom of movement for workers, as embodied in the Treaty, is contravened by tax rules which are liable to affect the choice made by teachers in the contracting States as to whether to work on a more or less long-term basis in another State; C. The provisions of Community law applicable to the main proceedings in relation to the prohibition of discrimination on the ground of nationality with regard to freedom of movement for workers. 24. I shall examine these questions in that order. A. The Court's jurisdiction, in the framework of the procedure laid down by Article 177, to give a ruling on the compatibility of the Franco-German Convention with Community law 25. On this point I take the view that, just as the Court does not, within the framework of these proceedings, have jurisdiction to give a ruling on the compatibility of a national measure with Community law, [FN5] nor can it give a ruling on the compatibility with Community law of the provisions of an international treaty concluded by two Member States for the avoidance of double taxation. FN5 Case C-134/95, Ussl No 47 di Biella v. Inail: [1997] E.C.R. I-195, para. [17]. Moreover, as the treaty in question is a bilateral convention on a matter such as direct taxation which is outside the Community's competence and which is regulated exclusively by the Member States, the Court could not even undertake to interpret it. However, the rules governing freedom of movement for workers are within the ambit of Community law and the parties to the main proceedings are the tax authority of one of the Member States and a Community national who has exercised her freedom of movement and *619 who considers herself a victim of discrimination arising from the provisions of a bilateral convention for the avoidance of double taxation. In those circumstances, the Court may give the national court guidance on the interpretation of the area of Community law which will enable it to give judgment in the main proceedings. [FN6] FN6 Case 235/87, Matteucci v. Communaute Francaise de Belgique: [1988] E.C.R. 5589; [1989] 1 C.M.L.R. 357, para. [14]. I therefore propose that the Court reformulate the questions from the national court. B. The admissibility of the fourth question from the national court, asking

whether Article 48 precludes a provision of the nature of Article 16 of the Franco-German Convention 26. Under Article 16 of the Franco-German Convention, teachers habitually residing in one of the contracting States who, in the course of a temporary stay not exceeding two years in the other State, receive remuneration for teaching in a university, college, school or other teaching establishment are taxable on that remuneration only in the first State. Mr and Mrs Gilly consider that this provision gives rise to discrimination in tax matters between teachers, contrary to the freedom to move between France and Germany, because teachers who reside in one of those States and teach in the other for a limited period have the status of frontier workers without having to reside or work in the frontier area, and thus pay less tax than teachers who, like Mrs Gilly, reside in France and decide to teach in Germany for more than two years. 27. In my opinion, the plaintiffs' purpose in advancing this argument, which is echoed in the national court's observation, in the order for reference, that Article 16 may influence the choice made by teachers in the contracting States as to whether to work on a more or less long-term basis in another State, is not so much to support a particular interpretation of the principle of freedom of movement for workers within the Community, as to obtain from the Court a ruling against Article 16 of the Franco-German Convention, which has not been applied to them. 28. In actual fact, it is not clear from the order for reference whether Mr and Mrs Gilly were in the situation to which Article 16 refers. According to the national court, Mr Gilly teaches in the French State education system and it does not appear that he has taught in Germany for a period either greater or less than two years. His wife teaches in the German State education system, in a post which she has held continuously for more than two years and again there is no indication that she previously taught in France for less than two years while resident in Germany. In reply to my question at the hearing, the plaintiffs confirmed these points. 29. There is a body of settled case law concerning the respective roles *620 of the national courts and the Court of Justice in the framework of the co-operation procedure provided for by Article 177 of the Treaty. According to that case law, the national court, which alone has direct knowledge of the facts of the case, is in the best position to assess, having regard to the particular features of the case, whether a preliminary ruling is necessary to enable it to give judgment and the relevance of the questions to be put to the Court, [FN7] whereas it is a matter for the Court of Justice, in order to determine whether it has jurisdiction, to examine the conditions under which the case is referred to it by the national court. The spirit of co-operation which must prevail in the preliminary ruling procedure requires the national court to have regard to the function entrusted to the Court of Justice, which is to assist in the administration of justice in the Member States and not to deliver opinions on general or hypothetical questions. [FN8]

FN7 Case 83/78, Pigs Marketing Board v. Redmond: [1978] E.C.R. 2347; [1979] 1 C.M.L.R. 177, para. [25]; Case C-186/90, Durighello v. INPS: [1991] E.C.R. I5773, para. [8]; and Case C-343/90, Lourenço Dias v. Director Da Alfândega do Porto: [1992] E.C.R. I-4673, para. [15]. FN8 Case 149/82, Robards v. Insurance Officer: [1983] E.C.R. 171; [1983] 2 C.M.L.R. 537, para. [19], and Lourenço Dias, cited in fn. 7, para. [17]. 30. Taking account of this function, the Court has held that it could not give a ruling on a question from a national court where the request for interpretation or examination of the validity of a rule of Community law bore no relation to the actual nature of the case or to the subject-matter of the main proceedings, [FN9] or where it was asked to give a ruling on a hypothetical problem without having before it the matters of fact or law necessary to give a useful answer to the questions submitted to it. [FN10] FN9 Case 126/80, Salonia v. Poidomani and Giglio: [1981] E.C.R. 1563; [1982] 1 C.M.L.R. 64, para. [6]; Durighello, cited in fn. 7, para. [9]; Case C-129/94, Ruiz Bernaldez: [1996] E.C.R. I-1829; [1997] 1 C.M.L.R. 1093, para. [7]; and Case C104/95, Kontogeorgas v. Kartonpak: [1996] E.C.R. I-6643; [1997] 1 C.M.L.R. 1093, para. [11]. FN10 Case C-83/91, Meilicke v. ADV/ORGA: [1992] E.C.R. I-4871, paras [32] and [33]. The Court has held that it: does not have jurisdiction to reply to questions of interpretaton which are submitted within the framework of procedural devices arranged by the parties in order to induce the Court to give its views on certain problems of Community law which do not correspond to an objective requirement inherent in the resolution of a dispute. [FN11] FN11 Case 244/80, Foglia v. Novello: [1981] E.C.R. 3045; [1982] 1 C.M.L.R. 585, para. [18]. On this point the Court has added that it is essential for the national court to explain the reasons why it considers that a reply to its questions is necessary for it to give judgment, in order to enable the Court of Justice to ascertain whether the interpretation of Community law which is sought is related to the actual nature and subject matter of the main proceedings. If it appears that the question raised is manifestly irrelevant for the purposes of deciding the case, the Court must declare that there is no need to proceed to judgment. [FN12] FN12 Lourenço Dias *621 , cited in fn. 7, paras [19] and [20]. 31. In the light of this case law, and as it appears that neither of the plaintiffs

