Just for a change, a post about a recent judgment of the Court of Justice. On Tuesday, the Court ruled that Germany was breaching free movement law by means of its tax law rules which limited a tax deduction for private education to cases where children were sent to private schools on German territory, or to 'German schools' or 'European schools' outside the territory.
In a reference from the German courts (C-76/05 Schwarz), alongside an infringement action brought by the Commission (C-318/05), the Court ruled that the German tax law breached EC free movement law. The full judgments are on the Court's website; the press release is here:
In a nutshell, the rules breached the free movement of services because they made it more difficult for the recipients of services to receive those services from service providers (private schools, which, confirming previous case law, fall within the scope of the Treaty rules on the provision of services) established in other Member States. They also breached the free movement of workers and freedom of establishment, because they could deter parents from moving to Germany because the parents would not receive a tax break if they left their children 'behind', receiving private education in the home Member State. The rules also affected the free movement right of those Germans who leave Germany but who are subject still to German taxation (ie public servants), because they limit the ability of such persons to send their children to private education in the host State. Finally, the rules disadvantaged the free movement rights of the children pursuant to Article 18 EC.
The Court did not accept the German justifications put forth, because: national competence over tax and education must be exercised in accordance with EU law; the argument that the foreign schools and German schools were not comparable was irrelevant since the grant of the tax benefit did not depend on the characteristics of the German schools; and the argument that the tax credits foregone would be too expensive was dismissed on the facts.
The Court did not consider the free movement rights of those parents who move to Germany for non-economic reasons. This is unfortunate, because the parents might have to be considered distinctly from the children, in the event that one of the parents is an EU citizen, but the child is a third-country national. Surely the same reasoning applies in this scenario. (Remember that while third-country nationals can benefit from the free movement of services as service recipients, if the service provider is an EU citizen or company, this applies only where the recipients do not themselves cross a border: Case C-290/04 FKP Scorpio Konzertproduktionen GmbH).
The Court's judgment on the application of the free movement rules to tax credits to support private education is not too surprising, although it is interesting to remember that about 10 years ago a high-level German court ruled that these tax credits don't violate EU free movement law, without referring the point to the Court of Justice. This isn't mentioned in the Court's judgment this week. Another indication that it can take some time to have an EU law right vindicated if the national courts are reluctant to send questions to Luxembourg.
Of course the judgment is only directly relevant if a Member State provides tax credits for private education -- or by analogy, direct subsidies to parents -- at all. In my view such credits or subsidies are outrageous -- there is no way that taxpayers as a whole should pay more tax to, in effect, subsidise generally wealthier taxpayers to send their children to private school (and equally it is wrong for taxpayers as a whole to support a direct subsidy for those wealthy taxpayers). Worse still if the tax credit (or direct subsidy) comes directly out of the general state education budget, ie if it takes money straight out of public education (cf the appalling proposal for tax rebates for parents with children in private schools, pushed by the Tories at the last UK election).
But there is no way that EU law should or could get involved with the issue of whether tax credits or subsidies for private education should exist. If a Member State wants to redistribute money from poorer taxpayers to wealthier parents in this way, that's their decision, and should always remain so. These judgments do make that decision more expensive, however, since the subsidies or credits would have to be extended to at least some parents who send their children abroad to private schools. So the judgments make it more likely that Member States will scale back the level of such subsidies or credits, or abolish them, or refrain from introducing them. Hooray!
As for the issue of justifications, the Court, it seems to me, leaves it open to Germany to devise some sort of alternative method of restricting tax credits for private education received abroad. The most obvious route would be to restrict the tax credit to a fixed amount (rather, under the current rules, to a percentage of the fees), which the Court expressly endorses. The Court also seems to accept that some sort of objective accreditation procedure, based on the content of curriculum or somesuch, might be justified. It seems to me that this would be awfully difficult to manage and, if it is tried, would give rise to litigation raising delicate issues about curriculum content.
Plus I don't believe a language requirement could be justified. Yes, I know it was justified in the famous Groener case. But it is one thing for Ireland to require all pupils to learn Irish in schools located on its territory, and another thing for it to require the children of all parents subject to Irish taxation to learn Irish, even when the children attend schools outside Irish territory. Surely that would be disproportionate, even if the rule only concerned tax credits or subsidies to support private education.
