More than ten years after the ECJ ruled that the German Eigenheimzulage was in breach of European law, the European Commission also started questioning its successor, the Baukindergeld. ITEM had previously concluded that the Baukindergeld was in breach of European law. We now await the conclusion of the European Commission, which had indicated that it would enable Germany to defend the current rules. If the European Commission does not agree with the German answer, this could once again mean the end of a German housing (construction) subsidy.
In July 2018, the German legislator retroactively adopted a law that grants the right to so-called Baukindergeld as of 1 January 2018. The Baukindergeld is a subsidy scheme intended to stimulate the home ownership of young families in Germany and depends on the income and the number of children. The subsidies provided under the Baukindergeld amount to € 1,200 per child over a period of ten years, or expire earlier when the child reaches the age of 25.
However, there are a number of conditions attached to the right to Baukindergeld. The most important condition is the possession of a house, not bought from family members in the direct line, of which one is at least 50% owner. Either the sale must be completed after 1 January 2018, or the building permit must be granted after 1 January 2018. In addition, children under the age of 18, for whom the owners of the house receive Kindergeld, must occupy the house. The income of the homeowners may not exceed € 90,000 for one child, but that maximum amount is increased by € 15,000 for each additional child. Finally, the most controversial condition excludes owners of dwellings outside Germany from the right to Baukindergeld.
ITEM shows the way
The latter condition immediately attracted attention because of the negative consequences it has, especially for frontier workers. Frontier workers who live and work in another Member State, but who also work in Germany and pay taxes there, are not entitled to Baukindergeld under the latter condition. ITEM noticed this, which resulted in Dossier 4 of the 2018 Cross-Border Impact Assessment. Indeed, frontier workers who own a house in another Member State and work in Germany are not entitled to Baukindergeld, even though they are socially insured in Germany and pay their taxes there. As these frontier workers are also not entitled to benefits that facilitate home ownership in their Member State of residence, because the vast majority of their income comes from Germany, these frontier workers fall between two stools. This raises questions, particularly with regard to the compatibility of the Baukindergeld with European law and freedom of movement.
Under Article 7 of Regulation 492/2011, frontier workers enjoy the same social and tax advantages as national workers (i.e. workers residing and working in the same Member State). It is therefore irrelevant whether the Baukindergeld is regarded as a social advantage or a tax advantage, since in both cases frontier workers are entitled to equal treatment. Nevertheless, the Baukindergeld scheme makes a distinction based on residence. This creates a form of indirect discrimination contrary to the free movement of persons and Article 7 of Regulation 492/2011. Regulation 883/2004 does not apply to the Baukindergeld, because it is not a social security benefit in this case. Such an interpretation is also confirmed by the application of the Schumacker doctrine of the ECJ. Frontier workers are in many cases subject to unlimited taxation in Germany, which means that they can also be regarded as tax residents. According to the ECJ, equal obligations come with equal rights. Frontier workers will therefore also be entitled to the Baukindergeld because they are in a Schumacker situation. It can even be argued that, based on more recent case law of the ECJ, frontier workers who are not in a Schumacker situation because they are not subject to unlimited taxation in Germany are still entitled to the Baukindergeld.
ITEM thus concluded that the Baukindergeld cannot be granted exclusively to owners of dwellings located in Germany. Frontier workers living outside Germany and working in Germany are also entitled to the Baukindergeld; a distinction based on residence is contrary to European rules on the free movement of persons. In addition to extending the right to the Baukindergeld for frontier workers, ITEM also recommends that future parliamentary debates take greater account of the effects on frontier regions and situations.
Will the European Commission follow suit?
However, ITEM was not alone in its criticism; questions were put to the European Commission in the European Parliament about the Baukindergeld. The European Commission stated that the condition that the dwelling must be located in Germany and the associated condition that the homeowners must be resident in Germany could constitute indirect discrimination against frontier workers. According to the European Commission, the Baukindergeld can be a family benefit under Regulation 883/2004 and/or an advantage under Regulation 492/2011. A family benefit under Regulation 883/2004 cannot be made dependent on residence in the paying Member State. As regards an advantage under Regulation 492/2011, indirect discrimination is only allowed if it is objectively justified by the Member State. The European Commission will give Germany the opportunity to defend the current regime and to clarify the situation.
