More than a decade after the Court of Justice of the European Union (CJEU) ruled that the German Eigenheimzulage violated European law, the European Commission (EC) is also questioning its successor, the Baukindergeld. ITEM had earlier concluded that the Baukindergeld violates European law. It is now awaiting the conclusion of the EC, which had indicated it would allow Germany to defend the current scheme. If the EC does not agree with the German response, it could again mean the end of a German housing (construction) subsidy.
In July 2018, the German legislature retroactively passed a law granting entitlement to so-called Baukindergeld from 1 January 2018. The Baukindergeld is a subsidy scheme designed to encourage home ownership by young families in Germany. The subsidies provided under the Baukindergeld amount to €1,200 per child per year over a period of 10 years, or expire earlier when the child turns 25. However, there are a number of conditions attached to entitlement to Baukindergeld. The most controversial condition excludes owners of houses located outside Germany from the right to Baukindergeld.
ITEM shows the way
This condition immediately attracted attention because of the negative consequences associated with it, especially for border workers. This did not escape ITEM either, resulting in File 4 of the 2018 Cross-Border Impact Assessment. Border workers who live in another member state and own a home there, but work in Germany and also pay taxes there, are not entitled to Baukindergeld under the latter condition . They then fall between two stools as they are excluded from entitlement to Baukindergeld in Germany and also cannot claim such benefits in their Member State of residence because the vast majority of their income comes from Germany.
Under Article 7 of Regulation 492/2011, cross-border workers enjoy the same social advantages and tax benefits as national workers (i.e. persons living and working in the same Member State). It is therefore irrelevant whether the Baukindergeld is classified as a social benefit or a tax benefit, as cross-border workers are entitled to equal treatment in both cases. Nevertheless, the Baukindergeld scheme discriminates on the basis of place of residence. This creates a form of indirect discrimination contrary to the free movement of persons and Article 7 of Regulation 492/2011.
ITEM thus concluded that Baukindergeld cannot be granted exclusively to owners of houses located in Germany. Frontier workers living outside Germany and working in Germany are also entitled to Baukindergeld; a distinction based on place of residence runs counter to European rules on free movement of persons. In addition to extending the right to Baukindergeld for cross-border workers, it is also recommended that the effects on border regions and situations be taken more into account in future parliamentary debates.
The EC follows, or does it?
However, ITEM’s investigation did not stop there; questions were raised in the European Parliament to the EC about the Baukindergeld.[1] According to the EC, the Baukindergeld can be a family supplement under Regulation 883/2004 and/or a benefit under Regulation 492/2011. A family allowance cannot be conditional on residence in the paying Member State. As for a social or tax benefit, indirect discrimination is only allowed if it is objectively justified by the member state. The EC will give Germany the opportunity to defend the current scheme and clarify the situation.[2]
Consequently, the EC does not (yet) consider that the Baukindergeld violates European law. In the informal infringement procedure, Germany will have the opportunity for now to convince the EC that the Baukindergeld complies with European law. If that fails, the EC can initiate the formal infringement procedure by means of a reasoned opinion, based on Article 258 TFEU. It is now awaiting Germany’s response and the EC’s reaction.
The Eigenheimzulage and Wohnungsbauprämie: more of the same
The Baukindergeld is not the first German housing (construction) subsidy that the EC is looking at with a critical eye. Thus, formal infringement proceedings were previously launched in connection with the Eigenheimzulage and the Wohnungsbauprämie. The Baukindergeld is the successor to the Eigenheimzulage; it was already abolished in 2005 after questions were raised in the European Parliament to the EC about its compatibility with European law. After a formal infringement procedure, the ECJ ruled that the Eigenheimzulage violated European law. Afterwards, the cross-border workers who had applied received the Eigenheimzulage retroactively.
It is not so far advanced with the Wohnungsbauprämie, a premium for saving to build or buy one’s own home at a Bausparkasse. Here too, cross-border workers are excluded, which led the EC to initiate formal infringement proceedings,[3] the EC’s response to questions from the European Parliament[4] shows that Germany will amend the regulations surrounding the Wohnungsbauprämie so that it no longer violates European law. The EC thereby concludes that it will not refer Germany to the CJEU, provided that the proposed changes will be sufficient[5].
Conclusion: is this then the end?
Looking at the predecessor of the Baukindergeld, the Eigenheimzulage, the Baukindergeld does not seem to have a long life. Chances are that if the ECJ ever has to look into the Baukindergeld , the conclusion will be that cross-border workers are also entitled to the Baukindergeld. However, the EC has not yet explicitly ruled against the current regulation around Baukindergeld, so it is still a case of smoke and mirrors in that respect.
Does this now mean the end of Baukindergeld? In any case, it need not be such a big deal. However, it is noteworthy that more than a decade after the Eigenheimzulage , a German housing (construction) subsidy is again under scrutiny; and that, at the same time, the EC has initiated the formal infringement procedure regarding the Wohnungsbauprämie. ITEM already concluded in 2018 that the current regulation around the Baukindergeld violates European law and that cross-border workers are also entitled to it. It is now up to Germany to prove otherwise and convince the EC.
[1] Arimont P., Family housing grants (‘Baukindergeld’) for first-time buyers of new or existing homes, Parliamentary questions, E-002147/2019, 3 juli 2019. Beschikbaar op: http://www.europarl.europa.eu/doceo/document/E-8-2019-002147_EN.html.
[2] Thyssen M. on behalf of the European Commission, Answer given by Ms Thyssen on behalf of the European Commission, Parliamentary questions, E-002147/2019, 29 augustus 2019. Beschikbaar op: http://www.europarl.europa.eu/doceo/document/E-8-2019-002147-ASW_EN.html.
[3] Europese Commissie, Inbreukenpakket voor maart: voornaamste beslissingen, MEMO/19/1472, 7 maart 2019. Beschikbaar op: https://europa.eu/rapid/press-release_MEMO-19-1472_nl.htm.
[4] Arimont P., Discrimination of cross-border workers in connection with the housing premium (‘Wohnungsbauprämie’), Parliamentary questions, E-002601/2019, 2 september 2019. Beschikbaar op: http://www.europarl.europa.eu/doceo/document/E-9-2019-002601_EN.html.
[5] Moscovici P. on behalf of the European Commission, Answer given by Mr Moscovici on behalf of the European Commission, Parliamentary questions, E-002601/2019, 21 oktober 2019. Beschikbaar op: http://www.europarl.europa.eu/doceo/document/E-9-2019-002601-ASW_EN.html.