Abstract
Austria amended legislation, adjusting family benefits such as the family allowance and the deductible family allowance amount to the (lower) price level indices for consumer goods and services (indexation) of the State of residence of the child. This case is not a unique case. In the European Union, similar endeavours were envisaged in several Member States. The Austrian legislation, however, is now being challenged before the CJEU. In the authors’ opinion, this unsuitable cost-saving budget measure contradicts Union law. Consequently, the provisions concerned must remain unapplied. After all, since the Austrian legislation is obviously incompatible with primary Union law, authorities or courts are not even required to refer the matter to the CJEU.
Keywords
1. Indexation of family benefits
The Austrian Parliament 1 passed a law according to which family benefits such as the family allowance amount (Familienbeihilfe) and the deductible family allowance amount (Kinderabsetzbetrag) were adjusted to the (lower) purchasing power level of the State of residence of the child with effect from 1 January 2019. 2
The specific family allowance amounts are set by the Family Allowance - Child Deduction Amount - EU Adjustment Regulation. 3 As a consequence, the current adjustment factor for Denmark amounts to 1.326 whereas the adjustment factor for Bulgaria is 0.45. These adjustment measures were supposed to affect approximately 132,000 children and result in savings in the amount of EUR 114 million. 4 However, the predicted savings turned out to fall below expectations. 5
The Council of the European Union made similar considerations in 2016. The conclusions of a meeting which took place in February 2016, stated that there was ‘a proposal to amend Regulation (EC) No 883/2004 of the European Parliament and of the Council on the coordination of social security systems in order to give Member States, with regard to the exportation of child benefits to a Member State other than that where the worker resides, an option to index such benefits to the conditions of the Member State where the child resides. This should apply only to new claims made by EU workers in the host Member State. However, as from 1 January 2020, all Member States may extend indexation to existing claims to child benefits already exported by EU workers.’ When reading the Council document, it may be understood that the Council assumed at that time, that if the respective secondary legislation (especially Art. 67 Reg 883/2004) were to be changed accordingly, there would be no legal obstacles to allowing for an indexation of family benefits for children living in a non-competent Member State. 6
Several legal scholars 7 conducted an impact assessment of (possible) amendments to the EU social security coordination rules on the export of family benefits by mandate of the Commission in 2015. They took a slightly different approach and concluded that there were several possibilities on the horizon to deal with the idea of adjusting the amount of family benefits to the living standards of the children’s Member State of residence. However, the options discussed dealt with a change in competence rather than plainly cutting the benefits paid. Furthermore, serious concerns were raised with regard to the benefit amounts in relation to the principles of neutrality, assimilation of facts, equal treatment and exportability. The report includes the main conclusions of a mapping exercise, 8 depicting views of national social security experts. 9 With Austria being one of these Member States in favour and taking action lately in this area, it serves as perfect example for the following discussion.
The amended Austrian family allowance, according to Section 2 of the Austrian Family Burden Compensation Act of 1967 (Familienlastenausgleichsgesetz 1967 (FLAG)), and the deductible family allowance, according to Section 33 (3) of the Austrian Income Tax Act of 1988 (Einkommensteuergesetz (EStG)), both fall within the scope of application of the Coordination Regulation (EC) No 883/2004, specifically the framework of social security pursuant to Art. 3 (1) lit j in conjunction with Art. 1 lit z. 10 Pursuant to this EU Regulation, all benefits in kind or in cash intended to meet family expenses, excluding advances of maintenance payments and special childbirth and adoption allowances according to Annex I of the Regulation, are family benefits. In this regard, the jurisdiction of the Member States is coordinated within the EEA (including Switzerland) pursuant to Art. 67 of the Coordination Regulation (EC) No 883/2004, according to which a person ‘shall be entitled to family benefits in accordance with the legislation of the competent Member State, including for his/her family members residing in another Member State, as if the family members were residing in the former Member State.’