before the national court has been in the situation covered by Article 16 of the Franco-German convention--because neither of them has worked for less than two years in the contracting State other than the one in which they reside--I consider that a reply from the Court interpreting the Community law on freedom of movement for workers in the Community would be of no use to the national court in giving judgment in the case before it. For this reason I propose that the Court rule the fourth question inadmissible. C. The prohibition of discrimination on the ground of nationality with regard to the freedom of movement of workers 32. The national court seeks interpretation of Article 6 of the Treaty, which prohibits all discrimination on the grounds of nationality. In this connection it must be observed that the Court has consistently held that this principle applies independently only to situations governed by Community law in respect of which the Treaty lays down no specific prohibition of discrimination. [FN13] FN13 See the judgments in Case C-419/92, Scholz v. Opera Universitaria di Cagliari: [1994] E.C.R. I-505; [1994] 1 C.M.L.R. 873, para. [6], and Case C193/94, Skanavi and Chryssanthakopoulos: [1996] E.C.R. I-929; [1996] 2 C.M.L.R. 372, para. [20]. However, with regard to freedom of movement for workers, the principle of equal treatment has been given specific application by Article 48(2) of the Treaty, which provides for the abolition of all discrimination as regards employment, remuneration and other conditions of work. Furthermore, Article 7 of Regulation 1612/68, which provides that a worker who is a national of a Member State is to enjoy, in the territory of other Member States, the same social and tax advantages as national workers, is a specific expression of the general principle of non-discrimination against workers by means of tax measures. In this case, therefore, it is unnecessary to refer to Article 6 of the Treaty in order to reply to the questions from the Tribunal Administratif, Strasbourg. Reformulation and discussion of the questions referred to the Court 33. So far as the other questions are concerned, I conclude from the statements of the national court in the order for reference that, in requesting a preliminary ruling under Article 177, it seeks clarification of the following points: 1. Firstly, whether Article 220 of the Treaty is directly applicable. 2. Secondly, whether the provisions of Article 13(1) and (5) of the Treaty and Article 7(2) of Regulation 1612/68 in so far as they lay down criteria for the taxation of income from work as employees in one or the other State: *622 -- by reference to the place where the work is done; -- according to whether the worker fulfils the conditions for being regarded as a frontier worker for the purpose of the Convention; -- according to whether the worker receives public-service remuneration and, if so, depending on whether he is a national of the State other than the one paying

the remuneration, without at the same time being a national of the latter. 3. Thirdly, whether the provisions of Article 20(2)(a)(cc) of the Franco-German Convention are contrary to Articles 48 and 220 of the Treaty and Article 7(2) of Regulation 1612/68 in so far as, to avoid double taxation of the income from employment of residents of one of the contracting States where such income is taxed in the other State, a procedure is laid down whereby a tax credit equal to the amount of the national tax on the relevant income is granted, irrespective of the amount of tax paid in the other State which, under certain circumstances, may mean that the taxpayer pays more income tax than he would have had to pay if the income in question had been earned in the State of residence, or more than he would have had to pay if the income had been earned in the other contracting State but taxed only in the State of residence. First question: the possible direct effect of Article 220, second indent, of the Treaty 34. The national court's question here concerns the direct applicability of this provision, which states that the Member States are to enter, so far as is necessary, into negotiations with each other with a view to securing for the benefit of their nationals the abolition of double taxation within the Community. I think the very wording of this provision shows that it is not sufficiently clear and unconditional for direct effect to be attributed to it and that it thus cannot give rise to rights in favour of individuals which the national courts must safeguard. I agree with the Commission that the second indent of Article 220 imposes on the Member States an obligation to act, namely to enter into negotiations so far as is necessary, but not an obligation to achieve a specific result. 35. I consider that the Court's case law relating to the first indent of Article 220-which requires the Member States, so far as is necessary, to enter into negotiations with each other with a view to securing for the benefit of their nationals the protection of persons and the enjoyment and protection of rights under the same conditions as those accorded by each State to its own nationals-should be applied to the second indent. The Court has stated that Article 220 is not intended to *623 lay down a legal rule directly applicable as such, but merely defines a number of matters on which the Member States are to enter into negotiations with each other "so far as is necessary". [FN14] FN14 Case 137/84, Mutsch: [1985] E.C.R. 2681; [1986] 1 C.M.L.R. 648, para. [11]. Furthermore the provision, as worded, does not lay down an absolute obligation but leaves the Member States a wide discretion to decide whether to enter into negotiations. France and Germany exercised that discretion when, in 1959, they signed the Convention for the avoidance of double taxation, which abrogated the 1934 Convention on the same subject, and also when they amended it by successive additional protocols in 1969 and 1989. By signing such a Convention, France and Germany shared between them the power to tax income received by

their respective residents which is earned in or paid by the other contracting State. Second question: equal treatment of workers as regards taxation and the provisions of the Franco-German Convention laying down criteria for the taxation of income from employment 36. To reply to this question, I must consider in some detail Article 13(1) and (5) and Article 14 of the Franco-German Convention, which lay down the criteria for the taxtion of income from employment which may affect Mrs Gilly's tax situation directly or indirectly and, by extension, that of members of her household in so far as, because they reside in France, their aggregate income is taken into account under French law and they cannot be taxed separately. 37. In referring the questions, the national court appears to assume that Mrs Gilly must be deemed to have the status of a frontier worker because she is domiciled in the French frontier area and her place of work is situated in the German frontier area. The term "frontier worker" is defined in Article 13(5)(a) as covering those who work in the frontier area of one contracting State and have their permanent home in the frontier area of the other contracting State to which they normally return each day. "Frontier area" is defined in Article 13(5)(b) and (c). Under Article 13(5)(a), the income received by a frontier worker in the State of employment is taxed only in the State where he or she resides. Mrs Gilly seeks the status of a frontier worker and, in that way, her salary would not be taxed in Germany, but in France, where tax rates are lower. 38. However, a systematic examination of the contested provisions of the Convention shows that, firstly, the general rule is laid down by Article 13(1) that income from employment is taxable in the State of employment, and taxation of the income of frontier workers only in the State where they reside is an exception to that general rule. Secondly, Article 14(1) of the Convention lays down a lex specialis applying to "public-service remuneration". That is to say, *624 remuneration paid by a State, a local or regional authority or a public entity. This lex specialis consists in turn of a general rule and an exception. The general rule is set out in the first sentence of Article 14(1) and states that, if the employer is a legal person governed by public law and if the employee resides in the other State, remuneration and retirement pensions paid in consideration for administrative or military services are taxable in the State paying them. The exception is given in the second sentence, which is to the effect that this abovementioned rule does not apply where the remuneration is paid to persons who have the nationality of the other State but are not at the same time nationals of the first State, in which case the remuneration is taxable only in the State where they are resident. For example, the remuneration paid by the German State to a person residing in France is taxable in Germany. If, in the same situation, the recipient possesses French nationality, the remuneration will be taxable in France. If, like Mrs Gilly, the recipient is a national of both States, the right of the paying State to tax the remuneration prevails.

