which are obliged on their part to apply Community law 1.2. The Bilateral Treaty on Free
and to ignore incompatible domestic law (primacy of Movement of Persons between
Community law5). the EU and Switzerland
From a broad body of case law from the European Court
of Justice (ECJ or Court), it has become clear that this fun- On 21 June 1999, the EC and Switzerland signed seven
damental freedom, which is granted to ‘migrant’ workers bilateral agreements,11 including one relating to the free
as well as to seasonal and frontier workers (or ‘frontaliers’), movement of persons (hereinafter the EU-Swiss bilateral
entails a broad prohibition of any discrimination includ- treaty).12
ing by means of social or tax provisions.6 Moreover, as the Under the EU-Swiss bilateral treaty, the Community
Court decided early on, Community law not merely pro- principle of free movement of persons is extended to the
hibits overt discrimination on the grounds of nationality relations between the EU and Switzerland. Article 1 of the
but also any covert forms of discrimination based on any EU-Swiss bilateral treaty indeed provides that:
other criterion of differentiation the use of which works in
The objective of this Agreement, for the benefit of
particular against nationals of other Member States. As far
nationals of the Member States of the European Com-
back as 1974, the Court decided in the Sotgiu case that a
munity and Switzerland, is: ‘(a) to accord a right of
different treatment on grounds of residence could amount
entry, residence, access to work as employed persons,
to a prohibited discrimination under Community law.7
establishment on a self-employed basis and the right
In particular since the mid-1980s, when the ECJ
to stay in the territory of the Contracting Parties; (b)
started applying the principles of free movement and
to facilitate the provision of services in the territory of
non-discrimination also in the area of income taxation,8
the Contracting Parties, and in particular to liberalise
it has become clear that Community law also prohib-
the provision of services of brief duration; (c) to accord
its any income tax discrimination against cross-border
a right of entry into, and residence in, the territory of
workers, including frontier workers, who live in one
the Contracting Parties to persons without an economic
Member State but work in another.9 In its landmark
activity in the host country; (d) to accord the same
1995 Schumacker decision, the ECJ held that non-resi-
living, employment and working conditions as those
dent frontier workers who earned all or almost all their
accorded to nationals.
income in the work state (and not enough income in
their state of residence so as to be able to claim personal For the sake of uniformity of application and coherence,
deductions there) should be considered by the host (or Article 16(1) of the EU-Swiss bilateral treaty foresees that
work) state to be in a similar situation, from an ability to Switzerland shall take any necessary measures to ensure
pay point of view, as their resident colleagues from the that rights and obligations equivalent to those contained
work state. They should consequently enjoy the same tax in Community instruments in the field of free movement
treatment in the work state as their resident colleagues of persons are applied in its relationships with the EU.13
and this included a right to personal and family deduc- For that purpose, and because this implies the interpreta-
tions in the work state as well as a right to be taxed as a tion of Community principles, Switzerland committed to
married couple there.10 take the case law of the ECJ into account as it existed prior
The primacy of Community law was confirmed in early case law (Case 6/64, Costa v. ENEL  ECR 585; Case 48/71, Commission v. Italy (export tax on art treasures)
 ECR 527; Case 106/77, Amministrazione delle Finanze dello Stato v. Simmenthal  ECR 629), including income tax case law (Case 6/60, Humblet v. Belgium 
ECR 559, which concerned the compatibility of a Belgian exemption with progression, applied to the income of a Community staff member and his spouse, with the Pro-
tocol on privileges and immunities).
See already Art. 7 of Regulation 1612/69 of 15 Oct. 1968 on freedom of movement for workers within the Community (OJ L 257, 19 Oct. 1968, 2).
Case C-152/73, Sotgui v. Deutsche Bundespost  ECR 153, 11.
In the 1986 breakthrough decision in Case 270/83, Commission v. France (‘avoir fiscal’)  ECR 273, the Court for the first time declared a domestic income tax provision
contrary to the EC Treaty Articles on the free movement of persons. In fact, in this case, the Court held that the French refusal to extend the benefits of an imputation credit
to a French permanent establishment of a German insurance company constituted a discrimination contrary to the Treaty freedom of establishment.
See S. van Thiel, ‘Free Movement of Persons and Income Tax Law: The European Court in Search of Principles’, IBFD Amsterdam 3, Doctoral series (2001).
Case 279/93, Finanzamt Koeln-Altstadt v. Schumacker  ECR I-225.
These are: Agreement on the free movement of persons (OJ L 114, 30 Apr. 2002, 6); Agreement on air transport (OJ L 114, 30 Apr. 2002, 73); Agreement on the carriage
of passengers and goods by road and rail (OJ L 114, 30 Apr. 2002, 91); Agreement on trade in agricultural products (OJ L 114, 30 Apr. 2002, 132); Agreement on the
mutual recognition of conformity assessment (OJ L 114, 30 Apr. 2002, 369); Agreement on certain aspects of government procurement (OJ L 114, 30 Apr. 2002, 430);
Agreement on scientific and technological cooperation(OJ L 114, 30 Apr. 2002, 468).
On the European side, the bilateral treaty on free movement of persons was signed by the EC and all the Member States (mixed agreement).
Article 16(1) of the EU-Swiss bilateral treaty provides that:
In order to attain the objectives pursued by this Agreement, the Contracting Parties shall take all measures necessary to ensure that rights and obligations equivalent to
those contained in the legal acts of the European Community to which reference is made are applied in relations between them.
Swiss Court Denies European Frontier Workers Their ‘Schumacker’ Rights
to the signature of the EU-Swiss bilateral treaty.14 As to services,22 or in the case of unemployed persons, on
subsequent case law, the agreement provides that this will being financially independent and covered by health
be communicated to Switzerland and that a Joint Com- insurance.23 Frontier workers do not need a residence
mittee composed of representatives of the participating permit but the competent authorities of the work state
States15 will determine its implications upon request.16 may nevertheless issue the frontier worker with a special
In practice, it thus means that Swiss and EU nationals permit for the duration of his employment where this is
(and their families) may benefit, within the territory of any longer than three months and less than one year. It shall
other contracting States, from any rights ensuing from the be extended for at least five years provided that the fron-
Community principle of free movement of persons.17 For tier worker furnishes proof that he is actually pursuing
that same purpose the EC and Switzerland also agreed to an economic activity.24
coordinate national social security schemes18 and to mutu- The EU-Swiss bilateral treaty entered into force on 1
ally recognize professional diplomas.19 June 2002 for an initial period of seven years but was
Rights enshrined in the EU-Swiss bilateral treaty are renewed indefinitely in June 2009.25 Before that, its
conditional, however, either on the possession of a valid extension to the twelve states that recently joined the
employment contract,20 on being self-employed,21 on EU was approved by the Swiss population by means of
the fulfilment of the traditional conditions to provide referendums.26
Article 16(2) of the EU-Swiss bilateral treaty provides that:
Insofar as the application of this Agreement involves concepts of Community law, account shall be taken of the relevant case-law of the Court of Justice of the European
Communities prior to the date of its signature.
The joint Committee is set up in accordance with Art. 14 of the EU-Swiss bilateral treaty. It is composed of representatives of the Contracting Parties and is responsible for
the management and proper application of the Agreement. It may issue recommendations and take decisions by mutual agreement. It may also take appropriate measures
in the event of serious economic or social difficulties. The Joint Committee meets at least once a year and it may decide to set up any working party or group of experts to
assist it in the performance of its duties.