This provision contains a rule of notional residence with the specification that a person may assert an entitlement to family benefits for family members with another State of residence ‘as if they were residing in the competent Member State.’ 11 This meaning is also suggested when comparing extracts of the different language versions. 12 According to almost 13 unanimous understanding, 14 the wording of this conflict-of-laws rule already forbids making a differentiation in respect of the domicile of the family members. However, the CJEU’s presumptive understanding is to be examined. After all, the CJEU was called upon by the Austrian Federal Finance Court, 15 in a request for a preliminary ruling, 16 to examine the Austrian legislation for its conformity with EU law in April 2020.
1.1 Freedom of movement and discrimination
Regarding Art. 73 (2) of Regulation (EEC) No 1408/71, 17 which is the preceding Regulation of Art. 67 of Coordination Regulation (EC) No 883/2004, 18 the CJEU stated that this was a special provision 19 infringing primary law in favour of France. Pursuant to this special provision, a worker subject to French legislation was entitled in respect of members of his/her family residing in another Member State to family allowances ‘provided for by the legislation of such Member State in the territory of which such family members are residing’; however, the worker had to fulfil the conditions regarding employment on which French legislation based the entitlement to such benefits. This special provision allowed France to provide the family benefits of the State of residence of the family member (instead of French family benefits). Since these special provisions introduced additional differentiations into the coordination system having an adverse impact on the internal market and discriminating against migrant workers particularly, the CJEU ruled that this passage of the Regulation was an infringement of primary law and thus inapplicable. 20
This decision is often associated with the indexation of the family benefits. The Staff Working Document (SWD) Impact Assessment to partially revise Regulation (EC) No 883/2004 of 2016 21 underlines, in terms of the adjustment of the benefits, that the Pinna I case does not relate to the ‘adjustment of a benefit but its substitution’ 22 by the benefits of another Member State. The Austrian indexation provisions and the special provision in the old version of Art. 73 (2) of Regulation (EEC) No 1408/71 differ in the fact that in the aforementioned Austrian indexation case the Austrian benefit type is always granted and only the benefit amount diverges in accordance with the State of residence of the family members. In the Pinna I case, the benefit itself and consequently also the amount were to be determined pursuant to the laws of the other Member State of residence. Likewise, the special provision also sought to accomplish a relief of the (French) budget.
Both cases are alike to the extent that they ultimately result in indirect discrimination against migrant workers by taking the place of residence as the basis for differentiation. 23 The result is once achieved under Union law (Pinna I) and once under national law (indexation in Austria). On the basis of footnote 378 of the aforementioned SWD, it can, however, not be ‘indirectly’ concluded in agreement with Wolfgang Mazal that the view of the Commission ‘is generally not opposed to an indexation’. 24 After all, it explicitly expresses that this regulation would represent an indirect discrimination on grounds of nationality and that the freedom of movement would be restricted in an inadmissible way 25 if a migrant worker received less family benefits than another worker residing in the same State of the place of work solely because of the domicile of his spouse or child. 26
The indexation results in an unequal treatment only in cases where family members are domiciled in another Member State, which is inadmissible in the light of the freedom of movement for workers pursuant to Art. 45 TFEU. In accordance with the Pinna I case, workers with children in another Member State and workers with children within the Member State are in a comparable situation. Otherwise, it would not have been possible to conduct a discrimination test. 27 In this regard, referring to the residence of the child as the authoritative element represents an indirect discrimination, which predominantly affects nationals and migrant workers of other Member States. 28 This outcome is supported by the historical genesis of the coordination rules regarding the family benefits. 29 However, a discrimination on the basis of the domicile being the authoritative element could very well be justified ‘for overriding reasons in the public interest’, for example by reference to the safeguarding of the financial balance of the social security system of a Member State. 30 This argument will not be successful, however, as such economic savings would, in general, not be deemed necessary to preserve the Austrian social insurance system. 31