And surely it would be hugely disproportionate, in light of this judgment, to ban children from receiving private education abroad at all, even if private education is banned, or heavily regulated, in a State. So much for the old idea of the Labour left that private schools should be banned in the UK -- if they were (as the opponents of this idea always maintained) they could always be set up abroad (assuming, of course, that the foreign law in question allowed this); and it is now clear that the UK could not stop parents sending their children there (and how extreme would it look if it seriously tried to do this). This is a good thing too, in my view -- I am not keen on private schools myself, but it is a sign of extreme intolerance to stop parents from sending their children to private schools if they wish to do so. The distortion this undoubtedly causes in the education system is probably less than the distortion caused by the middle-class parents who remain in the state education system and drive up house prices (and so drive away poorer parents) around the most popular state schools. Anway, the only long-term way to address this is to improve standards of state education.
Of course Member States with bans or severe restrictions on private schools presumably do not offer tax credits to support private education, or take the draconian step of banning children from attending foreign private schools. What they might be doing, however, is refusing to fully recognise the qualifications obtained abroad in private schools -- and these judgments, although on a different issue, obviously aid the argument that such qualifications must be recognised as a matter of EU free movement law.
Do the judgments apply where a state gives a direct subsidy to support private schools? Yes, if the subsidy is linked to the student (ie if the German government gave a direct subsidy to a private school for each student it enrols, the judgments would apply by analogy. This would get really messy to apply to foreign schools if the subsidy were given through the German tax system, though). But I am not convinced that a subsidy given to a private school by a Member State to support its operating costs would be covered by these judgments -- not that such subsidies should be given, in my view -- because it is not the same sort of situation. You can hardly expect the German government to send cash direct to Eton and Marlborough!
It seems to me also that if governments give a tax credit to benefactors of private schools, this tax credit must apply equally depending on the location of the school within the EU. (This would be an application of the free movement of capital, of course; and in this case, the nationality of the benefactor wouldn't matter). It might be arguable that private schools registered as a charity (as in the UK) are not comparable to private schools registered as companies or in some other legal form in other Member States -- does anyone have any thoughts on that?
The judgments will facilitate free movement of persons, of course. But they will also facilitate competition between schools, since foreign schools will be less expensive (now that tax credits or direct subsidies, where they exist, are extended to them) as compared to private schools in the student's home State -- and indeed, as compared to state schools in the student's home state. But the finance available to state schools won't be reduced unless the tax credits or subsidies come straight from the general state education budget (so the Tory proposal in the 2005 UK election looks even madder, in light of these judgments). And it seems unlikely that vastly increased numbers of students will end up in private schools as a whole as a result of the judgments. Again, any increased take-up of private education will not have much impact compared to the existing distortions within the state system (at least, the state education system as it works in England and Wales); and the numbers attending private school might even decrease if the effect of the judgment is that States offering tax credits or subsidies for private education decided to reduce them.
Private schools should hardly be whinging about this increased competition -- since the effect of having private schools around is to provide competition for the state sector.
As for advertising, surely it follows from the judgments that foreign schools should be allowed to advertise for students on the same basis as private schools in the home State. What if advertising by private schools is banned or severely restricted in the home State? Is this a non-discriminatory restriction on the freedom to provide services? I think so, although it might possibly be justified -- but I doubt it's very important anyway, since anyone who can fund a foreign private school for their children can surely afford access to the Internet and will just search for foreign schools' websites.
A final point - the distinction between state education and private education is reaffirmed by the Court here, as regards the free movement of services. This is likely to cause continued problems of definition. A more subtle point, though, is that the judgments don't just turn on the free movement of services, but also on several other types of free movement rights. Could it be argued, then, that the free movement of workers, et al, is restricted if a Member State does not reimburse to parents the cost of educating their child in the State education system of another Member State? This could be considered analogous to the Watts judgment concerning the NHS and foreign medical treatment, and there is also a pending case before the Court of Justice (Morgan) raising a comparable point as regards post-secondary education. Any thoughts?