Article 16(2) of the EU-Swiss bilateral treaty also provides that:
Case-law after that date shall be brought to Switzerland’s attention. To ensure that the Agreement works properly, the Joint Committee shall, at the request of either Con-
tracting Party, determine the implications of such case-law.
Article 7 of the EU-Swiss bilateral treaty provides that:
The Contracting Parties shall make provision, in accordance with Annex I, for the following rights in relation to the free movement of persons: (a) the right to equal treat-
ment with nationals in respect of access to, and the pursuit of, an economic activity, and living, employment and working conditions; (b) the right to occupational and
geographical mobility which enables nationals of the Contracting Parties to move freely within the territory of the host state and to pursue the occupation of their choice;
(c) the right to stay in the territory of a Contracting Party after the end of an economic activity; (d) the right of residence for members of the family, irrespective of their
nationality; (e) the right of family members to pursue an economic activity, irrespective of their nationality (on family members, see also Annex 1, Section I, article 3 of
the EU-Swiss bilateral treaty); (f) the right to acquire immovable property in so far as this is linked to the exercise of rights conferred by this Agreement; (g) during the
transitional period, the right, after the end of an economic activity or period of residence in the territory of a Contracting Party, to return there for the purposes of pursuing
an economic activity and the right to have a temporary residence permit converted into a permanent one.
Article 8 of the EU-Swiss bilateral treaty provides that:
The Contracting Parties shall make provision, in accordance with Annex II, for the coordination of social security systems with the aim in particular of: (a) securing equality
of treatment;(b) determining the legislation applicable; (c) aggregation, for the purpose of acquiring and retaining the right to benefits, and of calculating such benefits, all
periods taken into consideration by the national legislation of the countries concerned; (d) paying benefits to persons residing in the territory of the Contracting Parties; (e)
fostering mutual administrative assistance and cooperation between authorities and institutions.
Article 9 of the EU-Swiss bilateral treaty provides that:
In order to make it easier for nationals of the Member States of the European Community and Switzerland to gain access to and pursue activities as employed and self-
employed persons and to provide services, the Contracting Parties shall take the necessary measures, in accordance with Annex III, concerning the mutual recognition of
diplomas, certificates and other qualifications, and coordination of the laws, regulations and administrative provisions of the Contracting Parties on access to and pursuit of
activities as employed and self-employed persons and the provision of services.
See Annexes I and II of the EU-Swiss bilateral treaty relating to employed persons.
See Annexes I and III of the EU-Swiss bilateral treaty relating to self-employed persons.
These conditions are being set up in accordance with the laws of an EU Member State or Switzerland, being established in the territory of one of these States and being
authorized to provide services there. See Annexes I and IV of the EU-Swiss bilateral treaty relating to the provision of services.
See Annexes I and V of the EU-Swiss bilateral treaty relating to persons not pursuing an economic activity.
Annexes I and II, Art. 7 of the EU-Swiss bilateral treaty.
In accordance with Art. 25(2) and (3) of the EU-Swiss bilateral treaty, which provides that:
(2) This Agreement shall be concluded for an initial period of seven years. It shall be renewed indefinitely unless the European Community or Switzerland notifies the other
Contracting Party to the contrary before the initial period expires. In the event of such notification, paragraph 4 shall apply. (3) The European Community or Switzerland
may terminate this Agreement by notifying its decision to the other Party. (…).
None of the parties chose to terminate the agreement (and the Swiss population approved its continuation by referendum in February 2009).
On 25 Sep. 2005 for the ten States joining the EU in 2004 (56% of positive votes, into force on 1 Apr. 2006) and on 8 Feb. 2009 for Bulgaria and Romania (59.6% of
positive votes, into force on 1 Jun. 2009).
1.3. Income Tax Implications of on the grounds of their residence constitutes an indirect
the Bilateral EU-CH Treaty for discrimination if the frontier worker is in a comparable
‘Frontaliers’ (Working in Switzerland situation as his resident colleague, that is if he earns all or
but Residing in the EU) almost all his income in the work state.34
Based on the case law of the Court and the explicit
At present, there are many EU citizens living in the provision in the EU-Swiss bilateral treaty, Switzerland
EU but working on a daily basis in Switzerland. These should ensure equal treatment to EU nationals who have
‘frontaliers’ are considered in Switzerland as non-residents opted to use their freedom to move in order to work as
for tax purposes and they are consequently taxed differ- employed persons in Switzerland, inter alia as regards
ently than resident taxpayers. In fact, Swiss law provides income taxation, and must interpret this principle and
for two distinct income taxation systems, applicable on its implications in this specific field in the light of the
the basis of the taxpayer’s residence.27 Resident taxpay- ECJ case law (at least the one existing prior to the conclu-
ers are submitted to the laws of 22 September 2000,28 sion of the EC-Swiss Agreement) and thus including the
which provide for the submission of an annual tax return Schumacker case law.
in which social and professional expenses may be deducted Unsurprisingly, therefore, the question of the conform-
(taking into consideration the costs actually incurred, thus ity of the Swiss source-based taxation system (as applied to
made a posteriori). Non-resident taxpayers are submitted non-resident Swiss taxpayers) with the Community prin-
to source-based taxation under the law of 23 September ciple of free movement of persons was submitted to the
1994,29 pursuant to which their employer retains income Swiss tax administration and the competent Swiss national
tax at source.30 Under this procedure, the applicable rates jurisdictions in the Boitelle case, in which, surprisingly
take account of social and professional expenses and fam- perhaps, neither the administration nor the courts applied
ily circumstances, but only on a flat-rate basis (flat-rate the principles of the ECJ Schumacker case law.
deductions a priori – no possibility to deduct the costs The remainder of this note will set out the main facts
actually incurred31). In practice, these two systems of tax- and legal arguments of the Boitelle case (section 2) and will
ation may thus give rise to a different tax treatment of comment on the conclusion reached by the Swiss Court
Swiss taxpayers’ income on the grounds of their residence, (section 3).
potentially to the detriment of the non-residents.
In general, it may be questioned whether a continuation
of this different tax treatment of frontaliers32 in Switzer-
land is compatible with the Bilateral EU-Swiss Treaty. As
2. THE ‘BOITELLE CASE’
mentioned above, Switzerland has committed to take all 2.1. Facts of the Case
necessary measures to ensure that rights and obligations
equivalent to those provided in Community instruments The Boitelle spouses reside in France and earn their income
in the field of free movement of persons are granted to from employment in the control of Geneva in Switzerland.
EU nationals who work in Switzerland while residing in For the year 2004, they were taxed as non-residents in
an EU Member State. Moreover, since this commitment Switzerland, which means that their income was taxed
implies an interpretation of Community principles, at source on a flat-rate basis, that they enjoyed flat-rate
Switzerland has agreed to take account of the relevant (but not the full) deductions for certain social security and
ECJ case law,33 and the ECJ has consistently decided since travel expenses, and that they were taxed on an individual
Schumacker, that a different treatment of frontier workers basis and not as a married couple.35
Such a difference of applicable laws already existed prior to the conclusion of the EU-Swiss bilateral treaty, and no further distinction between EU and third states nationals
was ever added.
LIPP-I-LIPP-V, D 3 11–D 3 16.
LISP, D 3 20.
In fact foreigner’s resident in Switzerland are subject to the source tax systems. For EU citizens, they only are subject to the ordinary procedure once they have obtained
their permanent residence permit or if they buy real estate in Switzerland or dispose of taxable wealth.
