Opinion of the Advocate-General
1. Mr Borawitz, who lives in the Netherlands, is the beneficiary of a disability pension, paid monthly by a German body.
2. Although he was entitled to a retroactive pension payment, Mr Borawitz did not receive that benefit, because the amount concerned did not exceed three tenths of the value of the pension, a condition laid down by German law.
3. Under the same law, where retroactive payments are to be made in Germany, the minimum amount payable is set at one tenth of the current value of the pension.
4. The action brought by Mr Borawitz against the decision to deny him the retroactive payment in question has resulted in the Sozialgericht (Social Court), Münster, asking the Court to rule on the scope of the Community principle of equal treatment with regard to national legislation, such as that in this case, which establishes different legal arrangements depending on whether the pension is paid in the territory of the Member State or in the territory of another Member State. The minimum amount required by the national law in the former instance is in fact lower than that laid down in the latter instance.
I - Legal background
The Community legislation
5. Regulation (EEC) No 1408/71 of the Council of 14 June 1971 on the application of social security schemes to employed persons, to self-employed persons and to members of their families moving within the Community, as amended by Council Regulation (EEC) No 1945/93 of 30 June 1993 (the Regulation), is intended to co-ordinate national social security legislation in order to permit freedom of movement for workers who are nationals of Member States.
6. The Regulation aims to guarantee within the Community firstly equality of treatment for all nationals of Member States under the various national legislations and secondly social security benefits for workers and their dependents regardless of their place of employment or of residence. These objectives must be attained by the provision of benefits for the various categories of persons covered by the Regulation regardless of their place of residence within the Community.
7. The provisions for co-ordination adopted for the implementation of Article 51 of the EC Treaty (now, after amendment, Article 42 EC) must guarantee to workers who move within the Community their accrued rights and advantages.
8. Article 3(1) of the Regulation sets out the principle of non-discrimination as it applies to the field covered by that regulation. It provides that [s]ubject to the special provisions of this regulation, persons resident in the territory of one of the Member States to whom this regulation applies shall be subject to the same obligations and enjoy the same benefits under the legislation of any Member State as the nationals of that State.
9. As regards the amount of the benefits paid by a Member State to a recipient living in another Member State, the first subparagraph of Article 10(1) of the Regulation provides that [s]ave as otherwise provided in this regulation, invalidity, old-age or survivors' cash benefits, pensions for accidents at work or occupational diseases and death grants acquired under the legislation of one or more Member States shall not be subject to any reduction, modification, suspension, withdrawal or confiscation by reason of the fact that the recipient resides in the territory of a Member State other than that in which the institution responsible for payment is situated.
10. Article 58 of Regulation (EEC) No 574/72 of the Council of 21 March 1972 fixing the procedure for implementing Regulation No 1408/71 concerns the recovery of expenses incurred in the payment of benefits. It states that [t]he expenses incurred in the payment of benefits, particularly postal and bank charges, may be recovered from the recipients by the paying body under the conditions provided for by the legislation administered by that body.
The German legislation
11. It is apparent from Paragraph 118(2a) of the Sechstes Buch des Sozialgestetzbuches - SGB VI - (Book VI of the German Code of Social Law, the SGB VI) that, if a retroactive pension payment is to be made, its amount at the relevant date must exceed one tenth of the current value of the pension in the case of payments made in Germany, or three tenths of that value in the case of payments made abroad.
12. According to the order for reference, that paragraph was introduced with effect from 1 July 1993 to ensure that administrative and accounting expenses did not exceed the amount of the retroactive payments.
II - Facts and main proceedings
13. Mr Borawitz (referred to as the applicant in the main proceedings) received a disability pension of DEM 660.63 per month with effect from 1 August 1993. By letter of 20 June 1995, the Landesversicherungsanstalt Westfalen (the defendant in the main proceedings) notified him that that amount would be raised to DEM 663.94, under the Rentenanpassungsgesetz (German Law on the Adjustment of Pensions).
14. On the same day, the defendant in the main proceedings informed Mr Borawitz that for the period from 1 July to 31 August 1995 he was entitled to a retroactive payment of DEM 6.62. It added, however, that under Paragraph 118(2a) of SGB VI that sum could not be paid because it did not exceed three tenths of the value of the disability pension.
