EN Official Journal of the European Union C 63/42

Action brought on 22 January 2010 — European Commission v Republic of Estonia

(Case C-39/10)

2010/C 63/66

Language of the case: Estonian

Parties

Applicant: European Commission (represented by R. Lyal and K. Saaremäel-Stoilov, acting as Agents)

Defendant: Republic of Estonia

Form of order sought

— declare that the Republic of Estonia is in breach of its obligations under Article 45 of the Treaty on the Functioning of the European Union and Article 28 of the Agreement on the European Economic Area, since it has not provided in its legislation for granting exemption from income tax on individuals to non-residents whose total income is so small that an exemption from income tax would apply to them if they were resident taxpayers;

— order the Republic of Estonia to pay the costs.

Pleas in law and main arguments

The Commission received a complaint from a national of the Republic of Estonia resident in the Republic of Finland about the levying of income tax on his pension originating from Estonia. He complained that the Republic of Estonia did not apply, in relation to his pension, the usual income-tax-free threshold allowed to residents, nor the supplementary income-tax-fee threshold allowed to resident pensioners.

The complainant receives half his income in the form of a pension from the Republic of Estonia and the other half as a pension from the Republic of Finland. His income is very small, and if he received all his income from one and the same Member State, it would be taxed in a lower amount or not taxed at all.

It follows from consistent case-law of the Court of Justice that, while direct taxation is within the jurisdiction of the Member States, they must exercise that jurisdiction in harmony with European Union law and avoid discrimination on grounds of nationality.

The fact that a non-resident taxpayer who has made use of freedom of movement for workers is not allowed a tax exemption which is available to resident taxpayers constitutes different treatment of non-residents and residents, as well as a restriction of freedom of movement across borders.

May, and to what extent may, such different treatment be regarded as appropriate and justified as a result of the difference of residence?

In a situation in which the taxpayer’s worldwide income is so low that the source State would not tax the income at all or would tax it in a smaller amount if a resident were concerned, the Commission considers that Member States must, when taxing non-resident individuals, take their personal and family circumstances into account to the extent that their equal treatment with resident taxpayers is ensured.

If the legislation of a Member State lays down a threshold below which it is considered that the taxpayer does not have the resources to finance public expenditure, there is no basis for differentiating between taxpayers whose income is below the defined threshold according to their residence.

The Commission takes the view that the provisions of the income tax law of the Republic of Estonia which do not make it possible to grant exemption from income tax on individuals to non-residents who receive half of their income from Estonia and the other half from some other Member State, and whose total income is so small that exemption from income tax would apply to them if they were resident taxpayers, are contrary to Article 45 of the Treaty on the Functioning of the European Union and Article 28 of the Agreement on the European Economic Area.