Some additional deductions are possible in the framework of a yearly regularization procedure (a posteriori), but which ultimately does not offer the same level of deductions
than the ordinary procedure. In addition, personal deductions such as passive mortgage interest are ignored under the service tax system. See Federal Tax Harmonisation
Law (Arts 3 to 48) and Federal Direct Tax Law (Arts 83 to 101).
And resident EU nationals.
However, only the one existing prior to the conclusion of the EU-Swiss bilateral treaty. The subsequent case law will only be communicated to Switzerland and a committee
composed of representatives of both the EC and Switzerland will determine its implications.
See also Case 80/94, Wielockx  ECR I-2508; Case C-107/94, Asscher  ECR I-3089; Case C-336/96, Gilly  ECR I-2823; Case C-18/95, Terhoeve 
ECR I-345; Case C-391/97, Gschwindt  ECR I-5453; Case C-229/98, van der Zwalmen  ECR I-7115; Case C-87/99, Zurstrassen  ECR I-3339; Case
C-385/00, De Groot  ECR I-11819; Case C-234/01, Gerritse  ECR I-5933; Case C-209/01, Schilling  ECR I-13389; Case C-169/03, Wallentin 
ECR I-6443; Case C-346/04, Conijn  ECR I-6137; Case C-436/05, De Graaf and Daniels 2006 Order of Inadmissibility OJ C 326 of 30 Dec. 2006; Case C-329/05,
Meindl  ECR I-1107; C-527/06 Renneberg  ECR I-7735.
It also meant that they did not benefit from compensating interests on the difference between taxes paid by anticipation and those effectively due, but this aspect will not
be further discussed in this note.
Swiss Court Denies European Frontier Workers Their ‘Schumacker’ Rights
In August 2005, they filed a ‘demande de rectification However, at the same time Article 8 of the Swiss Con-
(a posteriori adjustment request) with the competent stitution guarantees equality of treatment and Article 9 of
tax administration, which decided on 31 October 2005 the Swiss Constitution protects against arbitrary decisions,
to partially grant their request for deduction of social and the question thus arises to what extent a different tax
security contributions and for them being taxed as a mar- treatment of residents and non-residents would be incom-
ried couple. In November 2005, the Boitelle spouses filed patible with that constitutional equal treatment clause.
a new tax return for the year 2004 indicating, like their The Swiss Jurisdiction first recalls38 that the Con-
resident colleagues, their worldwide income and request- stitution requires the law to treat the same situations
ing to be taxed in the normal way like resident taxpayers in the same way and different situations differently. In
and not under the taxation at source system that applies this respect, it recalls that ‘the principle of equality of
to non-residents. This request was rejected by the tax treatment only covers equality in right’ and that it does
administration on 30 January 2006. not ‘oblige the State to correct inequalities in fact’, and
In November 2005, the Boitelle spouses filed an objec- it recognizes that the main element of the decision is to
tion against the refusal to allow personal deductions and establish whether two situations are the same or compara-
in February 2006, they lodged an appeal against this ble, or whether a different treatment is based on objective
rejection with the ‘Commission Cantonale de recours en differences.
matière administrative’36 (hereinafter the Swiss Jurisdic- It subsequently notes that in the tax area the equal
tion) requesting permission to file an annual tax return treatment principle is reflected in the principles of gener-
like resident taxpayers. They argued that since they ality and equality of taxation as well as in the principle of
earned most of their world income (95%) in Geneva, they proportionality of the tax burden with economic capacity
were, from a tax point of view, in a similar situation as as laid down in Article 127 of the Constitution, and it
Swiss residents who are engaged in a comparable employ- recalls in this respect that taxpayers with similar capacity
ment. Therefore, they wished to benefit from the same tax should bear a similar tax burden.39
advantages, in particular the right to fully deduct certain On the other hand, the Swiss Jurisdiction recognizes
expenses37 and the right to be taxed jointly as a married that the complexity of a situation that is subject to regu-
couple. In essence, they claimed that taxation at source lation and the potentially numerous parameters to take
constitutes a violation of their right to equal treatment into consideration when comparing two situations make
under the Swiss Constitution, the 1966 bilateral Franco- it impossible to ensure absolute equality. Therefore, in
Swiss tax treaty, and the EU-Swiss bilateral treaty, and the framework of a certain schematic approach, not all
that such a difference of treatment between residents and taxpayers need to be taxed in exactly the same way, but the
non-residents earning most of their income in Switzerland constitutional norm should, except when taxation leads
was not justified. to a flagrant inequality, be satisfied if the law broadly
guarantees equality of treatment.40 Whereas, in general
2.2. The Principle of Equal Treatment terms, different circumstances should result in differ-
under Swiss Constitutional Law and ent taxation (vertical equity) and similar circumstances
the Franco-Swiss Double Tax Treaty: should result in similar taxation (horizontal equity),41
Claim Denied procedural simplifications and estimations were accepted
in tax case law even though they may affect individual
As mentioned above, the different tax treatment in cases and even though this would mean that equality of
Switzerland of resident and non-resident taxpayers is treatment cannot be fully guaranteed.42 Broadly speak-
explicitly provided by Swiss law, which submits those two ing, the principle of equality would therefore supersede
categories of taxpayers to different procedures. the right to equality.43
The ‘Jurisdiction cantonale de recours en matière administrative’ is part of the Swiss judiciary order and acts as an appeal jurisdiction for decisions of the tax administra-
Whereas resident taxpayers may deduct social security and professional expenses actually incurred in the framework of their annual tax declaration, non-resident taxpayers
(even when earning most of their income from Swiss source) cannot fully deduct such costs because their employer retains tax at source and deductions are allowed on a
flat-rate basis (not taking account of costs actually incurred). In the case at stake, the main item was passive (mortgage interest).
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 4.
Reference is made to Federal Tribunal Decision ATF of 12 Mar. 2001 in Case 2P.215/2000. Under Swiss tax law, the equal treatment principle receives a concrete expression
in the principles of generality and equality of taxation, and in the principle of proportionality of the tax burden based on the economic capacity. Pursuant to the first two,
exonerations are forbidden without an objective reason; pursuant to the third, citizens being in the same economic situation must carry a similar tax burden, and when they
are in a different situation, their tax burden must be adapted.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 4. Reference is made to ATF 118 Ia 4.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 4; reference is made to J.-M. Rivier, Droit Fiscal Suisse, L’imposition du Revenu et de la Fortune, 2nd edn (Neucha-
tel: Press Lausanne Centrale, 1998), 85.
Reference is made to ATF 114 Ia 221; 123 II 9 dated 13 Feb. 1998, RDAF 1998, 441, and ATF dated 3 Nov. 2000, RF 56 (2001) 414.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 4 alinéa 7. Reference is made to ATF dated 3 Jul. 2002 in Case 2P.282/2001.