15. Mr Borawitz lodged an objection with the defendant in the main proceedings claiming that the distinction under German legislation between payments made in Germany and those made in other Member States was in breach of the principle of equal treatment in Article 3 of the Regulation. The applicant in the main proceedings added that the clearing system used for payments between Germany and the Netherlands ensured that the expenses of payments made abroad were, in practice, no higher than those of payments made in Germany.
16. By decision of 16 April 1996, the appeals board of the defendant in the main proceedings dismissed the objection on the ground that Paragraph 118(2a) of SGB VI does not come within the scope of Article 10(1) of the Regulation.
17. On 3 May 1996, Mr Borawitz initiated proceedings before the Sozialgericht, Münster, and the Federal Republic of Germany was called upon to intervene in the proceedings.
III - The question referred for a preliminary ruling
18. The Sozialgericht, Münster, decided to stay proceedings and to refer the following question to the Court for a preliminary ruling:
Is Paragraph 118(2a) of the Sozialgestetzbuch (Code of Social Law, "SGB VI") compatible with European Community law, in particular the principle of equal treatment, in so far as it limits retroactive pension payments to a greater extent when the payment is made abroad than when the payment is made in Germany?
IV - The question
19. First of all, it must be borne in mind that, according to settled case-law, within the framework of proceedings bought under Article 177 of the EC Treaty (now Article 234 EC), the Court does not have jurisdiction to give a ruling on the compatibility of a national measure with Community law. However, it does have jurisdiction to supply the national court with a ruling on the interpretation of Community law so as to enable that court to determine whether such compatibility exists in order to decide the case before it.
20. It must therefore be held that, by the question referred, the national court is seeking to ascertain whether the principle of equal treatment, as laid down in Article 3(1) of the Regulation, precludes national legislation which fixes the minimum amount of a cash benefit that can be paid to a recipient residing in another Member State at a higher level than that required where that payment is made within the same Member State.
21. In order to answer this question in the context of the main proceedings, it is necessary to establish at the outset that Mr Borawitz in fact falls within the material and personal scope of the Regulation, as provided for in Article 3(1) of the Regulation.
22. According to Article 2(1) thereof, the Regulation is to apply to employed or self-employed persons who are or have been subject to the legislation of one or more Member States and who are nationals of one of the Member States or who are stateless persons or refugees residing within the territory of one of the Member States.
23. As the Commission has rightly pointed out, no information has been provided which makes it possible to ascertain whether Mr Borawitz satisfies the condition of having Community national status - or the status which can stand in its stead - as required by that provision.
Since the plaintiff in the main proceedings resides in the Netherlands and receives a disability pension which is indisputably subject to German legislation, the condition of residence in the territory of the Community and the condition relating to the application of the legislation of one of the Member States are manifestly fulfilled, but the same is not true of the nationality condition.
Since the Sozialgericht, Münster, has implicitly assumed that that requirement is satisfied, in order to give a useful answer to the question raised it will be taken here that that is so. However, it will fall to the referring court to ensure that this is really the case before applying the relevant provisions of the Regulation.
24. As regards the subject-matter of the main proceedings, which determines the material application of the Regulation, it is sufficient to note that the payment at issue is a retroactive disability pension payment. The Regulation is therefore applicable on that point, in accordance with Article 4(1)(b) thereof.
25. Subject to the foregoing, a situation such as that described by the referring court is therefore covered by the Regulation.
26. The object of Article 3(1) of the Regulation is to ensure, in accordance with Article 48 of the EC Treaty (now, after amendment, Article 39 EC), equal treatment in matters of social security, without distinction based on nationality, for the persons to whom the Regulation applies by abolishing all discrimination in that regard deriving from the national legislation of the Member States.
27. National legislation such as that in this case does not distinguish according to whether the recipient is German or not. Rather, it sets a higher minimum amount for a retroactive pension payment made from one Member State to another Member State than for such a payment within the same Member State. A non-German residing in Germany is subject to the one tenth minimum amount condition, which gives him a greater chance than an expatriate German of receiving the retroactive payment at issue. The same is true of a German residing in Germany as opposed to a non-German who has left Germany. Similarly, a German residing outside Germany is subject to the less favourable three tenths condition, in the same way as a non-German in the same residence situation who is in receipt of a pension paid by a German body. Since it does not impose a nationality condition, such legislation does not create direct discrimination based on that criterion.
28. However, it will be remembered that Article 3(1) of the Regulation prohibits not only overt discrimination based on the nationality of the beneficiaries of social security schemes but also all covert forms of discrimination which, through the application of other distinguishing criteria, lead in fact to the same result.