The European Commission is therefore not (yet) of the opinion that the Baukindergeld is in breach of European law. In the informal infringement procedure, Germany will for the time being be given the opportunity to convince the European Commission that the Baukindergeld is in conformity with European law. If it fails to do so, the European Commission can initiate formal infringement proceedings by means of a reasoned opinion, based on Article 258 TFEU. We now await Germany’s response and the European Commission’s action.
The Eigenheimzulage and Wohnungsbauprämie: more of the same
The Baukindergeld is not the first German housing (construction) subsidy that the European Commission is thoroughly investigating. For example, the formal infringement procedure had already been initiated in connection with the Eigenheimzulage and the Wohnungsbauprämie. Although in both cases it concerns a different form of subsidy for home ownership, the differences in terms of the group of people who are eligible for it are not very great. The Baukindergeld is the successor to the Eigenheimzulage, which was already abolished in 2005 after the European Parliament put questions to the European Commission about its compatibility with European law. After a formal infringement procedure, the ECJ ruled that the Eigenheimzulage was in breach of European law. Afterwards, the frontier workers who had submitted an application received the Eigenheimzulage with retroactive effect.
The Wohnungsbauprämie is a premium amounting to 8.8% of the amount that people save for building or buying their own home in a Bausparkasse. The maximum annual premium is € 45.06 for single and unmarried persons and € 90.11 for married persons. The premium will then be added to the amount already saved. However, frontier workers are excluded from the right to this premium because they are not resident in Germany and this premium can only be used for the purchase of a house in Germany. The European Commission then sent a reasoned opinion to Germany, initiating the formal infringement procedure. If Germany does not take action, the European Commission may refer Germany to the ECJ. The two-month deadline has now expired and no new action has been taken. However, new questions have recently been raised in the European Parliament about Germany’s response to the reasoned opinion and the next steps that the European Commission intends to take.
Conclusion: is this the end?
If one looks at the predecessor of the Baukindergeld, the Eigenheimzulage, then the Baukindergeld does not seem to have a long life. The Baukindergeld can only be applied for houses that were built or bought between 1 January 2018 and 31 December 2020, which is already a limited period of time. Nevertheless, there is a good chance that, if the ECJ ever has to deal with the Baukindergeld, the conclusion will be that frontier workers are also entitled to the Baukindergeld. However, the European Commission has not yet explicitly expressed its opposition to the current rules on the Baukindergeld, so the matter is still open for discussion.
Does this mean the end of the Baukindergeld? In any case, it does not have to go that fast. It is remarkable, however, that more than ten years after the Eigenheimzulage, a new German housing (construction) subsidy is being examined, and that at the same time the European Commission has initiated formal infringement proceedings with regard to the Wohnungsbauprämie. As early as 2018, ITEM already concluded that the current rules on the Baukindergeld are in breach of European law and that frontier workers are entitled to it. Taking into account the history of the Eigenheimzulage and the problems surrounding the Wohnungsbauprämie, the most logical conclusion is that the Baukindergeld is in breach of European law and that it will have to be paid to frontier workers. It is now up to Germany to prove the contrary and to convince the European Commission of this.
On 21 October 2019, the EC replied to the question that had been put to the European Parliament about the Wohnungsbauprämie. The answer shows that Germany will amend the rules governing the Wohnungsbauprämie to bring them in line with European law. The EC thus concludes that it will not refer Germany to the ECJ, provided that the proposed changes prove sufficient.
Case C-279/93, Finanzamt Köln-Altstadt v Schumacker, 14 February 1995, ECLI:EU:C:1995:31.
Case C-283/15, X, 9 February 2017, ECLI:EU:C:2017:102.
Arimont P., Family housing grants (‘Baukindergeld’) for first-time buyers of new or existing homes, Parliamentary questions, E-002147/2019, 3 July 2019.
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 August 2019.
European Commission, March infringement package: key decisions, MEMO-19-1472, 7 March 2019.
Arimont P., Discrimination of cross-border workers in connection with the housing premium (‘Wohnungsbauprämie’), Parliamentary questions, E-002601/2019, 2 September 2019.
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 October 2019.