The Swiss Jurisdiction secondly examines the source- 2.3. The Principle of Equal Treatment
based income taxation procedure as applied to non- under the EU-Swiss Agreement
resident taxpayers in the light of the constitutional and the Relevant ECJ Case Law:
principle of equal treatment.44 It first notes that the Swiss Claim Denied
legislator wanted a specific procedure for non-residents
and that there was no legal basis for the claimants to file Finally, the Boitelle spouses relied on the Community
a tax return as if they were resident taxpayers. It holds principle of free movement of persons, as applicable to
moreover that the different treatment (source-based taxa- EU-Swiss relations by virtue of the EU-Swiss bilateral
tion) for non-residents is justified by the need to ensure treaty. As above mentioned, Switzerland indeed commit-
the collection of taxes45 and that Article 32 of the Fed- ted to guarantee the free movement of EU nationals on
eral Tax Harmonization Law, which provides for flat-rate its territory and to grant them similar living and work-
deductions for professional expenses, insurance premiums, ing conditions as it grants to its nationals, including in
and family charges, was already accepted by the Federal the field of income taxation. In addition, for the inter-
Tribunal, even though this simplification could result in a pretation of this principle, Switzerland also committed
different tax burden for taxpayers.46 to taking account of the relevant case law of the ECJ
The Swiss Jurisdiction concludes that the source- existing prior to the conclusion of that bilateral treaty.
based taxation of non-residents does not constitute In fact, the Federal Tribunal confirmed on several occa-
discrimination because it applies to both Swiss nationals sions that this case law should be considered as ‘determin-
and foreigners (to the extent they reside abroad), and that, ing’ for Switzerland50 and in this light it should have been
as applied to the Boitelle spouses, it does not infringe the expected that the Swiss Jurisdiction in the Boitelle case
equality principle under national constitutional law.47 would have applied the Schumacker case law of the European
The Swiss Jurisdiction finally deals with the claimants Court,51 which was developed prior to the signature of the
reliance on Article 26, paragraph 1 of the 1966 Franco- EU-Swiss bilateral treaty.
Swiss double tax treaty,48 which provides that nationals of To summarize, Schumacker was a Belgian national who
a contracting State may not be subject, in the other con- worked in Germany where he was taxed as a non-resident
tracting State, to an income taxation that would be so that he could not file an annual tax return so as to deduct
his personal and family expenses and to benefit from joint
different or heavier than the one to which nationals of
taxation with his spouse. The ECJ recalled constant case
that other State in the same situation are subject. In
law that the Treaty prohibits not only overt discrimina-
particular, nationals of a contracting State who pay tax
tion by reason of nationality but also all covert forms of
in the other contracting State must benefit, under the
discrimination, which, by the application of other crite-
same conditions than nationals of that State, of exemp-
ria of differentiation, lead in fact to the same result.52 It
tions, reliefs, deductions and rebates (…).
noted that the contested German tax legislation applied
It simply notes that this provision prohibits any a distinction on the basis of residence, and that this was
difference of treatment on the grounds of nationality but likely to operate mainly to the detriment of nationals
not a difference of treatment on the grounds of residence. of other Member States, in the circumstance that non-
For that reason, and because both Swiss nationals resid- residents are, in the majority of cases, nationals of other
ing abroad and foreign non-residents are subject to the Member States.53 The Court also held that even though,
source-based income taxation system, the Swiss Jurisdic- in the field of income taxation, the situations of residents
tion concludes that this procedure does not give rise to and non-residents were, in general, not comparable,54 the
a discrimination under the French-Swiss double taxation position would be different, however, when non-residents
agreement.49 receive no significant income in the State of residence and
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 5.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 5 alinea 5 with reference to Peter Locher, Kommentar zum DBG, II ieme partie, Therwil/Bale (2004) and to Raoul
Oberson, ‘Imposition a la Source’, Archives 61, no. 2 (1992): 405.
Reference is made to P. Agner, B. Jung & G. Steinmann, Commentaire de la loi sur l’Impôt Fédéral Direct (Zurich: Schultess, 2001), 350, 351.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, end of paras 5–7. Reference is made to ATF 2P. 145/1999 dated 31 Jan. 2000.
Which entered into force on 26 Jul. 1967.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 8.
ATF 129 II 215 dated 28 Mar. 2003; ATF 2A.494/2003 dated 24 Aug. 2004.
Case C-279/93, Schumacker  ECR I-225.
Case C-279/93, Schumacker  ECR I-225, 26. See also Case C-152/73, Sotgiu  ECR, 153, 11.
Case C-279/93, Schumacker  ECR I-225, 28.
Ibid., 31. This is why international tax law, and in particular the OECD Model Tax Treaty, recognizes that in principle the overall taxation of taxpayers, taking account of
their personal and family circumstances, is a matter for the State of residence.
Swiss Court Denies European Frontier Workers Their ‘Schumacker’ Rights
obtain most of their taxable income from an activity per- The Swiss Jurisdiction then recognizes the obligation
formed in the State of employment, with the result that on Switzerland to take account of the ECJ case law as
the State of residence is not in a position to take their it stood before 21 June 1999 and it does analyse the
personal and family circumstances into account.55 There Schumacker decision in the above sense. It subsequently
is indeed no objective difference between the situations of recognizes that part of Swiss literature considers there-
such a non-resident and a resident engaged in compara- fore that the Swiss rules on the taxation of ‘frontaliers’
ble employment, such as to justify different treatment as should be amended, but that others are of the opinion
regards the taking into account, for taxation purposes, of that in general the source tax rules applied by Switzer-
the taxpayer’s personal and family circumstances.56 To the land are not discriminatory because they also affect Swiss
contrary, in the case of a non-resident who earns most of nationals who are non-resident, but who nevertheless
his income and almost all his family income in a Member feel that frontier workers who earn all their income in
State other than that of his residence, discrimination arises Switzerland should have the possibility to be taxed as
from the fact that his personal and family circumstances residents.62
are taken into account neither in the State of residence Nevertheless, the Swiss Jurisdiction rejects the claim
nor in the State of employment.57 In conclusion, the ECJ and considers that the Geneva source tax system guaran-
decided that the principle of free movement does not, in tees an equal tax treatment of non-resident and resident
principle, preclude the application of rules of a Member taxpayers in a similar situation. To arrive at this conclu-
State under which a non-resident working as an employed sion, the Swiss Jurisdiction notes first that the Geneva
person in that Member State is taxed more heavily on his tax administration a posteriori corrects the source tax
income than a resident in the same employment.58 But the system in a number of cases, that is if the spouses both
position is different in a case such as this one where the earn income from the Canton and are subject to taxation
non-resident receives no significant income in the State as singles (without deduction for married couples), or if
of his residence and obtains the major part of his taxable the taxpayer concerned has exercised several economic
income from an activity performed in the State of employ- activities, or if the taxpayer has, in addition to taxable
ment, since there is, between such a non-resident and a income, received social payments. Secondly, the Geneva
resident exercising a similar economic activity, no objec- tax administration allows certain supplementary deduc-
tive difference such as to justify a difference of treatment.59 tions at the request of the taxpayers (payments to buy into
The Court has confirmed this position in subsequent case social security schemes, alimony payments, frais de garde).
law.60 According to the Swiss Jurisdiction, these additional
However, the Swiss Jurisdiction in the Boitelle case measures together with the flat-rate arrangements ensure
nevertheless goes another way and it bases itself directly that sufficient account is taken of the personal and family
or indirectly on the following arguments. First, it relies situation of the ‘frontalier’ and they also consider that in
on the wording of the Bilateral EU-Swiss Treaty. It notes this respect the German legislation subject to the Schu-
that Article 2 of the agreement prohibits discrimination macker case was not comparable to the Geneva legislation
on grounds of nationality, but that Article 21, paragraph 2 subject to the Boitelle case.63 This is because the Geneva
allows different tax treatment on grounds of residence tax system would a posteriori place the non-residents in a
because it explicitly provides that no provision of the Treaty similar situation as a resident (which was disputed by the
can be taken to prevent the Parties from distinguishing on Boitelle spouses who claimed that, even after a rectification
the basis of the relevant tax legislation between taxpayers a posteriori, they were not able to benefit from the same
who are not in a similar situation in particular as regards level of deductions as residents do64) and would as such
their residence.61 sufficiently take the personal situation of the claimants
Case C-279/93, Schumacker  ECR I-225, 36.
