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Brussels, 16 October 2008

Direct Taxation: The European Commission requests Estonia to amend its discriminatory taxation of pensions paid to non-residents

The European Commission has sent Estonia a formal request to amend its rules that provide for higher taxation of pensions paid to non-residents in comparison to pensions paid to resident taxpayers The request takes the form of a reasoned opinion (second step of the infringement procedure provided for in Article 226 of the EC Treaty). If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the Court of Justice of the European Communities.

The reasoned opinion concerns non-resident pensioners with a modest income which is comparable to the tax exemption allowances applicable to pensioners in Estonia (EEK 63 000 or ca EUR 4026). If such taxpayers receive all their income in Estonia, they can benefit from the Estonian personal allowances and do not have to pay tax on their income. However, where the income earned in Estonia does not exceed 75% of their worldwide taxable income, non-resident taxpayers are not able to benefit from the personal deductions available to residents.

The Commission is of the opinion that, in these particular circumstances, Estonia cannot assume that the Member State of residence is in a position to take account of the taxpayer's personal circumstances and should therefore also make the personal deductions available to such non-resident taxpayers.

The Commission considers that the restrictive application of personal allowances in the Estonian legislation constitutes a discrimination prohibited by Article 39 the EC Treaty concerning the free movement of workers, as the favourable treatment is not open to non-resident taxpayers who are effectively in the same situation as resident pensioners.

The Commission's case reference numbers are 2006/4221 and 2008/4640.

For the press releases issued on infringement procedures in the taxation or customs area see:

For the latest general information on infringement measures against Member States see:

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