As a consequence, family benefits are to be paid in such a way ‘as if’ the child was living in Austria. The reasoning in the government bill, according to which this requirement under European law predominantly aims at an adequate provision of funds for support, 32 would be plausible if there was a purchasing power adjustment (indexation) in Austria, too. However, the Austrian family allowance and the deductible family allowance amount are flat-rate benefits not taking into consideration circumstances related to the residence within Austria. Regardless of where the recipients of benefits reside within Austria, a uniform amount is (currently) granted. This, in turn, does not suggest a need-based relief from family burdens. 33
1.2 Further arguments
On the level of European Union law, the repeal of residence clauses in Art. 7 of Regulation (EC) No 883/2004, the prohibition of discrimination on the basis of nationality in Art. 4 of Regulation (EC) No 883/2004, as well as in Art. 18 TFEU and the prohibition of discrimination on the basis of nationality in connection with social advantages in Art 7. (2) of Regulation (EU) No 492/2011, raise objections to the admissibility of the Austrian indexation provisions. Despite the rule of reference in Art. 11 of Regulation (EC) No 883/2004, pursuant to which only one Member State is competent, Art. 68 (2) leg cit does not – in case of coinciding benefit duties – release the subordinated Member State from the obligation to possibly top up the difference to the higher benefit level. 34 Hence, the European coordination system does not provide for a race to the bottom of family benefits.
Since the possibility of basing child benefits on the cost of living has been discussed in Germany as well, a parliamentary question was addressed to the European Commission regarding the indexation of the German child allowance. Social Affairs Commissioner Marianne Thyssen responded to that query on 26 July 2017 35 that ‘[in] the Commission’s view, national measures envisaging the indexation of family benefits payable for children residing in another Member State are not compatible with the existing rules, as interpreted by the Court of Justice of the European Union.’ On the basis of the formulation ‘contributions paid in a work context’ used in the response to the question, one should not emphasise the synallagmatic nature of (social insurance) contributions that exists in the Austrian national context 36 in comparison to levies or taxes because Question E-001852-17 to the European Commission addresses both ‘social contributions and taxes’. 37 This suggests that the term ‘contributions’ encompasses contributions, taxes and levies, and that the national nature of the source of funds (of a family benefit) shall not be given extra significance in the context of Union law.
In response to a similar question regarding the (at that time only envisaged) Austrian indexation of 13 January 2018, the Commission referred to the response to Question E-001852-17 (mentioned above), according to which ‘mobile workers are entitled to the same child allowances as local workers, irrespective of the place of residence of the children concerned’. Moreover, regarding the proposed changes in Austrian law Marianne Thyssen noted that ‘the Treaty forbids any discrimination of workers on the basis of nationality, either direct or indirect.’ 38 A similar argument was brought forward by Koen Lenaerts, President of the CJEU, who stated: ‘The uniformity of Union law must be respected […]. The guarantee of equality between the Member States and the citizens must be preserved, so there can be no interpretation for individual Member States.’ Besides, he referred to the Pinna I case and summarised: ‘There is an interpretation by the CJEU in 1986 of the rules on family allowances which state that the social security system of a Member State may not be enriched by the fact that the worker’s children reside in another Member State at a lower cost.’ 39
Subsequently, political endeavours to change the existing concepts diminished and support a rather precautious view. While efforts towards an adjustment of family benefits in accordance with the residence were on the schedule, 40 in the decision of the Council dated 18/19 February 2016 41 this political concession to the United Kingdom became irrelevant with the Brexit (vote). 42 The comparative purchasing power value difference of the exported family benefit continued to be considered unfair after this decision. Therefore, changes to the Coordination Regulation were discussed again. However, endeavours to change the family benefit coordination continued to be unsuccessful as 17 out of 28 Member States were in favour of maintaining the status quo. 43
Apart from the issue of inadmissible indexation endeavours, there is the possibility to link family benefits to a right of residence pursuant to the Directive 2004/38/EC. 44 Having pointed this out, such legislation would only result in the fact that inactive Union citizens – other than migrant workers – could be excluded from the Austrian family benefits discussed.