The ECJ rejected the justifications offered by the German government, based on: (1) the need to ensure the cohesion of the applicable tax system and the fear that the per-
sonal situation of the taxpayer be taken into consideration twice (i.e., in the residence state and in the employment state) because of a lack of revenue in the residence state
(40–42); (2) the administrative difficulties prevent the State of employment from ascertaining the income that non-residents working in its territory receive in their State
of residence, in view of the existing mutual assistance instruments (43–45).
See Case C-182/06, Lakebrink  ECR I-6705; Case C-383/05, Talotta  ECR I-2555; Case C-169/03, Wallentin  ECR I-6443; Case C-234/01, Gerritse
 ECR I-5933; Case C-87/99, Zurstrassen  ECR I-3337; Case C-391/97, Gschwind  ECR I-5451; Case C-80/94, Wielockx  ECR I-2493, and
C-107/94, Asscher  ECR I-3089.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 10.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 11, reference to J.M. Rivier, ‘L’égalité Devant l’impôt des Travailleurs Suisses et Étrangers’, Archives 71 (2002):
97 (supportive of a change in the rules).
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, paras 12 and 13.
The Boitelle spouses claimed that there remained a difference of CHF 13.391 in their disfavour.
into account.65 The Swiss Jurisdiction therefore refused to OECD Model (and its commentary). It recognized that
apply the Schumacker jurisprudence in the Boitelle case residents and non-residents were generally not in the same
because the regulations at stake in those two cases would situation for tax purposes, but it clarified that this would
not be comparable. be different if the non-resident earned all or almost all his
income in the work state (and no income in the residence
state). In that case, the non-resident would, from an abil-
ity to pay tax point of view, be in a similar situation as his
3. COMMENTS resident colleagues because he could deduct his personal
3.1. General and family expenses only in the work state. Denying him
those deductions would amount to discrimination because
Formally speaking, the Swiss Jurisdiction did not refuse to those expenses could in that case be taken into account
consider the Schumacker decision and it, in fact, includes neither in the residence state (no income) nor in the work
an elaborate summary of the case in its judgment. How- state (no residence).
ever, it seems to come to the conclusion that that case More importantly, the same logic underlies the Court’s
law was not applicable to the Boitelle spouses presumably interpretation of the Maastricht Treaty Articles on the free
because the Geneva regulations at stake in the latter case movement of capital. In those new articles, the Member
were different from the German regulation at stake in States had inserted a new tax exception to the free move-
the Schumacker case in that The Geneva one a posteriori ment of capital, which, very much in the sense of Arti-
corrected some of the disadvantages suffered by the non- cle 24 of the OECD Model, provided that Member States
resident taxpayer. The result is that the Swiss Jurisdiction would be allowed to maintain different tax treatment on
allows a different tax treatment on the basis of residence grounds of residence.67 Again the ECJ did not interpret
and to arrive at that conclusion it cites the EU-Swiss this new provision in the sense of the OECD Model, but
bilateral treaty, and in particular the clause that allows it interpreted the new provision in the light of its own
different tax treatment on grounds of residence, and it previous case law on tax discrimination. As such, it came
concludes that the Geneva tax laws do not discriminate to the conclusion that different treatment on the basis of
against the Boitelles because their disadvantages are a pos- residence could only be acceptable if the resident and non-
teriori corrected and Swiss nationals residing in ‘France resident taxpayers would not be in the same situation or
voisine’ receive the same treatment. Though the outcome if there were overriding public interest reasons to deny
of the case may be readily understood in the light of the equal treatment.68
significant budgetary implications of a decision in favour Second, the suggestion by the Swiss Jurisdiction that
of the Boitelles, the decision of the Swiss Jurisdiction and the non-resident non-national Boitelle spouses would not be
its underlying reasoning is open to criticism. discriminated because non-resident Swiss nationals receive
First of all, even though it is true that the Bilateral the same tax treatment is unconvincing. In a national treat-
Treaty contains an Article 24 Organization for Economic ment analysis, the right comparison is between a domestic
Cooperation and Development (OECD) Model type and a cross-border situation, or in this case between a resi-
clause66 that allows different tax treatment on grounds of dent worker and an incoming non-resident frontier worker.
residence, this is hardly relevant in the Boitelle case, which The question then would be if the use of the criterion of
must be looked at in the light of Community law. Already residence would work in particular against the cross-bor-
in the Schumacker case, the Member States argued that der situation, which it obviously does. In that case, the
resident and non-resident taxpayers were not in a similar contested legislation constitutes covert discrimination and
situation (and could therefore be taxed differently) but the the nationality of the incoming frontier workers seems to
Court took a more nuanced position than the one of the be of less relevance for that question.
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 12 alinea 4.
Article 24, para. 1 of the OECD Model prohibits discrimination against resident non-nationals, but it does not prohibit different tax treatment of non-residents because
these are not considered to be in ‘the same circumstances’ as residents.
The Maastricht Treaty provided that the provisions on the free movement of capital ‘. . . shall be without prejudice to the right of Member States: (a) to apply the relevant
provisions of their tax law which distinguish between taxpayers who are not in the same situation with regard to their place of residence or with regard to the place where
their capital is invested.’
In Case 35/98, Verkooijen  ECR I-4073, the ECJ held in para. 43:
In addition, the possibility granted to the Member States by Article 73d(1)(a) of the Treaty of applying the relevant provisions of their tax legislation which distinguish
between taxpayers according to their place of residence or the place where their capital is invested has already been upheld by the Court. According to that case-law, before
the entry into force of Article 73d(1)(a) of the Treaty, national tax provisions of the kind to which that article refers, in so far as they establish certain distinctions based, in
particular, on the residence of taxpayers, could be compatible with Community law provided that they applied to situations which were not objectively comparable (see, in
particular, Case C-279/93 Schumacker  ECR I-225) or could be justified by overriding reasons in the general interest, in particular in relation to the cohesion of the
tax system (Case C-204/90, Bachmann v. Belgian State  ECR I-249 and Case C-300/90, Commission v. Belgium  ECR I-305).
Swiss Court Denies European Frontier Workers Their ‘Schumacker’ Rights
Third, the conclusion of the Swiss Jurisdiction hinges are accepted in Community law as grounds to justify dif-
on several interlocking reasons, which are partly implicit ferent treatment of similar situations.
and party explicit but which all are problematic from a
European law point of view. In fact, the Swiss Jurisdic-
tion correctly recalls that the main question in every (tax) 3.2. No De Minimis Exception
discrimination case is to decide whether the two situa- in Community Law
tions that are compared are really similar. If they are, they
must be treated in the same way; if they are not, they It is clear from the ECJ tax case law that the European
must be treated differently. Now here the ECJ had been concept of equal treatment means full equal treatment,
quite clear in Schumacker that a non-resident frontier and the Court has on several occasions clarified that
worker who earned all or almost all his income in the work even small inequalities of treatment may gives rise to an
state should be considered to be in the same situation as EC-incompatible discrimination. There is no de minimis
his resident colleagues. The Swiss Jurisdiction seems to exception in European internal market law and, from a
accept that the Boitelle spouses are in the same situation as European law point of view, it would not be sufficient for
resident taxpayers because they earn 95% of their income the Geneva tax system to provide grosso modo equal tax
in Geneva. Nevertheless, the Swiss Jurisdiction does not treatment of non-resident frontier workers (in particular
proceed to the expected conclusion that denying them the not if that grosso modo equal tax treatment results in a
same deductions as granted to residents amounts to a pro- higher tax burden for the non-resident of several thou-
hibited discrimination. sands of Swiss francs a year).
