Age discrimination in taxation
For decades it was assumed that European law barely affects the law of direct taxes. After all the basic treaties don’t contain any rules regarding, among others, income or company tax. Meanwhile that situation has changed considerably. The case Avoir fiscal (Court of Justice of the European Union (CJEU) 28 January 1986, nr. 270/83) was the first in a long series of case law that often contains far reaching decisions. In these cases the so called four freedoms were above all applied to fiscal regulations.
However, different clauses of European law can also affect direct tax law. This became clear in a recent judgment of the CJEU concerning a Dutch case on age discrimination. In this paper I will elaborate on case law of both the European Court of Human Rights (ECHR) and the CJEU.
Dutch income tax law contains a category of deductible items of a personal nature. One of these is the deduction of expenditure for a study. This applies to expenditure for a vocational training or a study to be able to pursue an occupation or employment (art. 6.27 and 6.30 Income Tax Act 2001).
Persons who are not yet 30 years old, are allowed to deduct those expenses without limitations. However, from the age of 30 years the deduction is bound to a maximum amount. The yearly maximum deduction amounts to €15.000. In a case before the Dutch Supreme Court (HR) a 32 year old taxpayer had spent €44.000 in one year on a pilot training. He complained that the limitation to the deduction amounting to €15.000 a year is a violation of his treaty rights.
Application of the ECHR
In the Netherlands a Court cannot test legislation against the constitution. It can, however, test it against self-executing treaty provisions. Therefore, when a complainant has a grievance about a legal provision violating a human right, he will have to rely upon a human rights treaty. In these cases, the European Convention on Human Rights seems to be the most eligible.
The right to equal treatment is ensured in art. 14 ECHR and extended in Protocol nr. 12: ‘The enjoyment of any right set forth by law shall be secured without discrimination on any ground (…).’ The ECHR already decided in 1990 that art. 14 ECHR is also applicable to tax cases. ‘Article 14 protects individuals placed in similar situations from discrimination in their enjoyment of their rights under the convention and its Protocols’ (ECHR 23 October 1990 nr. 17/1989/177/233, Darby-case). This means in principle that after the passing of Protocol nr. 12 any distinction in the law based on age is prohibited. Such distinction is, however, permissible when there is an objective and reasonable justification.
It is clear that the regulation for deduction of study related expenditure in Dutch income tax makes a distinction by age. This raises the question as to whether the persons of the age of 30 or above are being discriminated within the meaning of the Treaty. During the proceedings of the De Lange-case the government argues before the Dutch Supreme Court that the distinction is justified because younger people require more support to join the labour market than older people who are more independent. It is difficult to objectively answer the question when a person should be considered young or old. Based on case law of the ECHR the legislator has a wide margin of appreciation regarding this issue. The legislator only violates the Treaty provision when a regulation is manifestly without reasonable foundation (ECHR 7 July 2011, nr. 37452/02). That is not the case according to the Supreme Court (HR 16 October 2015 nr. 14/04751, De Lange-case).
The basic treaties of the EEC and later the EU don’t contain a prohibition on age discrimination. However, the Charter of Fundamental Rights of the European Union (Charter) has included a prohibition in Art. 20. However, as the Charter establishes in Art. 51, the provisions of the Charter are addressed ‘only to (…) the Member States when they are implementing Union law’. That is not the case in this income tax dispute.
The Council Directive 2000/78/EC of 27 November 2000 also included a prohibition on age discrimination. It establishes a general framework for equal treatment in employment and occupation. As provided in Art. 1 of the Directive, its purpose ‘is to lay down a general framework for combating discrimination on the grounds of (…) age (…), with a view to putting in effect in the Member States the principle of equal treatment.’ Art. 3 of the Directive provides: ‘Within the limits of the areas of competence conferred on the Community, this Directive shall apply to all persons (…) in relation to (…) (b) access to all types and all levels of vocational guidance, vocational training (…); (c) employment and working conditions, including dismissals and pay (…).
The Dutch Supreme Court was unsure whether these regulations of the Directive also apply to tax law. Therefore it asked preliminary questions to the CJEU in its ruling of 16 October 2015 (De Lange-case). Further it asked whether the principle of no discrimination based on age should be applied as a fundamental principle of community law, apart from the Directive, as the European Court ruled previously (CJEU 22 November 2005, nr. C-144-04, Mangold-case).