39. Community law does not require the Member States to lay down a different criterion for taxing the income from employment of frontier workers from that applying to other employed persons, State employees and persons treated as such, nor is this customary when concluding conventions for the avoidance of double taxation. [FN15] Moreover, a recent comparative study of the bilateral tax conventions concluded by France shows that, where a special tax regime is laid down for frontier workers, income is not always taxed in the State where the worker resides. [FN16] FN15 According to the report on frontier workers presented to the French National Assembly on 22 January 1997 (Rapport d'information No. 3307) by Mr D. Jacquat, a député, on behalf of the Committee for Cultural, Family and Social Affairs, apart from Greece, which has no common frontiers with other Member States, and France, only six of the conventions concluded between the other Member States contain provisions relating to the remuneration of frontier workers. These are the Convention of 11 April 1967 between Germany and Belgium, that of 4 October 1954 between Germany and Austria, that of 29 June 1981 between Austria and Italy, that of 26 October 1993 between Spain and Portugal, that of 16 November 1973 between Sweden and Denmark, and that of 27 June 1993 between Sweden and Finland. FN16 ibid., p. 31. Among the bilateral tax conventions signed by France, only five contain special provisions for frontier workers. These are the conventions with Germany, Belgium, Spain, Italy and Switzerland. The first four provide that income is to be taxed in the State of residence whereas, in the case of Switzerland, for the canton of Geneva, where a frontier area has not been demarcated, income is taxable at the place where the work is done and, for the other cantons, at the place of residence. 40. Nor does Community law prohibit the Member States from laying down rules for frontier workers which differ from those applying to workers in general, employees of public authorities and persons treated as such, provided that this does not entail discrimination against workers who are nationals of other Member States, by comparison with national workers. Furthermore, such a practice is not unknown in Community law itself. *625 For example, in Regulation 1408/71, [FN17] adopted by the Council pursuant to its obligation under Article 51 of the Treaty, workers in general are, apart from certain exceptions, subject to the social security legislation of the State where they work, whereas civil servants and persons treated as such are subject to the social security legislation of the State to which the authority employing them belongs. For frontier workers, the regulation has a whole catalogue of special measures in chapters such as those relating to sickness insurance, accidents at work and occupational illnesses, unemployment and family benefits. FN17 Council Regulation 1408/71 on the application of social security schemes

to employed persons, to self-employed persons and to members of their families moving within the Community, as amended and updated by Regulation 2001/83 ([1983] O.J. L230/6). 41. There is a special criterion for the taxation of public-service remuneration in Article 19 of the 1992 version of the OECD's model double taxation convention on income and capital ("the Model Convention"), which forms the basis of the bilateral conventions for the avoidance of double taxation concluded by the Member States. [FN18] FN18 As a recent example I may cite Article 19 of the Convention between Spain and France for the avoidance of double taxation and the prevention of fraud and evasion with regard to taxes on income and assets, signed in Madrid on 10 October 1995 (BoletÍn Oficial del Estado 140, 12 June 1997), which contains the same rule for the taxation of public remuneration as Article 14 of the FrancoGerman Convention. The Member States which have submitted written observations in this case point out that this provision is based on the comity of nations and mutual respect for the sovereignty of each State. The commentary on Article 19 of the Model Convention points out that the principle of giving the exclusive right of taxation to the paying State is contained in so many of the existing conventions between OECD Member States that it can be said to be already internationally accepted. With regard to the exception, the same commentary adds that it originates from the Vienna Convention of 18 April 1961 on Diplomatic Relations and the Vienna Convention of 24 April 1961 on Consular Relations, under which the host State has the right to tax the remuneration of the members of certain categories of the staff of foreign consular and diplomatic missions who reside permanently in that State or who are nationals thereof. 42. It is not disputed that, as it stands at present, Community law does not regulate direct taxation. The tax provisions in Articles 95 to 99 E.C. relate only to indirect taxation. In secondary legislation, very few Community measures dealing with the direct taxation of natural persons have been adopted hitherto. Of these, the only one which is binding is Directive 77/799. [FN19] The others are merely a proposal for a *626 directive submitted by the Commission to the Council on 21 December 1979 [FN20] and Recommendation 94/79. [FN21] FN19 Council Directive of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation ([1977] O.J. L336/15). FN20 Proposal for a Council directive concerning the harmonisation of income taxation provisions with respect to freedom of movement for workers within the Community ([1980] O.J. C21/6). FN21 Commission Recommendation of 21 December 1993 on the taxation of

certain items of income received by non-residents in a Member State other than that in which they are resident ([1994] O.J. L39/22). 43. Therefore direct taxation still falls within the competence of the Member States, as the Court has found in its past judgments on the subject. However, the States must exercise that competence consistently with Community law, refraining from any overt or covert discrimination on grounds of nationality. [FN22] In the present case it is necessary to ascertain whether, in signing the Convention, the Member States exercised that competence consistently with Community law and, in particular, with the provisions governing the freedom of movement of workers within the Community. FN22 Case 270/83, E.C. Commission v. France: [1986] E.C.R. 273; [1987] 1 C.M.L.R. 401, para. [24]; Case C-279/93, Finanzamt Köln-Altstadt v. Schumacker: [1995] E.C.R. I-225; [1996] 2 C.M.L.R. 450, para. [21]; Case C80/94, Wielockx v. Inspecteur der Directe Belastingen: [1995] E.C.R. I-2493, para. [16]; Case C-107/94, Asscher v. Staatssecretaris Van Financiën: [1996] I3089; [1996] 3 C.M.L.R. 769, para. [36]; and Case C-250/95, Futura Participations and Singer v. Administration des Contributions: [1997] E.C.R. I2471; [1997] 3 C.M.L.R. 483, para. [19]. 44. By signing a bilateral convention for the avoidance of double taxation, the two States concerned agree to limit their fiscal sovereignty and to waive part of it. It is not surprising that, when sharing the power to tax the income of their respective residents from employment in the other State, they use criteria such as those in Article 13(1) and (5) and Article 14 of the Franco-German Convention, namely the place where the work is performed, fulfilment of the conditions necessary for being deemed a frontier worker whether the employer is a public law entity and, if so, whether the taxpayer is a national of one State or the other. Nor are there many other possibilities. In my opinion, those criteria, which have the purpose only of determining the power to tax certain income, are netural with regard to freedom of movement for workers because, in the two States concerned, they do not, in tax matters, treat workers of other Member States less favourably than or differently from their own nationals who are in the same situation. 45. It cannot be branded as discriminatory to provide that the remuneration of an employed person is taxable in the State where he works or in the State where he resides or by the State paying the remuneration, even if, in the case of publicservice remuneration, it is necessary in the final analysis to refer to the criterion of the recipient's nationality in order to decide which of the two States is to tax it, because for this purpose that is as neutral a criterion as the others. At *627 the stage of applying the criteria for taxation, it is only necessary to decide in each case which of the two States is to tax the income. Then the State where the taxpayer resides and to which it falls to tax his total income will apply the legal procedure agreed upon with the other State in order, when calculating the tax payable under its own law, to avoid taxing once again the income from