On the contrary, the Swiss Jurisdiction makes the sur- As a matter of fact, even though the difference in the
prising assessment that the Geneva tax system does ensure treatment of resident and non-resident taxpayers under
equal tax treatment of residents and non-residents this Swiss law is not as critical as in the Schumacker case, it still
in spite of the fact that the non-resident Boitelle spouses exists, potentially to the detriment of the non-residents,
only enjoy flat-rate deductions, instead of deductions of and this without any valid justification. Indeed, source-
actual costs, which result in a higher annual tax burden based taxation remains a procedure that applies a priori
of several thousands of Swiss francs as compared to the tax and for which a regularization (which would, however, not
burden on a resident couple in the same circumstances. fully rectify the existing disadvantage) may only be made
The reasons for the Swiss Jurisdiction to conclude that the a posteriori (that is, at least one year later).
Geneva tax system ensures equal treatment include that The fact that the disadvantage suffered by non-residents
the source tax system as applied to the Boitelles is a pos- would be less important than in the Schumacker case is
teriori corrected in several ways and that supplementary irrelevant and does not alter the general principle defined
deductions can be claimed. This observation must pre- by the ECJ that there is, between a resident and a non-
sumably be read together with an earlier observation that resident earning most if his income in the employment
full equal treatment can never be assured in cases in which State, no difference such as to justify a difference in his
a ‘schematic’ of flat-rate tax system is applied, and that the income tax treatment. The Court already decided, as a
non-resident non-national are not discriminated because general principle, that the fact that a disadvantage was
non-resident Swiss nationals are treated in the same way. minimal (de minimis exception) does not justify a differ-
It is accompanied by the observation that, because of these ence of treatment in the field of free movement of persons
extra corrections and deductions, the Geneva tax system whose provisions are directly applicable.69 In fact, Mem-
is not comparable to the German tax system subject in ber States have often tried to play down the disadvantageous
the Schumacker case. To this must probably be added the effect of one of their discriminatory measures, by arguing
underlying concern over the possible budgetary implica- that the disadvantage is very small or negligible, avoidable or
tions of a decision in favour of the Boitelle spouses. compensated by another advantage. However, in its general
These reasons are, however, not convincing from a internal market case law the Court has consistently rejected
European law point of view, because neither the concept claims that EC-incompatible restrictions should be allowed if
of a de minimis exception (section 3.2) nor the concept of the disadvantage is de minimis, because any restriction of free
administrative convenience or an ex post procedural remedy movement, even a minor one, distorts the internal market
(section 3.3), nor possible budgetary losses (section 3.3) and is therefore prohibited (constant case law in the area of
goods,70 services,71 and persons72).
Joined Cases 177 and 178/82, Van der Haar and Kaveka de Meern  ECR 1795, 13; Case C-270/83, Commission v. France  ECR 273, 21; Case C-103/84, Commission
v. Italy  ECR 1759, 18; Case C-19/92, Kraus  ECR 1663, 32.
Indirect tax discrimination, for instance, cannot be justified on the ground that the resulting tax is only marginally higher for the imported than for the domestic product.
Case 127/75, Bobie  ECR 1079; Case 20/76, Schöttle  ECR 247; Case 171/78, Commission v. Denmark  ECR 447, Joined Cases 177 and 178/82, van de
Haar and Kaveka de Meern  ECR 1797 (point 13); Case 103/84, Commission v. Italy  ECR 1759 (point 18).
See, for instance, Advocate General van Gerven in Case C-18/93, Corsica Ferries  ECR I-1783 (point 25) and Case C-49/89, Corsica Ferries France  ECR 4441
See, for instance, Case 270/83, Commission v. France  ECR 273 (point 21); Case C-19/92, Kraus  ECR I-1663 (point 32).
Likewise in its income tax case law, the Court has other advantages also related to the cross-border economic
refused to accept that national restrictive tax measures activity, and the Court has reiterated this rule in its inter-
should be allowed if they only cause a small disadvantage nal market case law,78 and in its income tax case law (see,
for the cross-border situation (see, for instance, Commission for instance, Commission v. France (avoir fiscal), paragraph
v. France (avoir fiscal),73 paragraph 2174). In addition, the 21,79 St Gobain, paragraph 53,80 Eurowings, paragraphs
Court has been unimpressed by arguments that a restric- 43–45,81 Verkooyen, paragraph 61,82 AMID, paragraph 27,83
tive national tax measure should be allowed to the extent Amurta, paragraph 7584). In the same spirit, the Court held
the disadvantage that it causes can be easily avoided if only that Member States are not allowed to offset, by means of
the taxpayer would chose to take another course of action a less favourable tax treatment of a cross-border as com-
(see, for instance, Commission v. France (avoir fiscal), para- pared to a domestic activity, the possible advantages that
graph 22,75 Bachmann, paragraphs 12 and 13,76 Futura77). this cross-border activity may enjoy by moving to another
Finally, it is settled case law that a discriminatory restriction tax jurisdiction (Biehl, paragraph 15, Commission v. France,
on free movement cannot be justified by the fact that the paragraph 21, Eurowings, paragraph 44, Skandia, paragraph
disadvantage caused by that restriction is compensated by 52, Cadbury Schweppes, paragraph 4985).
According to France, the ceiling on the number of shares that an insurance company was allowed to hold, and the very low dividend return on its typical low-risk invest-
ment, necessarily limited the financial impact of the imputation credit refusal. In addition, insurance companies invested in shares, not because of the anticipated dividend
income (as affected by the imputation credit), but because of potential capital gains (not affected by the imputation credit). Moreover, if foreign companies suffered a real
disadvantage, the premiums charged by them should have been higher than those charged by French companies, which was not the case.
Apart from the fact that the French argument was probably factually incorrect, the Court reiterated the more fundamental position that there is no de minimis exception in
Community law on free movement, by noting that it was necessary neither to assess the extent of the disadvantages suffered by foreign insurance companies as a result of
the refusal of the imputation credit nor to consider whether those disadvantages could have any impact on the tariffs, since the Treaty ‘prohibits all discrimination, even if
only of a limited nature’ (para. 21). The Court thus rejected a de minimis exception in the area of free movement of persons, as a matter of principle and in doing so referred
to previous case law. See, for instance, Joined Cases 177 and 178/82, van der Haar and Kaveka de Meern  ECR 1797 (para. 13); Case 103/84, Commission v. Italy 
ECR 1759 (para. 18); Case C-19/92, Kraus  ECR I-1663 (para. 32).
France argued that foreign insurance companies could avoid the disadvantage of the imputation credit refusal, by establishing in France in the form of a subsidiary rather
than a branch. The Court dismissed the argument on the more fundamental than practical ground that the Treaty ‘expressly leaves traders free to choose the appropriate
legal form in which to pursue their activities in another Member State and that this freedom of choice must not be limited by discriminatory tax provisions’ (para. 22).
Belgium argued that a migrant worker, when taking up employment in Belgium, could avoid the non-deductibility of premiums paid to foreign insurance companies, by
replacing existing insurance contracts with new contracts concluded in Belgium (report, at I-252). The Court, however, considered that the termination of contracts would
in itself be a restriction on free movement ‘by reason of the arrangements and expense involved’ (judgment, at I-280, paras 12 and 13).
