Indexation of family benefits, child tax credit and family tax credits: Commission takes Austria to Court for discrimination

taxes 2020

(Olga DeLawrence, Unsplash)

This article is brought to you in association with the European Commission.

Today, the European Commission decided to refer Austria to the Court of Justice of the EU. The Commission considers that Austrian law on the indexation of family benefits, child tax credit and family tax credits is not allowed under EU rules and is discriminatory.

On 1 January 2019, Austria introduced a mechanism indexing the amount of family benefits, child tax credits and family tax credits for EU nationals who work in Austria and have children living abroad. The Commission considers that such an indexation mechanism is against the EU rules on freedom of movement for workers and on the coordination of social security systems.

The mechanism is against current rules on social security coordination and discriminatory as it means that some mobile EU workers in Austria who fully contribute to the Austrian economy, workforce and social security system receive lower benefits compared to those workers whose children are living in Austria. Yet, the Austrian indexation mechanism does not apply to Austrian nationals who work abroad for an Austrian public authority and have children living with them abroad, even though they are in a similar situation.

Today’s referral to Court is the last step in the infringement procedure that started in January 2019, when the Commission sent a letter of formal notice to Austria. As the response given by Austria in March 2019 was considered unsatisfactory, the Commission followed up with a reasoned opinion in July 2019. Having analysed the Austrian reply received in October 2019, the Commission considers that its concerns have not been addressed. Hence, the decision was taken to refer Austria to the Court of Justice of the EU.


Which EU rules are being violated?

The Commission finds that the indexation of the amount of family benefits, child tax credit and family tax credits applied to EU mobile workers whose children reside in another Member State, raises concerns as regards its compatibility with EU law. In particular, the Austrian legislation is incompatible with the following EU regulations and principles:

  • Regulation (EC) No 883/2004 on the coordination of social security systems and its principles of equal treatment and the prohibition of residence clauses.

Member States may not reduce the amount of any cash benefit granted to persons insured under their legislation for the sole reason that these persons or their family members are residing outside their territory. The Austrian indexation mechanism reduces the amount of family benefits and child tax credit granted for children residing in an EU Member State where the cost of living is considered to be lower.

The fact that another Member State is considered to have lower cost of living than Austria is of no relevance for a benefit, which is paid out as a lump sum and is not linked to the actual cost of maintaining a child. In addition, Austria does not apply the indexation mechanism to persons working abroad for an Austrian public authority, whose children also reside in another EU Member State.

Further, the principle of equal treatment in social security coordination matters means that persons must be treated equally without distinction of nationality, by abolishing discriminatory measures in national legislation.

  • Regulation (EU) No 492/2011 on the freedom of movement for workers within the EU and the principle of equal treatment of workers who are nationals of another Member State as regards social and fiscal advantages.

Under Regulation (EU) No 492/2011, a worker who is a national of a Member State shall enjoy, in the territory of another Member State, the same social and tax advantages as workers living in that Member State. The purpose of the family tax credit, the single earner tax credit, the single parent tax credit and the tax credit for child maintenance payments is to reward, also in the context of an aging society, those parents who are professionally active besides raising children. The tax credits at stake are not related to the actual costs of child-rearing.

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