employment which has already been taxed in the other State. I shall discuss the legal procedure applied by France in more detail when examining the third question. 46. There is no doubt that, once the State which is to tax the income from employment has been determined, the tax payable will vary depending on which State it is. In Mrs Gilly's case, the tax she pays in Germany on the income from her employment is more than she would pay if she received the income in France or if, although received in Germany, it were taxable in France. 47. However, that difference does not arise from the taxation criteria in the Franco-German Convention, but from German tax law, which specifies a higher rate of tax on such income than the rate in France, while in addition the tax systems and the progressive nature of the tax differ considerably in the two States. Such differences will remain until the Council adopts directives for harmonising fiscal provisions applying to direct taxes. As Article 100a(2) of the Treaty provides that Article 100a(1), which regulates the adoption of measures by a qualified majority, is not to apply to, inter alia, fiscal provisions, this is unlikely to happen in the short or medium term. Third question: whether Article 20(2)(a)(cc) of the Franco-German Convention is contrary to Articles 48 and 220 of the Treaty and Article 7(2) of Regulation 1612/68 48. This question refers to the procedure laid down in the Convention, whereby France avoids taxing once again income originating in Germany received by French residents after having borne tax in Germany. The procedure applies, inter alia, to remuneration covered by the general rule of taxation in the State where the work is performed, in accordance with Article 13(1), and public-service remuneration within the meaning of Article 14. Under Article 20(2)(a)(cc), the procedure consists, firstly, in aggregating the income from employment earned in Germany with the taxable income calculated in accordance with French tax law, and then granting a tax credit in respect of the tax paid abroad, equal to the amount of the French tax on the relevant income. 49. Mrs Gilly contends that the application of this provision to the circumstances of her own case gives rise to discrimination on grounds of nationality, contrary to Article 48 of the Treaty and Article 7(2) of Regulation 1612/68, because the income tax which she has to pay in France, which is where all the income of her tax household is taxed, is greater than she would have had to pay if it had fallen to France to tax her income received in Germany. That would be the case if, for example, she had the status of a frontier worker or if she possessed French nationality only and not dual nationality. She considers that the abovementioned provisions mean that a worker who exercises the right to freedom of movement should not be penalised by a greater tax liability than if that right had not been exercised. 50. As interpreted by the Court in accordance with Article 48(2) of the Treaty, freedom of movement for workers entails the abolition of all discrimination based on nationality between workers of the Member States, particularly with regard to

remuneration. The principle of equal treatment with regard to remuneration would be rendered ineffective if it could be undermined by discriminatory national provisions on income tax. For that reason the Council laid down, in Article 7 of Regulation 1612/68, that workers who are nationals of a Member State are to enjoy, in the territory of another Member State, the same tax advantages as nationals workers. [FN23] FN23 Case C-175/88, Biehl v. Administration des Contributions: [1990] E.C.R. I1779; [1990] 3 C.M.L.R. 143, paras [11] and [12]. The Court has also repeatedly held that Article 48 of the Treaty prohibits not only overt discrimination by reason of nationality but also all covert forms of discrimination which, by the application of other distinguishing criteria, lead in fact to the same result. [FN24] FN24 Case C-111/91, E.C. Commission v. Luxembourg: [1993] E.C.R. I-817, para. [9], and Scholz, cited in fn. 13, para. [9]. 51. To find the existence of discrimination within the meaning of Community law in Mrs Gilly's case, it would be necessary to show that, by applying to her the provision in question, France, where she resides and where all her income is taxable together with that of her husband, treats her less favourably in respect of tax than a worker in the same situation who has French nationality. In this connection it is irrelevant that Mrs Gilly is also a national of the State to which she attributes discriminatory treatment because, as the Court has observed, any Community national who, irrespective of his place of residence and his nationality, has exercised the right to freedom of movement for workers and who has been employed in another Member State, falls within the scope of Article 48 of the Treaty. [FN25] FN25 Scholz, cited in fn. 13, para. [9]. 52. It must also be borne in mind that, according to the definition given by the Court, discrimination can arise only through the application of different rules to comparable situations or the application of the same rule to different situations. [FN26] FN26 Schumacker, cited in fn. 22, para. [30]. 53. When must a worker of French nationality be deemed to be in a situation comparable, for tax purposes, to that of Mrs Gilly? It all *628 depends on what is meant by "comparable situation". Of course, it is possible to proceed by assuming that all the circumstances are the same and changing only the nationality of the person who is claimed to be the victim of discrimination. On that basis, the equivalent for comparison with Mrs Gilly would be a French worker who is not at the same time a German national, who receives remuneration from

the German State for work in Germany, who resides in France, who is married and, who in relation to his or her spouse, contributes to the family income in the same proportion as Mrs Gilly. In practice, the public-service remuneration of such a person would be taxable in France, there would be no reason for using the procedure for avoiding double taxation and the amount paid by the couple as income tax in France would be less than the total tax paid by Mrs Gilly in Germany and her tax household in France. That is the reasoning of the plaintiffs in the main proceedings to show that Mrs Gilly suffers discrimination. 54. However, there is another method, which consists in making the comparison with a worker of French nationality whose remuneration is taxed in Germany under Article 13(1) of the Franco-German Convention and who resides in France, where he or she is liable to income tax on all his or her income. Such would be the case, for example, of a married worker employed in a private undertaking in Germany, residing in France and with a spouse who resides and works in France, provided that the two spouses contribute to the family income in the same proportion as Mr and Mrs Gilly. In that situation, even after being taxed in Germany, the income from employment will be aggregated with the French taxable income and then a credit will be given for the tax paid in Germany, equal to the French tax appropriate to that income. 55. In my opinion, there are a number of reasons why the second method is the correct one for determining whether a provision such as that in question here is contrary to Article 48: (a) Firstly, because, before applying Article 20(2)(a)(cc) of the Convention, which lays down the procedure whereby France, as the State to which it falls to tax the total income of its residents, avoids the double taxation of income which has already been taxed in Germany, it is necessary, as a first and essential step, to determine, by applying the taxation criteria of the Convention, which of the two States should tax income from employment. As I have mentioned when discussing the national court's second question, these criteria, which are the place where the work is done, fulfilment of the conditions for being deemed a frontier worker, whether the remuneration is public-service remuneration and, if so, whether the taxpayer is a national of one State or the other, are neutral from the viewpoint of the Community law relating to freedom of movement for workers. (b) Secondly, because, after the different items of the taxpayer's *629 income have been taxed in one or the other State, the State of residence must apply the procedure agreed upon with the other State in order to avoid a further tax charge on that income. The result will be more or less favourable to the employee, depending on the national tax legislation and the personal and family situation of each taxpayer. 56. If the second method is used, a perfect parallel is obtained from the outset: income from work as an employee received in Germany by a person resident in France and taxed in Germany, the person being in the same family situation as Mrs Gilly. In this way it can be shown that her tax treatment in France is the same as that of a French person in the same situation. If the first method is used, however, the starting-point is the result obtained after application of the system for avoiding double taxation. In other words, Mrs Gilly

pays more income tax in France than she would if she had French nationality, all else being equal, and from this finding one works back to the beginning. 57. Does Mrs Gilly suffer covert discrimination because, as the Commission maintains, her family situation is not taken into account either in Germany, since her husband does not reside there and consequently they cannot have the benefit of the preferential scale for married couples, or in France, since the fact that the couple's family situation is taken into account there affects only Mr Gilly's income? 58. I consider that the reply in this case must be in the negative. As the Court has previously observed, in relation to direct taxes, the situations of residents and non-residents are not, as a rule, comparable and the fact that a Member State does not grant a non-resident certain tax benefits which it grants to a resident is not, as a rule, discriminatory since those two categories of taxpayer are not in a comparable situation. Accordingly Article 48 of the Treaty does not in principle preclude the application of rules of a Member State under which a non-resident working as an employed person in that State is taxed more heavily on his or her income than a resident in the same employment. To reach that conclusion, the Court reasoned as follows: income 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 of residence. Moreover, a non-resident's personal ability to pay tax, determined by reference to his aggregate income and his personal and family circumstances, is more easy to assess at the place where his personal and financial interests are centred. In general, that is the place where he has his usual abode. Accordingly, international tax law, and in particular the Model Double Taxation Treaty of the Organisation for Economic Co-operation and Development (OECD), recognises that in principle the overall taxation of taxpayers, taking account of their personal and family circumstances, is a matter for the State of residence. The Court added that: *630 the situation of a resident is different in so far as the major part of his income is normally concentrated in the State of residence. Moreover, that State generally has available all the information needed to assess the taxpayer's overall ability to pay, taking account of his personal and family circumstances. [FN27] FN27 Schumacker, cited in fn. 22, paras [31] to [35]. 59. The only cases in which the Court has not followed this reasoning are those involving workers who did not receive significant income in their State of residence so that their tax liability in that country was not sufficient for their personal and family situation to be taken into account, and who received most of their income, and almost all their household income, in a different Member State. In such cases, there is discrimination against the worker in so far as his personal and family situation is not taken into account in the State of residence or the State of employment. [FN28] FN28 The Court found discrimination of this kind in the Schumacker, Wielockx