Luxembourg submitted that Futura could avoid the double accounting disadvantage by setting up a subsidiary instead of a branch. The applicants, as well as the
Commission and Advocate General Lenz, recalled the Court’s previous decisions, and, perhaps surprisingly, the Court simply ignored the argument.
An initial misunderstanding on this rule was created by the Court in Case 152/73, Sotgiu  ECR 153, paras 11 and 12, in which it held that there was no discrimina-
tion if a comparison between two schemes of allowances (for workers living away from home) ‘taken as a whole’ showed that non-residents (who received a lower allowance
indefinitely) were not placed at a disadvantage as compared to residents (who received a higher allowance, but temporarily). Nevertheless, in other cases, the Court clearly
confirmed the general rule. For instance, higher taxes on imports cannot be justified by the need to compensate certain disadvantages that exist for domestic production,
such as higher prices for raw materials, higher production costs, an adverse exchange rate or a higher tax burden as a result of different economic structures of operators.
Joined Cases 2 and 3/62, Commission v. Belgium and Luxembourg  ECR 425 and 445; Case 28/69, Commission v. Italy  ECR 187; Case 45/75, Rewe  ECR
181; Case 55/79, Commission v. Ireland  ECR 481; Case 32/80, Kortmann  ECR 251.
The French government had argued that the disadvantages of the imputation credit denial were more than compensated by the facts that branches did not incur incorpora-
tion costs (unrelated advantage) and that their profits were exempt from corporate income tax in the head office country because of the tax treaty network (more related
advantage). The Court, on its part, rejected the possibility of compensation as a matter of principle, when it held that ‘Even if such advantages would actually exist they
cannot justify a breach of the obligation laid down in Article 52 EC Treaty to accord foreign companies the same treatment’ (at para. 21).
In St Gobain, the German and Portuguese governments argued that the denial of the participation exemption and indirect foreign tax credit to the permanent establishment
was compensated by the advantage that its profits could be remitted to the head office without further withholding tax. The Court, referring to Commission v. France, ruled
that the disadvantageous tax treatment of branches as compared with subsidiaries could not be justified by other advantages. Even if those advantages existed, they could
not justify a breach of the national treatment obligation of the Treaty (para. 53).
In Eurowings, the German government argued that the broadening of the tax base was necessary to prevent a lower overall tax burden for German companies that leased
economic goods abroad. However, the Court rejected the argument with the observation that a possible tax advantage for service suppliers in their state of establishment
would not allow the Member State in which the service recipient was established to treat that recipient less advantageously for tax purposes (paras 44 and 45).
In Verkooyen, the Netherlands had argued that it should be allowed to refuse the dividend exemption for shares in foreign companies, because taxpayers otherwise would
be able to secure a twofold advantage, since they could enjoy tax reliefs both in the Member State in which the dividends were paid and in the Member State in which they
were received. Though presented as a double-dip argument, the Court replied that the unfavourable Netherlands tax treatment could not be compensated by the existence
of other tax advantages (para. 61).
In AMID, the Court noted that even if the Belgian system were favourable to companies with establishments abroad more often than not, this would not prevent it from
being discriminatory if it would prove disadvantageous for certain of those companies (para. 27).
In Amurta, the Netherlands argued that the disadvantage of the withholding tax on outbound dividends (unfavourable tax treatment) could be neutralized by tax measures
in the Member State of the shareholder and that this was for the national judge to establish (para. 70). However, the Court held that the Netherlands could not rely on the
existence of a tax advantage granted unilaterally by another Member State in order to escape its obligations under the Treaty (para. 78). It continued, however, that it cannot
be excluded that a Member State may succeed in complying with those obligations by concluding a tax treaty with another Member State (para. 79 with reference to ACT
Test Claimants, para. 71). Finally, it held that it is for the national court to establish whether to take account of the tax treaty and to what extent that treaty neutralizes the
restrictive effect of the contested measure (para. 83).
This was clear already in Biehl, in which the Court did not allow Luxembourg to refuse the non-permanent resident a refund of overpaid tax, on the grounds that it had to
offset the possible income tax progression advantage for the migrant worker. In Cadbury Schweppes, the Court itself referred to ‘settled case law that any advantage result-
ing from the low taxation to which a subsidiary established in a Member State other than the one in which the parent company was incorporated is subject cannot by itself
authorise that Member State to offset that advantage by less favourable tax treatment’ (see also Cadbury Schweppes, para. 49, Commission v. France, para. 21, Eurowings, para.
44, Skandia, para. 52).
Swiss Court Denies European Frontier Workers Their ‘Schumacker’ Rights
3.3. Administrative Convenience Cannot, control). From the point of view of a national tax admin-
and Ex Post Procedural Remedies Can istration, there may be good reasons not to grant the same
Only Exceptionally, Justify a Different tax treatment automatically to cross-border situations and
Treatment to domestic situations, because tax collection and enforce-
ment mechanisms, in principle, stop at the border, and
When discussing the question of equality of treatment information cannot be as easily obtained in cross-border
under national constitutional law, the Swiss Jurisdiction, situations (mutual assistance clauses are notoriously cum-
firstly, considers that the source-based taxation of non- bersome to use in practice). In international tax law, the
residents is necessary to ensure the collection of taxes from argument that administrative difficulties necessitate a dif-
non-residents and, secondly, that the use of flat rates is ferent substantive treatment of domestic and cross-border
justified for practical reasons and that a certain schemati- situations is therefore perfectly understandable. How-
zation may be necessary.86 ever, the Court, though explicitly recognizing this over-
From a European law point of view, however, justifica- riding public interest in Cassis de Dijon, never actually
tions based on the effectiveness of tax controls and the allowed the justification in its income tax case law (see,
collection of information are usually rejected by the Court for instance, Futura,89 Baxter,90 Vestergaard,91 and also XY,
in view of the existing mutual assistance instruments, and paragraphs 60–63, Lankhorst, Commission v. France II, para-
because of the possibility for the taxing state to require graph 29, Manninen, paragraph 54, Fournier).
information from the taxpayers.87 Such administrative In its income tax case law, the Court has recognized
reasons for non-compliance would, in the framework of an that Member States are entitled to obtain any information
economic integration process between several states and based that will enable the correct application of their tax laws,92
on the rule of law, be unconvincing, because Member States but it has stopped short of accepting discriminatory tax
could on the basis of that argument unilaterally endanger the measures for that reason, essentially on the grounds that
uniform application of Community law. Unsurprisingly, the all necessary information could be obtained under the
Court has consistently rejected the ‘administrative difficul- 1977 Mutual Assistance Directive, or directly from the
ties’ argument, in its general case law.88 taxpayer (see, for instance, Commission v. France, paragraph
In a variation to the theme, Member States have argued 29,93 and also Bachmann, Schumacker, Manninen). It can
in the income tax case law that they had to maintain cer- therefore be safely assumed that a national court cannot
tain EC-incompatible restrictions, not because it was not allow a discriminatory tax measure on the grounds that
administratively feasible to comply with Community law, the application of such a measure would be justified for
but because those restrictions were necessary to maintain administrative reasons or in order to maintain the effec-
the effectiveness of fiscal supervision or controls (lack of tiveness of fiscal supervision and control.
information) or that they imposed a restriction on cross- In any case, the ECJ has been very clear in reject-
border activity for administrative convenience (such as cost ing administrative convenience as a justified reason to
Decision of the Swiss Jurisdiction dated 31 Aug. 2009, para. 5 alinea 5. See also Agner et al., supra n. 44, 350, 351.
