European Commission v. Republic of Austria

In this case, the Court of Justice of the European Union (CJEU) found that a mechanism allowing for the adjustment of family allowances and of various tax advantages granted by Austria to workers according to their children’s State of residence constitutes unjustified indirect discrimination based on the nationality of migrant workers and is contrary to EU law.

This judgement comes in the context of a request from the Commission for a declaration from the CJEU in support of its action against Austria, brought in July 2020, for failure to fulfil obligations under Article 258 TFEU.  In support of its action, the Commission put forward two complaints: the first alleging infringement of Articles 7 and 67 of Regulation No 883/2004 and the second alleging infringement of Article 4 of Regulation No 883/2004 and of Article 7(2) of Regulation No 492/2011.

In its reasoning, the CJEU first established that the family allowances and the child tax credit at issue constitute family benefits falling within the meaning of Regulation No 883/2004 on the coordination of social security systems, which may not be reduced or amended on account of the fact that the beneficiary or the members of his or her family reside in a Member State other than the one granting those benefits. [Para. 42].

It follows, the CJEU continued, that there must be strict equivalence between the amounts of the family benefits provided by a Member State to workers whose family members reside in that Member State and the amounts provided to those whose family members reside in another Member State. In that regard, the CJEU stated that, in the absence of any consideration of differences in price levels within the Member State providing the benefit, the differences in purchasing power between Member States do not justify a Member State being able to provide that second category of persons with benefits of an amount different from that granted to persons falling within the first category. [Para. 47].

In relation to the family allowances and all of the tax advantages referred to in the Commission’s action, the CJEU points out that EU law prohibits all discrimination in matters of social security based on the nationality of migrant workers. The adjustment mechanism at issue, since it is applied only in cases where the child resides outside Austria, essentially affects migrant workers given that their children are more likely to reside in another Member State. [Paras. 59 - 101].

Moreover, since the great majority of migrant workers affected by that mechanism come from Member States where the cost of living is lower than in Austria, those workers receive family benefits and social and tax advantages of an amount lower than that granted to Austrian workers [para. 101].

Consequently, that adjustment mechanism constitutes indirect discrimination on grounds of nationality which, in any event, is not justified. In that regard, the Court points out that migrant workers participate in the same way as a national worker in the determination and financing of the contributions underlying the family allowances and tax advantages in question, without consideration being taken in this respect of their children’s place of residence. It follows, according to the Court, that the Austrian legislation at issue also constitutes an infringement of the Regulation on freedom of movement for workers within the European Union.

Accordingly, the Court upholds in its entirety the action for failure to fulfil obligations brought by the Commission [Para. 102] and orders the Republic of Austria to bear its own costs and to pay those incurred by the European Commission.