and Asscher judgments cited in fn. 22. However, this cannot be said to apply to Mrs Gilly who, although as an individual she receives almost all her income in Germany in the form of her salary, has her personal and family situation taken into account in France, where her salary is aggregated with the taxable income of her tax household and where she is granted the tax reliefs, rebates and deductions laid down by French tax law. 60. The remaining point to consider is whether the legal procedure used by France to avoid double taxation under Article 20(2)(a)(cc) of the Franco-German Convention is an obstacle, prohibited by Article 48 of the Treaty, to the freedom of movement of workers. For this purpose the question is whether, although it applies irrespective of nationality, that procedure in fact has an adverse effect on persons who have exercised their freedom of movement by treating them less favourably than those who have not done so. In that connection the Court has observed 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 [national] measures which might place Community citizens at a disadvantage when they wish to pursue an economic activity in the territory of another Member State. [FN29] FN29 See the judgment in Case C-415/93, Union Royale Belge des Societes de Football Association and Others v. Bosman and Others: [1995] E.C.R. I-4921; [1996] 1 C.M.L.R. 645, para. [94]. 61. Here again, the reply must be in the negative because if Germany were simply to make a sufficient reduction in its present rate of tax on income from employment, the procedure which is now criticised for adversely affecting workers exercising their freedom of movement would have the opposite effect. If the German tax rate were lower than the French rate on the same income, with Mrs Gilly receiving, in respect of tax paid abroad, a tax credit equal to the amount of the *631 French tax on the relevant income, the tax credit would be greater than the tax already paid in Germany and she would end up by paying less tax on that income than if she had received it in France or if, having been received in Germany, it had been taxed in France in accordance with the criteria described above. A similar situation could arise if France were to decide to increase its rate of tax on such income to a rate higher than the German rate. Whether the consequences of a provision such as that in question here are unfavourable to workers depends, in the final analysis, on the tax rates charged in each Member State on certain income and I therefore consider that those consequences are too uncertain and indirect for the provision to be regarded as being capable of deterring a worker from exercising his or her freedom of movement between the two Member States in question. [FN30] FN30 See Case C-134/94, Esso Española v. Comunidad Autónoma de Canarias: [1995] E.C.R. I-4223; [1996] 5 C.M.L.R. 654, para. [24].

62. Finally, Mrs Gilly contends that the second indent of Article 220 of the Treaty precludes her German income which has already been taxed in Germany from being taken into account in France in the calculation of the taxable income of her household for income tax purposes, because the French tax credit for tax paid abroad does not take account of the exact amount of tax paid in Germany, which means that the procedure does not avoid double taxation, but only reduces it. 63. Articles 23A and 23B of the Model Convention for the avoidance of double taxation envisage two methods for achieving this result which, for the sake of clarity, are worth examining in some detail. 64. Article 23A lays down the rules for the "exemption with progression" method. Where a resident of a contracting State receives income which, according to the Convention, may be taxed in the other State, the first State exempts the income from tax. However, it may take the income into account when determining the rate applying to the income received in the State of residence. In other words, although the income received in the source State does not form part of the taxable income in the State of residence, the total tax payable in the latter is increased by the effect of progressive taxation in the country of residence. Article 23B covers the "full credit" or "ordinary credit" method. Unlike the method described above, this aggregates the taxpayer's total income, whether of national origin or not, in the taxable income of the State of residence. Where a resident of one State receives income which, according to the Convention, may be taxed in the other State, the first State deducts from the tax charged on the resident's income an amount equal to the income tax paid in the other State. However, such deduction may not exceed that part of its own income tax, calculated before deduction, which is attributable to the income taxable in the other State. *632 65. The legal procedure used by France, since the entry into force of the Additional Protocol of 1989, to avoid the further taxation in France of income from employment which has already been taxed in Germany under the Convention, consists in granting a tax credit equal to the amount of tax on the relevant income. The method previously used consisted in exempting income already taxed in Germany, although it was taken into account for determining the rate applying to income received in France. In the final analysis these two methods, which at first appear to be different, produce the same result. 66. The object of a bilateral double taxation convention is to prevent income which is taxed in one State from being taxed again in the other. The object is not, therefore, to ensure that the tax paid by the taxpayer in one State is not more than would be payable in the other, regardless of where the income was received and whatever its specific source. In actual fact, bilateral taxation conventions, in accordance with Article 24 of the Model Convention, lay down a rule of equal treatment between nationals and citizens of the other State. 67. In no case, therefore, does the right to freedom of movement for workers confer upon them a right to be granted, in their State of residence, the tax status which is most favourable to them in particular. They have a right only to the same tax treatment as nationals of that State. Moreover, I consider, this result is achieved by using the procedure laid down in the provision in question.

Conclusion 68. In the light of the foregoing, I propose that the Court should: (A) rule that the fourth question referred by the Tribunal Administratif, Strasbourg, is inadmissible; (B) reply as follows to the other questions: (1) The second indent of Article 220 of the Treaty does not have direct effect. (2) Articles 48 and 220 E.C. and Article 7 of Regulation 1612/68 of the Council on freedom of movement for workers within the Community must be interpreted as meaning that they do not preclude a convention between two Member States for the avoidance of double taxation from laying down criteria for the taxation of income from employment in one or the other State: -- by reference to the place where the work is done; or -- according to whether the worker fulfils the conditions for being regarded as a frontier worker; or -- according to whether the worker receives public-service remuneration and, if so, depending on whether he is a national of the State other than the one paying the remuneration, without at the same time being a national of the latter. *633 (3) Articles 48 and 220 E.C. and Article 7 of Regulation 1612/68 must be interpreted as meaning that they do not preclude a convention between two Member States for the avoidance of double taxation from laying down that, in one of them, double taxation is avoided by means of a procedure of the kind referred to in Article 20(2)(a)(cc) of the Franco-German Convention, under which income received in Germany by a resident in France, which has already been taxed in Germany, is taken into consideration for the purpose of calculating the taxpayer's taxable income in France by granting a tax credit in respect of the tax paid abroad, equal to the amount of the French tax on the relevant income. JUDGMENT [1] By judgment of 10 October 1996, received at the Court on 11 October 1996, the Tribunal Administratif (Administrative Court), Strasbourg, referred to the Court for a preliminary ruling under Article 177 E.C. six questions on the interpretation of Articles 6, 48 and 220 of that Treaty. [2] Those questions were raised in the context of various proceedings brought by Mr and Mrs Gilly against the Directeur des Services Fiscaux du Bas-Rhin (Director of Tax Services for the départment of Bas-Rhin) concerning the calculation of their personal income tax for the tax years 1989, 1990, 1991, 1992 and 1993, pursuant to the Convention signed in Paris on 21 July 1959 between France and Germany for the avoidance of double taxation and the establishment of rules for mutual legal and administrative assistance in the field of income and wealth tax and in the field of business tax and land tax ("the Convention"), as amended by the protocols signed in Bonn on 9 June 1969 and 28 September 1989. [3] Mr and Mrs Gilly reside in France, near the German border. Mr Gilly, a French national, teaches in a State school in France. Mrs Gilly, who is a German