Case C-204/90, Bachman v. Belgique  ECR I-249, 18–20; Case C-1/93, Halliburton  ECR I-1137, 21 and 22; Case C-279/93, Schumacker  ECR 1-225,
43–45; Case C-250/95, Futura  ECR I-5063, 41; Case C-254/97, Baxter  ECR 18–20; Case C-55/98, Vestergaard  ECR I-7641, 25.
Trendsetting in this respect is the routine rejection of the Italian defence that parliamentary procedures caused delays in implementation of Community directives. In
Halliburton, which concerned an exemption from real estate transfer tax in the case of intra-group reorganizations, the Court rejected the Netherlands argument that it
could only grant the exemption if the group members were Netherlands companies, because it could not verify whether corporate structures from other Member States were
similar to the Netherlands companies (paras 21 and 22 with reference to the Mutual Assistance Directive).
Though the Court recognized that Luxembourg could not be forced to rely on accounts drawn up according to another Member State’s rules (paras 32–35), it held that
Luxembourg could not refuse the carry-forward if the taxpayer demonstrated, by other means, clearly and precisely the amount of losses concerned.
France argued that the deductibility of research costs was limited to those incurred in France, because that would allow France to control effectively the amounts really
spent on research. The Court again recognized the possibility of invoking effectiveness of fiscal controls as a justification but considered the complete exclusion from tax
deductibility of research costs incurred abroad to be disproportional, as it could not be excluded that the taxpayer was capable of submitting evidence that would allow the
tax authorities to control effectively research costs really incurred (paras 18–20).
The Court recognized that Member States may, in the interest of the effectiveness of fiscal supervision and control, apply measures that allow the amount of deductible costs
for professional training to be ascertained clearly and precisely. It held, however, that this could not justify a Member State in making that deduction subject to different
conditions according to whether the training courses take place in one or the other Member State. In this respect, the Court referred to both the 1977 Mutual Assistance
Directive and its previous stand that there is nothing to prevent the tax authorities concerned from requiring the taxpayer to supply all necessary proof. The Court, moreover,
rejected the Danish argument that the exchange of information provided for by the Mutual Assistance Directive was not sufficient to make a correct assessment in relation to
the duration of the stay abroad for training purposes, with the argument that the directive allows Member States to request any information required for the correct applica-
tion of its tax laws, without preventing the Member States from assessing themselves whether the conditions for obtaining the deduction are fulfilled (paras 25–28).
The Court, for instance, notes in para. 31 of its Futura decision: ‘The Court has repeatedly held that the effectiveness of fiscal supervision constitutes an overriding require-
ment of general interest capable of justifying a restriction on the exercise of fundamental freedoms guaranteed by the Treaty (see, for example, the judgment in Case 120/78,
REWE-Zentral (“Cassis de Dijon”)  ECR 649, para. 8). A Member State may therefore apply measures which enable the amount of both the income taxable in that
State and of the losses which can be carried forward there to be ascertained clearly and precisely.’ See also Vestergaard, para. 23 and Rewe Zentralfinanz, para. 55.
France argued that the extension of the imputation credit to all non-residents would be impossible, because of the resulting problems for the application of the ‘précompte’.
The Court implicitly rejected any possible justification, including the one concerning the administrative difficulties caused for the application of the French ‘précompte’.
discriminate between resident and non-resident taxpay- apply, that discriminatory or restrictive tax measures can-
ers. In fact, no exception to Community law (and certainly not be justified on the grounds that the correct applica-
not to the basic freedoms) may be justified by practical tion of Community law would result in a loss of revenue
considerations or to facilitate the calculation and collec- for, or an erosion of the tax base of, the Member State
tion of taxes.94 concerned.
Finally, the ECJ also decided that the existence of
procedural remedies available to non-residents does not
justify such a difference of treatment either, except when 4. CONCLUSIONS
such remedies ensure a certain and entire restoration of
equality,95 which does not seem to be the case with the With all due respect to the Swiss tax administration and
Swiss source tax system and its a posteriori corrections and the Swiss Jurisdiction dealing with the Boitelle case, it
additional deductions. seems to us that the Geneva tax system did discriminate
against the Boitelle spouses contrary to the provisions of
the Bilateral EU-Swiss Treaty as interpreted in line with
3.4. Possible Budgetary Consequences
the case law of the ECJ.
Cannot Justify Discrimination The reason is that:
A justification that has frequently been argued by the – as non-resident taxpayers they were taxed differently
Member States in the income tax cases before the ECJ is as their resident colleagues, essentially because the
that the application of Community law would result in a Geneva tax system allowed residents deductions of
loss of tax revenue or an erosion of the tax base. It seems expenses actually incurred whereas it allowed non-
to us that this may also have been one of the less explicit residents only flat-rate deductions (different tax treat-
concerns of the Swiss Jurisdiction judging the Boitelle ment by one single tax system);
case. The truth, however, is that the European Court has
never been too impressed by the possible budgetary con- – this different tax treatment was applied in spite of the
sequences for Member States of the correct application of fact that they were in a similar situation as their resi-
Community law,96 and this is understandable because such dent colleagues because they earned all or almost all
a derogation would constitute a tremendous potential gap (95%) of their worldwide income in Geneva (of similar
in the internal market, if only because any amendment situation);
of a national regulatory system (in particular in the tax – the different treatment was based on the arbitrary
area) necessarily entails costs for the public and private criterion of residence, which, though not leading to
sectors. overt discrimination on grounds of nationality, leads to
Likewise, in its income tax case law the Court has been covert discrimination, because the use of residence as a
rather indifferent to budgetary considerations because loss of criterion of distinction is likely to work in particular
revenue was neither mentioned as a justification in the to the disadvantage of cross-border situations as com-
Treaty nor recognized as an overriding public interest rea- pared to similar domestic situations (residence-based
son (ICI, paragraph 28, St Gobain, paragraphs 49 and 50, differentiation);
Verkooyen, paragraphs 52 and 59, Metallgesellschaft Hoechst,
– the different tax treatment of non-residents resulted
paragraph 59, Danner, paragraph 56, Skandia, paragraph
in a disadvantage for the cross-border situation in the
53, X and Y, paragraph 50, De Groot, paragraph 103, De
form of a higher annual tax burden (disadvantage for the
Lasteyrie, paragraph 60, Lenz, paragraph 40, Manninen,
cross-border situation, no reverse discrimination); and
paragraph 49, Fokusbank, paragraph 33 and Cadbury
Schweppes, paragraph 49). – finally, the different tax treatment could not be justified
Exceptionally, however, the Court may be willing to on the ground that the disadvantage was de minimis, that
accommodate the budgetary concerns of Member States the application of the source-based tax to non-residents
by limiting the temporal scope of its decision to the was administratively convenient, that some of the dis-
future (see the two AG Opinions in the Meilicke case). advantages were ex posteriori corrected or that there
The unequivocal conclusion can thus be that it is settled would be considerable budgetary costs in applying the
case law of the Court, which national courts may readily Geneva tax laws in a non-discriminatory way.
Case C-87/99, Zurstrassen  ECR, 24 and 25.
Case C-151/94, Commission v. Luxembourg  ECR I-3685.
In the area of indirect tax, for instance, the Court declared a Danish labour market contribution incompatible with Art. 33 of the Sixth VAT Directive, thus obliging the
Danish government to refund approximately DKK 15 billion to its taxpayers. Likewise, recent decisions of the Court in the area of social security have had significant
budgetary implications for the German government.