2. Primacy in application
Based on the principle of loyal cooperation pursuant to Art. 4 (3) TEU, the Member States are obliged to remove and not to apply national legislation contrary to Union law. 45 The primacy in application is not a primacy in validity that can deny the validity of Member State regulations, but it demands that law of Member States conflicting with European Union law remains inapplicable. 46 Therefore, the Member States may very well create new law contrary to Union law; however, it is not applicable. 47 The primacy in application of Union law even takes precedence over national constitutional law. 48 All Member State institutions, including the administration, are bound by this principle 49 – and this, regardless of pending proceedings before the CJEU. 50
While the competence to ascertain the existence of a conflict of national law and Union law is (especially) incumbent upon the CJEU, the decision on the conflict of laws is incumbent only upon the national actors (courts and administrative authorities). 51 Even though these two topics are closely linked, the former is about the competence to ascertain the existence of a conflict of Union law and national law, whereas the latter is about the competence to take appropriate steps deriving from this ascertainment (non-application or conforming interpretation).
2.1 Direct applicability
In the absence of a treaty dealing with the relationship between the Treaties and the national legal systems of the Member States, it has been primarily the CJEU’s role to shape this relationship. 52 The direct applicability of European Union law requires the existence of an unambiguous, clear and unrestricted obligation of a Member State that does not contain a reservation. 53 The provision Art. 67 of Regulation (EC) No 883/2004 is secondary law which is self-executing and therefore is to be applied directly pursuant to Art. 288 (2) TFEU.
Against this background, it shall be assessed whether the discriminating Austrian indexation provisions are not (and must not be) applicable due to primacy in application. 54 According to the above-mentioned view, there is almost unanimous consensus within academic doctrine that the indexation of family benefits represents an indirect discrimination that is not justified. The legal consequence of the inapplicability of the national provision extends as far as there exists a conflict of laws. Accordingly, either the entire regulation or individual element(s) incompatible with Union law are to be declared inapplicable.
2.2 Authorities’ scope for action
Pursuant to the case law following Larsy, 55 all (competent) administrative authorities, not only the highest administrative institutions, are required to comply with the primacy in application. Contradicting internal administrative instructions shall not be followed if they thereby impede the efficiency of Union law. 56
The tax offices granting family benefits are thus obliged to interpret the Austrian national regulations in such a way that they are to be applied in a reduced manner falling short of the indexation provisions incompatible with Union law. 57 With regard to the amendment, the provisions Section 8a FLAG as well as Section 33 (3) item 2 and Section 33 (3a) EStG that contain the indexation clauses are not be applied. Consequently, cross-border residence constellations are to be treated like national cases by omitting the discriminating indexation parts which are in direct and unresolvable conflict with Art. 67 of Regulation (EC) No 883/2004. 58 Given the remaining residual content of the family benefit regulation, a conforming interpretation does not only seem possible, but required.
It is problematic for administrative authorities, which have to (indirectly) apply legal acts under Union law, that they cannot present their legal concerns to the CJEU. Even if national procedural provisions may not restrict the access of national courts to refer questions to a preliminary ruling before the CJEU, administrative institutions are not entitled to do so within the framework of Art. 267 TFEU. 59 Credentials to address the CJEU with a certain matter is conferred only on those courts or tribunals that are established by law, have a permanent existence, exercise binding jurisdiction, are bound by rules of adversary procedure, and apply the rule of law. 60 This ultimately means that the administrative authorities in most cases only assume a binding conflict of laws exists if there is a relevant decision of the CJEU or of the national court of final instance. In this context, administrative authorities lose the possibility to ascertain the existence of a conflict of laws by themselves. As long as no court of final instance nor the CJEU have come to a decision, the administrative authorities are generally free to decide on the conflict of laws themselves.