national having also required French nationality by marriage, teaches in a State primary school in Germany, in the frontier area. [4] As regards taxation of income from employment, Article 13(1) of the Convention lays down the following basic principle: Subject to the provisions of the following paragraphs, income from dependent work shall be taxable only in the Contracting State in which the personal activity in respect of which it is received is carried out. In particular, salaries, wages, pay, gratuities or other emoluments shall be deemed to constitute income from dependent work, together with all similar benefits paid or awarded by persons other than those referred to in Article 14. [5] Article 13(5)(a) contains an exception to the rule that income is *634 to be taxed in the country where the work is carried out in the case of frontier workers, who are to be taxed in their State of residence: By way of exception to paragraphs 1, 3 and 4, income from dependent work earned by persons who work in the frontier area of one contracting State and who have their permanent home in the other contracting State, to which they normally return each day, shall be taxable only in that other State. [6] However, taxpayers receiving remuneration and pensions from the public sector are in principle taxable, under Article 14(1) of the Convention, in the paying State: Salaries, wages and similar remuneration, and retirement pensions, paid by one of the contracting States, by a Land or by a legal person of that State or Land governed by public law to natural persons resident in the other State in consideration for present or past administrative or military services shall be taxable only in the first State. However, that provision shall not be applicable where the remuneration is paid to persons having the nationality of the other State without being at the same time nationals of the first State; in such cases, the remuneration shall be taxable only in the State in which such persons are resident. [7] Article 16 of the Convention lays down a special rule applicable to teachers who are temporarily resident, under which taxation remains with the State of their original employment: Teachers resident in one of the contracting States who, in the course of a period of temporary residence not exceeding two years, receive remuneration in respect of teaching in a university, college, school or other teaching establishment in the other State shall be taxable in respect of that remuneration only in the first State. [8] As regards double taxation, Article 20(2)(a)(cc) of the Convention, as amended by the protocol signed on 28 September 1989, reads as follows: 2. Double taxation of persons resident in France shall be avoided in the following manner: (a) Profits and other positive income arising in Germany and taxable there under the provisions of this Convention shall also be taxable in France where they accrue to a person resident in France. The German tax shall not be deductible for calculation of the taxable income in France. However, the recipient shall be entitled to a tax credit to be set against the French tax charged on the taxable amount which includes that income. That tax credit shall be equal:

... (cc) for all other income, to the amount of the French tax on the relevant income. This provision shall apply in particular to the income referred to in Articles ... 13(1) and (2) and 14. [9] It appears from the national court's judgment that under the "effective rate" rule, the amount of the tax credit is equal to the amount of the net income taxed in Germany multiplied by the ratio between the tax actually payable in respect of the total net income taxable under the French legislation and the amount of that income. [10] The national court states that the tax credit to be set against the *635 French tax may prove to be less than the tax actually paid in Germany because of the greater progressivity of the tax scale in the latter country. French frontier workers taxed both in Germany on income received there and in France on their total income after deduction of the tax credit mentioned above may thus be taxed more heavily than persons receiving exactly the same income but only in France. [11] In the present case, the public-sevice remuneration received by Mrs Gilly in Germany in 1989, 1990, 1991, 1992 and 1993 was taxed in Germany in accordance with Article 14(1) of the Convention, because she is a German national. That remuneration was also taxed in France pursuant to Article 20(2)(a) of the Convention. However, under Article 20(2)(a)(cc), the fact that it was taxed in Germany entitled her to a tax credit equal to the amount of the French tax on the relevant income. [12] In the proceedings which they initiated before the Tribunal Administratif, Strasbourg, on 8 July 1992 and 21 July 1995, Mr and Mrs Gilly submitted that application of the abovementioned provisions of the Convention had led to unjustified, discriminatory and excessive taxation which was incompatible with Articles 6 (formerly Article 7 EEC), 48 and 220 E.C. They therefore sought to be discharged from the contested tax obligations and to have the amount of the tax which they claimed to have been wrongly charged reimbursed to them by the tax authorities. [13] The Tribunal Administratif took the view that the dispute before it turned on the interpretation to be given to Articles 6, 48 and 220 of the Treaty. It therefore stayed proceedings and requested a preliminary ruling by the Court on the following questions: (1) Is the principle of freedom of movement for workers, as embodied in the Treaty of Rome and the implementing legislation, contravened by a tax regime, applicable to frontier workers, of the kind provided for by the Franco-German Convention, in so far as the latter lays down taxation arrangements which are different for people whose remuneration is paid by a public entity as compared with those whose remuneration is paid by private persons and as a result is liable to have an impact on access to posts in the public or private sectors depending on residence in one State or another? (2) Is a rule under which a frontier worker receiving remuneration from a State or an agency thereof governed by public law is taxable in that State, whereas, if the frontier worker has the nationality of the other State but is not at the same time a national of the first State, his remuneration is taxable in the State where the

frontier worker resides, compatible with the principle of freedom of movement and the abolition of all discrimination on grounds of nationality? (3) Is a tax provision which lays down for frontier workers employed by persons governed by public law a tax regime which differs according to whether they are nationals only of that State or have dual nationality compatible with Article 7 [now Article 6] of the Treaty? (4) Is the principle of freedom of movement for workers, as embodied in the Treaty, contravened by tax rules which are liable to affect the choice made by teachers in the contracting States as to whether to work on a more or less longterm basis in another State having regard *636 to the differences, based on the duration of employment, in the tax regimes of the States in question? (5) Must the objective of abolishing double taxation laid down in Article 220 of the Treaty be regarded, in view of the time which the Member States have had to implement it, as now having the status of a directly applicable rule under which double taxation may no longer take place? Is the objective of avoiding double taxation assigned to the Member States by Article 220 contravened by a tax convention under which the tax regime applicable to frontier workers of States party to the convention varies according to their nationality and the public or private nature of the post held? Does a tax credit regime applicable to a household living in one State which does not take into account the exact amount of the tax paid in another State but only a tax credit, which may be lower, meet the objective assigned to the Member States of abolishing double taxation? (6) Must Article 48 be interpreted as meaning that nationals of a Member State who are frontier workers in another Member State may not, by reason of a tax credit mechanism of the type provided for by the Franco-German Convention, be taxed more heavily than persons whose occupational activity is pursued in their State of residence? The fifth question [14] By its fifth question, which should be addressed first, the national court raises the question whether the second indent of Article 220 of the Treaty is directly applicable. [15] As the Court has already held in Case 137/84, Mutsch, [FN31] at para. [11], Article 220 is not intended to lay down a legal rule directly applicable as such, but merely defines a number of matters on which the Member States are to enter into negotiations with each other "so far as is necessary". Its second indent merely indicates the abolition of double taxation within the Community as an objective of any such negotiations. FN31 [1985] E.C.R. 2861; [1986] 1 C.M.L.R. 648. [16] Although the abolition of double taxation within the Community is thus included among the objectives of the Treaty, it is clear from the wording of that provision that it cannot itself confer on individuals any rights on which they might be able to rely before their national courts.