Case law of the CJEU
Before the CJEU answered the questions of the Supreme Court, it ruled on a different case concerning age discrimination. That case concerned Finnish income tax which taxed pensions more heavily than other types of income by means of a supplementary tax. The goal of this regulation was to encourage people to continue to work longer. The CJEU considered that Directive 2000/78/EG is intended to lay down a general framework in order to guarantee equal treatment ‘in employment and occupation to all persons. (…) A supplementary tax on retirement pension income (…) without any link to the contract of employment, derives directly and exclusively from national tax legislation (…). Therefore, national legislation, such as at issue in the main proceedings, relating to supplementary tax on pension income does not fall within the scope of Directive 2000/78’ (CJEU 2 June 2016 nr. C-122/15, C-case).
In the De Lange-case the CJEU comes to a different ruling: ‘The Netherlands Government argues that the tax concession at issue (…) seeks to promote the access of young people to training and to improve their position on the labour market. (…) in those circumstances, a taxation scheme such as at issue (…) can be regarded as relating to access to vocation training, within the meaning of Article 3(1)(b) of Directive 2000/78’.
The CJEU concludes from the argument of the government that the Directive is applicable. It is therefore necessary to consider whether persons above 30 years old are inappropriately discriminated. The national court has to determine whether ‘that scheme is objectively and reasonably justified by a legitimate objective relating to employment and labour market policy, and, second, the means of attaining that objective are appropriate and necessary’ (CJEU 10 November 2016, nr. C-548/15, De Lange-case). In this respect the CJEU emphasizes the ‘broad discretion enjoyed by the Member States (…) enjoy in the field of social policy and employment.’
It follows that the Court does not consider the application of the Directive incompatible with the prescription in its Art. 3 that it only should be practiced ‘within the limits of the areas of competence conferred on the European Union (…)’. In other words it is not relevant that no competence is conferred to the EU in the field of income taxation.
According to the CJEU the aforesaid 30 years limit in the Dutch income tax law concerns the admittance to training within the meaning of Art. 3(1)(b) Directive (De Lange-case). On the other hand the supplementary tax on retirement pension income in the opinion of the CJEU (C-case) is not or at least not sufficiently connected with the purposes of the Directive such as employment and working conditions (Art. 3(1)(c) Directive). The CJEU points out that the raised tax rate on pension income is not linked with the employment contract.
The Dutch Supreme Court ruled that the afore-mentioned age distinction in Dutch income tax law is permissible (HR 19 May 2017, nr. 14/04751 bis, De Lange-case).
Finally – in another case – the CJEU decided that the ban of discrimination on the ground of age has no general validity and only applies when a situation falls within the scope of Directive 2000/78 (CJEU 19 April 2016, nr. C-441/14, Ajos-case).
Conclusions | In view of the above-mentioned judgments several conclusions can be drawn.
First, the ECHR does not allow any discrimination by age. This also applies to taxation. The legislator, however, is allowed a wide margin of appreciation. The mentioned EU case law implies the well-known rule that Directives may apply in situations where there is no cross-boundary activity. Consequently different from ‘the four freedoms’ they may be practiced in purely national cases.
A second observation concerning EU law is that Directives, although covering other items than taxation, may nevertheless contain prescriptions that apply to tax legislation. This is the case when a provision in tax law falls within the scope of the Directive. In some cases it is rather difficult to determine whether a tax provision sufficiently links with the purpose of the Directive. In the Finnish C-case the CJEU ruled that the link of the supplementary tax on pension income was not tight enough, despite the fact that the tax was meant to solve a problem on the employment market.
The ban of age discrimination applies to tax regulations intended to promote access to vocational training and employment conditions. But it is not generally valid in EU law and by consequence not applicable in tax matters outside the scope of the Directive 2000/78. It is up to the national Court to determine whether an age discrimination serves a reasonable and objective purpose and is necessary to reach that goal, in which case the discrimination does not conflict with the Directive. The Member States enjoy a broad discretion in this field.