In relation to the ascertainment of the existence of a conflict of laws, but not the decision on the conflict of laws, the opinion 61 is held that the authority to make this ascertainment can be concentrated with the highest administrative institutions and coordinated internally within the administration by instructions so that the authority can finally be bound by the view of the highest administrative institutions, creating a legally secure situation. This thwarts the objective of legal correctness but has to be accepted in practice. One might want to reflect more deeply on how this can be addressed on a broader level.
What surely has to be considered is that a sufficiently qualified infringement substantiates a state liability claim in favour of the recipient of the family benefit. 62 Such an obvious infringement of Union law shall, in any case, be assumed if there exists an identical decision or relevant case law of the CJEU. 63 This question is relevant for state liability and subsequently plays a part in the question of the duty of interpretation. The competence to decide on the conflict of laws and to ascertain the existence of the conflict of laws is, however, thereby unaffected.
2.3 Judiciary
The Judiciary is bound by the primacy in application of Union law as well. 64 Administrative actions are characterised by lower legal validity and finality in comparison with the Judiciary. Union law takes this into consideration by imposing stricter requirements on the Judiciary and by stipulating a right to refer a case to the CJEU pursuant to Art. 267 TFEU, which ultimately results in a duty to refer a case to the CJEU for national courts of final instance. Within the framework of the CILFIT case law, 65 exceptions to the obligation to refer to the CJEU have been developed. An exception is made if there is a prejudicial effect.
2.3.1 Precedent: Prejudicial effect
A prejudicial effect exists if the question relevant to the decision has already been the subject-matter of a judgment. In addition to that, a prejudicial effect exists in case of case law ‘in which the point of law in question has already been solved, irrespective of the nature of the proceedings which led to those decisions, even though the questions at issue are not strictly identical.’ 66 These preconditions have not been further elaborated by the CJEU, which is why the Member States’ courts continue to have a decisive scope for interpretation. 67 Therefore, an Austrian court has to decide to what extent judgments of the CJEU have the quality of a precedent.
Through its case law, the CJEU only provides frameworks in which the national courts can refer to an acte éclairé. With regard to the Austrian family benefits in question, the facts – family members who reside in another Member State – are, however, comparable with preceding case law. The provisions, Art. 67 (1) sentence 1 of Regulation (EC) No 883/2004 and Art. 73 (2) of Regulation (EEC) No 1408/71, strongly correspond with each other in terms of literality. The amendment of family benefits and the problem in the Pinna I case both concern questions that relate to the (foreign) domicile of the family members but do not deal with provisions having an equal content. While the Pinna I case is about the special provision of the application of a foreign benefit regime, in the case of the Austrian indexation provisions Austrian benefit law is always meant to be applied. In contrast to the Pinna I case, a uniform regulation regime is applied and only in case of the assessment of the benefit is the fact of residence in another Member State referred to as authoritative. However, the different amounts paid out stem from the different domicile of the child. Hence, referring to the residence as authoritative results in a comparable situation in terms of restricting the freedom of movement. Both regulations result in indirect discrimination against migrant workers whereby it is not the same question of interpretation that is concerned in concreto.
Cases in which fundamental freedoms are violated are problematic with regard to the doctrine of prejudicial effect. This is because on a regular basis they can only be assessed individually and in conjunction with the specific justification test on a case to case basis. 68 Consequently, this does not obligatorily imply a binding effect on the case at hand.
