In this month’s Chartered Accountants Tax Case Digest we look at a Court of Justice European Union (CJEU) case which constituted a request for a preliminary ruling on whether the regulation of tax services in Germany, which require that tax consulting businesses be led by individuals with German professional qualifications, constituted a breach of the EU freedom to provide services.

The CJEU held that a general refusal to accept tax consultancy services from another member state is in breach of community law if it does not take the qualifications held in the other state into account.

German insistence on a professional qualification might be justified in the public interest in competent professional advice. However, any restriction would need to take account of the “proper value” of the qualification actually held in the state of operation. What this means in terms of an unregulated profession, the court did not say.

The case is interesting in the context of the ongoing debate around regulation of the tax profession in different countries.

Background

The case concerned a request for a preliminary ruling regarding the interpretation of Article 5 of Directive 2005/36/EC on the recognition of professional qualifications (as amended), of Article 16 of Directive 2006/123/EC on services in the internal market, and of Article 56 Treaty on the Functioning of the European Union (TFEU).

The request was made in proceedings between X-Steuerberatungsgesellschaft (‘X’) and the Finanzamt Hannover-Nord (‘the tax office’).

X is a company incorporated in the UK with branches in Belgium and the Netherlands. Its business consists in finance consultancy, tax consultancy and accountancy. X advises several principals established in Germany on tax matters and acts on their behalf in tax administrative procedures. An office service company established in Germany was named as its agent for taking delivery of post. It is not recognised as a tax consultancy company in Germany within the meaning of the Law on Tax Consultancy.

In 2010, X assisted in the preparation of the turnover tax return for a company (C Ltd) established in Germany. That return was received by the tax office at the beginning of 2012. By a decision of 12 March 2012, the tax office refused, on the basis of Paragraph 80(5) of the Tax Code, to accept X as the authorised representative of C Ltd for the turnover tax assessment procedure for 2010. The reason given was that X was not authorised to provide professional assistance in tax matters.

X claimed this refusal was an unjustified restriction on their freedom to provide services from one member state to clients in another member state since this service provision was legitimate in the Netherlands and could not be restricted by German professional rules.

X brought the case before the Finance Court of Lower Saxony which dismissed its action. Hearing an appeal on a point of law brought by X, the Federal Finance Court found that the conditions of Paragraph 80(5) of the Tax Code justifying X not being allowed to act as an authorised representative before the tax authority were fulfilled.

According to the Federal Finance Court, X is not authorised to provide professional assistance in tax matters. However, since X argued that it was relying in particular on Article 5 of Directive 2005/36, Article 16 of Directive 2006/123 and Article 56 TFEU, the referring court was uncertain whether X could rely directly on those provisions.

The Federal Finance Court decided to stay the proceedings and referred the following questions to the CJEU for a preliminary ruling:

1. Does Article 5 of the Directive [2005/36] preclude a restriction of the freedom to provide services in a case where the tax consultancy company formed in accordance with the law of a Member State prepares in the Member State of its establishment, where tax consultancy work is not regulated, a tax return for a recipient of services in another Member State and send it to the tax authority and national provisions in that other Member State require that a tax consultancy company be recognised as authorised to provide professional assistance tax matters and that the company be managed by tax adviser who act in that other Member State require that a tax consultancy autonomously?
2. Can a tax consultancy company, in the circumstances referred to in question 1, rely successfully on Article 16(1) and (2) of Directive [2006/123], irrespective of which of the two Member States is the one in which it provides the service?
3. Is Article 56 TFEU to be interpreted as precluding a restriction, by measures applicable in the Member State of the recipient of services, of the freedom to provide services in the circumstances referred to in question 1, if the tax consultancy company is not established in the Member State of the recipient of the services?

Decision

Under questions one and two, the referring court raised the preliminary question of whether a provision of services falls within the relevant Articles.

These questions start from the premis that X provides, from the Netherlands, professional assistance in tax matters for clients in Germany.

The CJEU found that such a provision of services does not fall within Article 5 of Directive 2005/36. Nor do the services fall within Article 16(1) and (2) of Directive 2006/123 of Directive 2006/123. However, such services, which involve a cross-border element, do fall under Article 56 TFEU and thus it was necessary to answer the third question.

Under the third question, the referring court was asking whether legislation of a Member State which defines the conditions of access to the provision of professional assistance in tax matters may not restrict the freedom to provide services of a tax consultancy company, formed in another Member State where tax consultancy work is not regulated.

Since the conditions for access to the activity of professional assistance in tax matters have not been harmonised at EU level. Member States retain the power to define those conditions. Therefore EU law does not preclude German law from making access to that activity contingent on the possession of the knowledge and qualifications deemed to be necessary. However, Member States must exercise their powers in a manner which respects the basic freedoms guaranteed by the Treaty (Brouillard C-298/14).

Article 56 TFEU requires the elimination of all discrimination against providers of services on grounds of nationality or the fact that they are established in a Member State other than that where the services are to be provided. The Article also requires the abolition of any restriction, even if it applies without distinction to national providers of services and to those of other Member States, which is liable to prohibit, impede or render less advantageous the activities of a provider of services established in another Member State where they lawfully provides similar services (Konstantinides C-475/11 inter alia).

Measures liable to hinder the exercise of fundamental freedoms guaranteed by the Treaty may be allowed only if they pursue a legitimate objective in the public interest, are appropriate to ensuring the attainment of that objective, and do not go beyond what is necessary to attain the objective pursued (Konstantinides C-475/11). The Court then examined possible justifications for the restriction constituted by national legislation.

The legislation at issue in this case constitutes a restriction of the freedom to provide services. This is because legislation that makes a tax consultancy company which provides professional assistance in tax matters subject to a prior authorisation scheme excludes all possibility for a tax consultancy company, established in another Member State in which that activity is lawfully carried out without being regulated, of providing its services in Germany.

In general, the prevention of tax evasion and the protection of consumers constitute objectives pursued by this national legislation. These are among the objectives which can be regarded as overriding reasons in the public interest capable of justifying a restriction of the freedom to provide services (Commission v. Spain C-678/11).

However, national authorities must ensure that qualifications obtained in another Member State are accorded their proper value and duly taken into account (Peaarroja Fa C-372/09).

Consequently, the answer to the third question is that such legislation is a breach of the freedom to provide services if the legislation does not take into consideration and attribute proper value to the qualifications obtained in other Member States.

The full judgment in this case is available from: – http://www.bailii.org/eu/cases/EUECJ/