[17] The answer to the fifth question must therefore be that the second indent of Article 220 of the Treaty does not have direct effect. The first, second and fourth questions [18] By its first, second and fourth questions, the national court wishes to know whether, on a proper construction, Article 48 of the Treaty precludes the application of provisions such as those in Articles 13(5)(a), 14(1) and 16 of the Convention, under which the tax regime applicable to frontier workers differs depending on whether they work in the private sector or the public sector and, where they work in the public sector, on whether or not they have only the nationality of the *637 State of the authority employing them or not, and the regime applicable to teachers differs depending on whether their residence in the State in which they are teaching is for a short period or not. Applicability of Article 48 of the Treaty [19] The first matter to be determined is whether a situation such as that of the applicants in the main proceedings falls within the Treaty rules relating to freedom of movement for workers. [20] At the hearing, the French Government expressed the view that Mrs Gilly has not exercised in France the rights conferred upon her by Article 48 of the Treaty, since she works in her State of origin, namely Germany. [21] It need merely be pointed out here that Mrs Gilly has acquired French nationality by her marriage and works in Germany whilst residing in France. She must therefore be considered in France as a worker exercising her right to freedom of movement, as guaranteed by the Treaty, in order to work in a Member State other than that in which she resides. The circumstance that she has retained the nationality of the State in which she is employed in no way affects the fact that, for the French authorities, she is a French national working in another Member State (see, to the same effect, Case 292/86, Gullung v. Conseils de l'Ordre des Avocats du Barreau de Colmar et de Saverne [FN32]). FN32 [1998] E.C.R. 111; [1988] 2 C.M.L.R. 57, para. [12]. [22] A situation such as that in issue in the main proceedings must therefore be held to fall within the scope of Article 48 of the Treaty. Compatibility of the fiscal connecting factors with Article 48 of the Treaty [23] Whilst abolition of double taxation within the Community is, as stated in paragraph [16] above, one of the objectives of the Treaty, it must nonetheless be noted that, apart from the Convention of 23 July 1990 on the elimination of double taxation in connection with the adjustment of profits of associated enterprises, [FN33] no unifying or harmonising measure for the elimination of double taxation has yet been adopted at Community level, nor have the Member

States yet concluded any multilateral convention to that effect under Article 220 of the Treaty. FN33 [1990] O.J. L225/10. [24] The Member States are competent to determine the criteria for taxation on income and wealth with a view to eliminating double taxation--by means, inter alia, of international agreements--and have concluded many bilateral conventions based, in particular, on the model conventions on income and wealth tax drawn up by the Organisation for Economic Co-operation and Development ("OECD"). *638 [25] That is the context in which the Convention concluded between France and Germany applies a number of connecting factors for the purpose of allocating jurisdiction between the contracting parties as to the taxation of income from dependent work. [26] Although as a general rule workers are taxed in accordance with Article 13(1) of the Convention in the State in which the State in which the personal activity in respect of which the income is received is carried out, frontier workers are taxed in their State of residence, under Article 13(5)(a). [27] However, the first sentence of Article 14(1) of the Convention provides that taxpayers receiving public-service remuneration are in principle to be taxed in the paying State. There is also an exception to the latter rule (hereinafter "the paying State rule") in the second sentence of Article 14(1), under which remuneration paid to a person having the nationality of the other State without being at the same time a national of the first State is taxable in the taxpayer's State of residence. [28] In addition, Article 16 of the Convention lays down a special connecting rule applicable to teachers habitually resident in one of the contracting States who, in the course of a short period of residence not exceeding two years in the other contracting State, receive remuneration for teaching in the latter State. Taxpayers in that category are taxed in the State of original employment. [29] It is thus clear that Articles 13(1) and (5)(a), 14(1) and 16 of the Convention lay down different connecting factors depending on whether the taxpayer is a frontier worker or not, is a teacher in short-term residence or not, or is employed in the private or the public sector. Taxpayers in the latter category are in principle taxed in the paying State unless they have the nationality of the other contracting State without being at the same time nationals of the first, in which case they are taxed in their State of residence. [30] Although the criterion of nationality appears as such in the second sentence of Article 4(1) for the purpose of allocation of fiscal jurisdiction, such differentiation cannot be regarded as constituting discrimination prohibited under Article 48 of the Treaty. It flows, in the absence of any unifying or harmonising measures adopted in the Community context under, in particular, the second indent of Article 220 of the Treaty, from the contracting parties' competence to define the criteria for allocating their powers of taxation as between themselves, with a view to eliminating double taxation. [31] Nor, in the allocation of fiscal jurisdiction, is it unreasonable for the Member

States to base their agreements on international practice and the model convention drawn up by the OECD, Article 19(1)(a) of the 1994 version of which in particular provides for recourse to the paying State principle. According to the commentary on that article, that principle is justified by "the rules of international courtesy and mutual respect between sovereign States" and "is contained in so many *639 of the existing conventions between OECD member countries that it can be said to be already internationally accepted". [32] In the present case, the first sentence of Article 14(1) of the Convention reproduces the tenor of Article 19(1)(a) of the OECD model convention. It is true that under the second sentence the paying State principle is abandoned where the taxpayer has the nationality of the other contracting State without being at the same time a national of the first State, but the same type of exception, based at least in part on the criterion of nationality, is found in Article 19(1)(b) of the model convention in cases where the services are rendered in the other contracting State and the taxpayer is a resident of that State" (i) is a national of that State; or (ii) did not become a resident of that State solely for the purpose of rendering the services". [33] In any event, even if the second sentence of Article 14(1), the legality of which is challenged by Mrs Gilly, were to be ignored, her tax position would remain unchanged because the paying State principle would still have to be applied to her income earned in Germany from teaching in the State education system. [34] Nor is it established in the present case that the choice of the paying State as the State competent to tax income earned in the public sector can of itself be to the disadvantage of the taxpayers concerned. As has been pointed out by the governments of the Member States which have submitted observations and by the Commission, whether the tax treatment of the taxpayers concerned is favourable or unfavourable is determined not, strictly speaking, by the choice of the connecting factor but by the level of taxation in the competent State, in the absence of any Community harmonisation of scales of direct taxation. [35] The answer to the first, second and fourth questions must therefore be that, on a proper construction, Article 48 of the Treaty does not preclude the application of provisions such as those in Articles 13(5)(a), 14(1) and 16 of the Convention, under which the tax regime applicable to frontier workers differs depending on whether they work in the private sector or the public sector and, where they work in the public sector, on whether or not they have only the nationality of the State of the authority employing them, and the regime applicable to teachers differs depending on whether their residence in the State in which they are teaching is for a short period or not. The third question [36] By its third question, the national court wishes to know whether, on a proper construction, Article 7 EEC, now Article 6 E.C., precludes the application of a provision such as that contained in the second sentence of Article 14(1) of the Convention, under which the tax regime applicable to frontier workers employed