29. The distinguishing criterion is clearly the place where the payment is received by the pension beneficiary, namely his place of residence. As the Commission has shown, indirect discrimination based on nationality exists where, even though no nationality condition applies, the national legislation operates exclusively or mainly to the detriment of foreigners.
30. In order to establish this, it must be determined whether workers residing outside Germany who receive the retroactive disability pension payment at issue are exclusively or predominantly nationals of Member States other than the Federal Republic of Germany. In those circumstances, there would be evidence of discrimination between Germans and non-Germans to the detriment of the latter.
31. The particulars of the case in the main proceedings submitted to the Court do not enable a final opinion to be given one way or the other. At most, it can be pointed out by way of guidance and subject to other particulars available to the referring court that, according to the Commission, most of the people residing outside Germany who are affected by the German legislation are Germans. It is clear that Article 3(1) of the Regulation would not preclude legislation with those characteristics on grounds relating to the application of a nationality criterion, since, in such a case, the national legislation would operate to the detriment of its own nationals.
32. However, another approach is required, which must be defined more in terms of the particular features of Community social security law than according to the principle of equal treatment in its most general sense.
33. One of the notable features of this branch of Community law is the aim expressed in the relevant provisions of the primary law, namely Article 51 of the Treaty on which the Regulation is based, to contribute to freedom of movement for workers by securing certain specific rights for migrant workers.
34. The Court has logically inferred from this that the provisions of Article 3(1) of the Regulation ... must be interpreted in the light of their objective, namely to contribute, particularly in the field of social security, to the establishment of the greatest possible freedom of movement for migrant workers, which is one of the foundations of the Community ....
35. In accordance with this principle, unrelated to any concept of nationality, Articles 48 to 51 of the Treaty and the Community legislation adopted in implementation thereof, in particular Regulation No 1408/71, are intended to prevent a worker who, by exercising his right of free movement, has been employed in more than one Member State from being placed in a worse position than one who has completed his entire career in only one Member State.
36. The Court pointed out that it had accepted that the aim of Articles 48 to 51 of the Treaty would not be attained if, as a consequence of the exercise of their right to freedom of movement, migrant workers were to lose the advantages in the field of social security guaranteed to them by the laws of a single Member State. ... Such a consequence could deter Community workers from exercising their right to freedom of movement and would therefore constitute an obstacle to that freedom.
37. Contrary to what the Commission maintains, a provision of the type at issue before the national court, although it applies regardless of the nationality of the workers concerned, is capable of disadvantaging, in matters of social security, migrant workers by comparison with workers who have worked in only one Member State.
38. Whether they are German nationals or nationals of another Member State, workers and other beneficiaries of the social security scheme in question are not entitled to receive the same amount of retroactive disability pension payment under that scheme where the amount of that payment as initially assessed does not exceed three tenths of the value of the pension. This being the case, as has been seen, only beneficiaries residing in Germany are entitled to receive the retroactive payment at issue, the sole condition being that its amount exceed one tenth of the value of the pension.
39. Therefore, although they enjoy the same right to receive a retroactive pension payment of a given amount, Community nationals who have worked in Germany are not in the same position as those who have exercised their right to free movement in the Community and have taken up residence in another Member State.
40. According to the Commission, if the conditions of indirect discrimination were fulfilled, such discrimination could nevertheless be justified by objective differences. The distinction between domestic payment and payment abroad is made on the basis that higher expenses are associated with payments abroad. It takes into account the cost of transfers and seeks to ensure that payment expenses do not exceed the amount of the retroactive payment.
41. The explanations given by the Commission, based on the idea that uneconomic situations should be avoided, would warrant acceptance if they did not, in this case, come up against a particular fact.
42. It has been accepted in the main proceedings that payment transactions with the Netherlands are carried out under a clearing system. By virtue of that process, the pension is paid by the liaison office of the recipient's country of residence by means of a domestic payment. By the Commission's own acknowledgment, the clearing procedure does not generate any additional expenses since no payment abroad is in fact made.
43. In other words, the contested retroactive pension payment would not, in this case, give rise to any additional expenses by comparison with an equivalent payment made within the territory where the body responsible for payment is situated. If that is true, it can be inferred that the expenses are not likely to exceed the amount of the retroactive payment.
