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Brussels, 29 October 2009

Direct Taxation: The European Commission refers Estonia to the Court of Justice over its discriminatory taxation of non-residents' pensions

The European Commission has decided to refer Estonia to the Court of Justice over its discriminatory taxation of pensions paid to non-residents. Under Estonian rules, pensions paid to low-income, non-residents are taxed at a higher rate compared to pensions paid to low-income, resident taxpayers.

The decision concerns non-resident pensioners with a modest global income which does not exceed the tax exemption allowances applicable to pensioners in Estonia (EEK 63 000 or ca EUR 4026). If such taxpayers receive almost all their income in Estonia, they can benefit from the Estonian personal allowances and do not have to pay tax on their income. However, non-resident taxpayers who earned less than 75% of their global taxable income in Estonia cannot benefit from the personal deductions available to residents.

The Commission is of the opinion that, in these particular circumstances, the Member State of residence is not in a position to take account of the taxpayer's personal circumstances. Therefore, Estonia should calculate the tax amount due in Estonia taking into account the totality of his income and also make the same personal deductions available to resident and 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 extended 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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