in the public sector in *640 a Member State differs depending on whether they have the nationality of that State or not. [37] It is settled case law that Article 6 of the Treaty, which lays down the general principle of the prohibition of discrimination on grounds of nationality, applies independently only to situations governed by Community law in respect of which the Treaty lays down no specific prohibition of discrimination (see in particular Case C-131/96, Mora Romero v. Landesversicherungsanstalt Rheinprovinz [FN34]). FN34 [1997] E.C.R. I-3659; [1997] 3 C.M.L.R. 1141, para. [10]. [38] In the field of freedom of movement for workers, the prohibition of discrimination has been specifically implemented and embodied in Article 48 of the Treaty and by acts of secondary legislation including, in particular, Regulation 1612/68 on freedom of movement for workers within the Community. [FN35] FN35 [1968] O.J. English Spec. Ed. (II), p. 475. [39] It follows from the answer given to the first and second questions that a situation such as that in the main proceedings falls within Article 48 of the Treaty. It is therefore unnecessary to rule on the interpretation of Article 6 of the Treaty. The sixth question [40] By its sixth question, the national court wishes to know whether, on a proper construction, Article 48 of the Treaty precludes the application of a tax credit mechanism such as that provided for in Article 20(2)(a)(cc) of the Convention. [41] The purpose of the tax credit mechanism set up by Article 20(2)(a)(cc) of the Convention, which is based on the arrangements envisaged for that purpose in the OECD model convention, is to avoid the double taxation of French residents in receipt, in Germany, of profits or other income taxable in both Germany and France. [42] That mechanism involves first aggregating the income earned from work in Germany within the taxable basis calculated in accordance with the French legislation and then giving a tax credit in respect of the tax paid in Germany of the same amount, in particular for the income referred to in Article 14 of the Convention, as that of the French tax on the relevant income. The latter amount is calculated on the basis of the proportion of the total net income taxable in France constituted by the net income taxable in Germany. [43] It further appears from the case file that Mrs Gilly's personal and family circumstances were not taken into account when calculating the tax on her income from employment in Germany during the tax years in issue, whereas those circumstances were taken into account in the calculation of the tax payable in France, when determining the total household income and when granting various tax rebates and reductions.

*641 [44] In the submission of the applicants in the main proceedings, the tax credit mechanism in issue penalises those who have exercised their freedom of movement in that it allows a degree of double taxation to remain. In the present case, as a result of the greater degree of progressivity of the German tax scale as compared with the French tax scale and having regard to the proportion of the total income of the tax household taxable in France constituted by Mrs Gilly's income from employment, the amount of the tax credit is always lower than that of the tax actually paid in Germany. Moreover, because Mrs Gilly's personal and family circumstances are not taken into account in Germany, whereas they are taken into account in France when calculating the tax on the total income, the tax credit accorded in the State of residence is lower than the amount of tax actually paid in the State of employment, taking account of the rebates and reductions accorded in the first State. [45] Double taxation could be fully avoided, the applicants in the main proceedings submit, only by a tax credit equal to the amount of tax charged in Germany. [46] Here, it must be stressed, as has been done by the Advocate General at paragraph 66 of his Opinion, that the object of a convention such as that in issue is simply to prevent the same income from being taxed in each of the two States. It is not to ensure that the tax to which the taxpayer is subject in one State is no higher than that to which he or she would be subject in the other. [47] However, it is common ground that any unfavourable consequences entailed in the present case by the tax credit mechanism set up by the bilateral convention, as implemented in the context of the tax system of the State of residence, are the result in the first place of the differences between the tax scales of the Member States concerned, and, in the absence of any Community legislation in the field, the determination of those scales is a matter for the Member States. [48] Furthermore, as has been observed by the French, Belgian, Danish, Finnish, Swedish and United Kingdom governments, if the State of residence were required to accord a tax credit greater than the fraction of its national tax corresponding to the income from abroad, it would have to reduce its tax in respect of the remaining income, which would entail a loss of tax revenue for it and would thus be such as to encroach on its sovereignty in matters of direct taxation. [49] As regards the effect on the amount of the tax credit of the fact that the taxpayer's personal and family circumstances are taken into account in the State of residence but not in the State of employment, it must be pointed out that the disparity derives from the fact that, in relation to direct taxes, the situations of residents and of non-residents are not, as a rule, comparable, since income received in the territory of a State by a non-resident is in most cases only a part of his total income, *642 which is concentrated at his place of residence (Case C279/93, Finanzamt Köln-Altstadt v. Schumacker [FN36]). FN36 [1995] E.C.R. I-255; [1996] 2 C.M.L.R. 450, paras [31] and [32].

[50] Nor is that observation inapplicable to a situation such as that of Mrs Gilly; although her individual income from employment is received in Germany, it is none the less aggregated within the basis for assessing the personal income tax payable by her tax household in France, where she is therefore entitled to the tax advantages, rebates and deductions provided for in the French legislation. The German tax authorities, however, were not obliged to take account of her personal and family circumstances in such a situation. [51] The applicants in the main proceedings also submit that application of Article 20(2)(a)(cc) of the Convention in their case gives rise to discrimination on grounds of nationality, contrary to Article 48 of the Treaty, since, if Mrs Gilly possessed only French nationality and not dual nationality, her tax situation would be governed by Article 13(5)(a) of the Convention, under which the income of frontier workers is taxed in their State of residence. [52] Here, it must be borne in mind that the purpose of Article 20(2)(a)(cc) of the Convention is to prevent double taxation arising, in a case such as that with which the main proceedings are concerned, from taxation in Germany of the income received there by Mrs Gilly, in accordance with Article 14(1) of the Convention, when the total household income, including that income from Germany is taxable in France. [53] As is clear from the answer to the first, second and fourth questions, the fact that in allocating powers of taxation between them the contracting parties have chosen various connecting factors, in particular nationality with regard to publicservice remuneration received in the State other than the State of residence, cannot in itself constitute discrimination prohibited by Community law. [54] In the light of the foregoing, the answer to the sixth question must be that, on a proper construction, Article 48 of the Treaty does not preclude the application of a tax credit mechanism such as that provided for in Article 20(2)(a)(cc) of the Convention. Costs [55] The costs incurred by the French, Belgian, Danish, German, Italian, Dutch, Finnish, Swedish and United Kingdom Governments and by the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the national court, the decision on costs is a matter for that court. Order On those grounds, THE COURT, in answer to the questions referred to it by the Tribunal Administratif, Strasbourg, by judgment of 10 October 1996, *643 HEREBY RULES: 1. The second indent of Article 220 E.C. does not have direct effect. 2. On a proper construction, Article 48 E.C. does not preclude the application of provisions such as those in Articles 13(5)(a), 14(1) and 16 of the Convention

signed in Paris on 21 July 1959 between France and Germany for the avoidance of double taxation, as amended by the protocols signed in Bonn on 9 June 1969 and 28 September 1989, under which the tax regime applicable to frontier workers differs depending on whether they work in the private sector or the public sector and, where they work in the public sector, on whether or not they have only the nationality of the State of the authority employing them, and the regime applicable to teachers differs depending on whether their residence in the State in which they are teaching is for a short period of not. 3. On a proper construction, Article 48 of the Treaty does not preclude the application of a tax credit mechanism such as that provided for in Article 20(2)(a)(cc) of the said convention. (c) Sweet & Maxwell Limited [1998] 3 C.M.L.R. 607 END OF DOCUMENT