44. It seems unsafe, in those circumstances, to justify the difference in treatment on the basis that there are, or are likely to be, additional expenses. The need to avoid uneconomic situations cannot legitimise discrimination which impairs the freedom of movement of migrant workers in cases where, as a matter of fact, such situations do not exist.
45. It will be remembered that the Regulation is based, in particular, on Article 51(b) of the Treaty which entrusts the Council with the task of securing for migrant workers and their dependants payment of benefits to persons resident in the territories of Member States. Article 51 represents the application in the field of social security of the fundamental principle of freedom of movement for workers, set out in Article 48 of the Treaty, and exceptions to the principle of Article 51, like exceptions to the principle of Article 48, must be accepted to only a limited extent.
46. Article 10(1) of the Regulation, which requires the waiving of residence clauses, confirms this approach. Neither the acquisition nor the retention of entitlement to the benefits covered by that provision may be denied on the sole ground that the person concerned does not reside in the territory of the Member State in which the institution responsible for payment is situated.
47. It is not denied that the retroactive pension payment at issue falls into the category of invalidity cash benefits referred to in the first subparagraph of Article 10(1) of the Regulation or that the recipient forfeits that payment where the amount does not exceed three tenths of the disability pension, by reason of the fact that he resides in the territory of another Member State.
48. On the other hand, the Commission considers that the first subparagraph of Article 10(1) of the Regulation does not apply in this case, since the applicant in the main proceedings is not subject to any reduction or withdrawal of the benefit by virtue of the fact that the retroactive payment was not made. According to the Commission, the defendant in the main proceedings has confirmed the pension increase, but has simply set the retroactive payment against the transfer expenses. Article 10 of the Regulation is not intended to govern the question whether expenses are charged, but only that of whether the benefit is reduced or withdrawn.
49. The Commission adds that the national legislature did not intend to distinguish between pension recipients residing abroad according to whether the amount of expenses actually incurred in paying the pension is higher than the amount of the pension. This concept of a threshold is based not only on the higher level of general expenses and bank charges required by this type of payment, but also on the solidarity inherent in social security schemes.
50. Finally, the Commission also relies on Article 58 of the implementing Regulation, which allows Member States to authorise paying bodies to recover from the recipients expenses incurred in the payment of benefits, particularly postal and bank charges.
51. I do not share that opinion, since I consider it impossible to overlook the fact that, according to the documents before the Court, the retroactive pension payment transactions do not involve any additional expenses.
52. First, a Community national who forfeits part of his pension, on the ground that this part is lower than or equal to the expenses necessary for its transfer, is obviously entitled to rely on Article 3(1) of the Regulation where there is no factual evidence of those expenses. His position is, in those circumstances, no different from that of the recipients of the same benefits who are subject to the legislation of the Member State where they reside. According to a strictly identical analysis, there can be no recovery of expenses relating to the payment of benefits, provided for in Article 58 of the implementing Regulation, where no expenses of this kind are incurred.
53. Second, in the same way, Article 10(1) of the Regulation should also be applied. The failure to make the retroactive pension payment amounts to a reduction or a modification of the pension, since that payment constitutes an integral part of the pension and the beneficiary has not received the whole of it.
54. I am likewise not persuaded by the argument relating to the solidarity required by national social security schemes.
55. It is difficult to say in what respect the refusal to make a retroactive pension payment where the expenses involved are no higher than those normally involved in this type of transaction contributes to the protection of other social security benefit recipients.
56. Thus, in this case, the differentials between the minimum amounts are evidently not justified by reference to any objective consideration, subject to the referring court's satisfying itself that a clearing procedure exists and that this has an impact on the level of expenses.
Conclusion
57. Having regard to those considerations, I propose that the Court give the following answer to the question referred for a preliminary ruling by the Sozialgericht, Münster:
The principle of equal treatment, as laid down in Article 3(1) of Regulation (EEC) No 1408/71 of the Council of 14 June 1971 on the application of social security schemes to employed persons, to self-employed persons and to members of their families moving within the Community, as amended by Council Regulation (EEC) No 1945/93 of 30 June 1993, precludes the application of national legislation in a Member State which fixes the minimum amount of an invalidity cash benefit that can be paid to a recipient residing in another Member State at a higher level than that required where that payment is made within the first Member State, in a situation where the payment to be made in another Member State, which cannot be made because the benefit does not reach the higher minimum amount, does not give rise to expenses which are higher than those incurred in paying the same benefit within the first Member State.
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