This finding is also reflected in practice as the example of Germany shows: Insofar as there was no relevant judgment regarding the German legal situation, the German Fiscal Courts (Finanzgerichte (GFC)) and the German Federal Fiscal Court (Bundesfinanzhof (GFFC)) denied the existence of a conflict of laws situation in the majority of cases (GFC: in two out of three cases; GFFC: in three out of four cases). 69 This perception changed when there was a judgment. The GFC then decided in two of three cases that there was a conflict of national and European Union law, whereas the GFFC did so in one of two cases. 70
2.3.2 Acte clair
Another exception of the obligation to refer to the CJEU exists in the case of an acte clair. In this case, the correct application of European Union law is in such a way ‘as to leave no scope for any reasonable doubt as to the manner in which the question raised is to be resolved.’ 71 In this case, a national court has to assume that there is the same certainty for the courts of the other Member States and the CJEU. This requirement serves to maintain a uniform case law. Therefore, the (diverging) interpretations of a provision by the courts or authorities of other Member States are also to be considered in the assessment. 72 These exuberant theoretical requirements of the CJEU, which, inter alia, include the comparison of all language versions 73 when detecting an acte clair, are often criticised as unrealistic and distant from actual practice. 74 However, the objective of such requirements, when assessing how apparent the solution of a case is, is that this should not lead to a subjective interpretation but rather an observation according to the European methodology. 75 Nevertheless, the courts of the Member States still have a margin of discretion in this matter, which they exploit in different ways.
With regard to the acte clair doctrine, one would have to come to the conclusion that in the light of the multitude of identical voices in the academic doctrine, the incompatibility of the indexation of family benefits with Union law is perfectly obvious. 76 In relation to Art. 73 of Regulation (EEC) No 1408/71, the CJEU already follows well-established case law that ‘making entitlement to or the amount of family benefits’ dependent on the fact that the family members have a residence in the Member State competent for the benefit cannot be done. 77 After all, the primary objective of the freedom of movement principle for workers is equal treatment in the state of employment, which itself is again associated with the rule of the export of benefits and does not refer to benefit differentiation being subject to the domicile. 78 On the one hand, the Austrian indexation undermines the rule of notional residence, which subsequently results in indirect discrimination against migrant workers with families in other Member States. On the other hand, the existence of an acte clair also strongly depends on the (projected) impact of the justification test within the framework of Art. 45 TFEU regarding indirect discrimination. Even though it cannot be (completely) excluded that the CJEU recognises a justification for the Austrian indexation legislation, 79 the prevailing (international) academic doctrine and settled case law of the CJEU barely support this view. 80 According to Eichenhofer, it ‘clearly and unambiguously’ results from the Pinna I case that the law of the European Union concerning family benefits not only precludes a differentiation in accordance with nationality but also prohibits a differentiation in accordance with the domicile of the child. 81
Against the backdrop of CJEU case law and international legal doctrine, Member State courts may refer to the primacy in application of European Union law as the above-mentioned conforming interpretation is based on a secured legal situation. If the courts choose to play it safe, just as the Austrian Federal Finance Court, 82 they are, however, free to refer the indexation provisions to the CJEU within the framework of Art. 267 TFEU for a preliminary ruling.
3. Conclusion
Referring to the residence of family members as the decisive element and subsequently adjusting the benefit amount by means of indexation contradicts Union law. On the one hand, this circumvents the rule of notional residence and, on the other hand, the purpose of Regulation (EC) No 883/2004 is overridden by introducing another differentiation element. A justification for such discrimination against migrant workers by the CJEU for reasons in the public interest would be highly astounding.
The Austrian administrative authorities are therefore obligated to leave (parts of) the provisions of Austrian law incompatible with Union law unapplied. Also, in accordance with Union law, Austrian administrative authorities are not allowed to apply the indexation provisions simply because the CJEU has not yet decided on the pending case C-163/20.
Furthermore, the Judiciary is obliged to do so, too. The court of final instance has to comply with the duty to refer a case to the CJEU in relation to the indexation unless it recognises an acte éclairé or an acte clair in respect of the case law of the CJEU as the authors do. From a practical point of view, this seems rather unlikely as the Austrian regulation concerned has already been referred to the CJEU. Instead, the proceedings in question are likely to be suspended from a procedural point of view.
Footnotes
Declaration of conflicting interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
