Freedom of movement for persons

Introduction

Under Polish legislation, only health insurance contributions paid to a Polish insurance institution could be deducted from income tax. This case dealt with whether this was against the freedom of movement for persons, within the EU Treaty.

The Facts

Mr Rüffler took up residence in Poland and had been permanently resident there with his wife since 2005. Prior to moving to Poland, he lived and worked in Germany.

At the time in question, Mr Rüffler's only income came from two pensions paid in Germany,

• an invalidity pension for 70% incapacity paid by a German employees’ insurance institution, which represented a payment from the German compulsory social insurance scheme; and
• an occupational pension paid by the Volkswagen company.

Those two pensions were paid in Germany into a bank account opened by Mr Rüffler there. The corresponding contributions, including health insurance contributions, were then deducted in that Member State.

Mr Rüffler was subject to unlimited liability to tax in Poland. Under Article 18(2) of the Double Taxation Agreement, the invalidity pension paid to him in Germany was taxed in that Member State. Under to Article 18(1) of the Double Taxation Agreement, the occupational pension paid in Germany by Volkswagen was taxable only in Poland.

During 2006, Mr Rüffler applied to the Polish tax authorities for the income tax which he was liable to pay in Poland in respect of the occupational pension which he received in Germany to be reduced by the amount of health insurance contributions paid in Germany. The Polish tax authorities refused to grant his application on the grounds that the law provided for the possibility of reducing the income tax only by the amount of health insurance contributions paid pursuant to the Polish Law. Mr Rüffler did not pay health insurance contributions in Poland.

Mr Rüffler appealed to the Polish Courts on this treatment. The Polish Court referred the issue to the ECJ.

The Issue

Was the national provision contained in Polish Tax Law, which restricted the right to a reduction of income tax by the amount of compulsory health insurance contributions paid in Poland, i.e. did not allow contributions paid in another Member State, against the freedom of movement of persons?

The Decision

It would be incompatible with the right to freedom of movement if a citizen received, in the host Member State, treatment less favourable than that which he would enjoy if he had not availed himself of the opportunities offered by the Treaty in relation to freedom of movement.

In this particular case, only taxpayers whose health insurance contributions are paid in Poland benefit from the right to a reduction of the tax. National legislation, which disadvantages some nationals of a Member State simply because they have exercised their freedom to move and to reside in another Member State, amounts to a restriction on the freedoms conferred by the EU Treaty.

Such a restriction can be justified, under Community law, only if it is based on objective considerations independent of the nationality of the persons concerned and is proportionate to the legitimate objective of the national provisions.

It was noted that the costs of the healthcare benefits provided to German nationals resident in Poland are reimbursed to the Polish National Health Fund by the competent German insurance institution.

Hence, it should be borne in mind that resident taxpayers paying contributions to the Polish health insurance scheme and those falling within a compulsory health insurance scheme of another Member State were not in objectively different situations in terms of the taxation of their income in Poland which was capable of justifying such a difference in treatment according to the place where the contributions were paid.

The Court found in favour of the taxpayer by concluding that a Member State could not treat less favourably the residence and taxation of resident taxpayers who, in reliance on the Community rules governing the coordination of social security schemes, paid contributions to a social insurance scheme of another Member State.

The judgment is available online at http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&Submit=Rechercher&alldocs=alldocs&docj=docj&docop=docop&docor=docor&docjo=docjo&numaff=C-544/07&
datefs=&datefe=&nomusuel=&domaine=&mots=&resmax=100.