ECJ Allows Tax Reductions For Health Insurance

by Ulrika Lomas, Tax-News.com, Brussels

28 April 2009

Tax authorities in the European Union cannot refuse to reduce income tax by the amount of health insurance contributions paid by an individual in another member state under EU law, according to the European Court of Justice (ECJ).

The decision by ECJ judges, published on April 23, came in a case referred by the Regional Administrative Court in Wroclaw, Poland, after a German national residing in Poland challenged the tax authority’s decision to refuse his request that income tax payable in Poland on his occupational pension received in Germany be reduced by the amount of the health insurance contributions which he has paid in Germany.

This application was rejected by the Polish tax authorities because under Polish legislation only health insurance contributions paid to a Polish insurance institution can be deducted from income tax. However, in a statement regarding its judgment, the ECJ said that such a limitation in law “constitutes a restriction on the freedom of movement and residence in the territory of the member states which is not objectively justified.”

“The Court finds that rules such as those provided for under Polish law introduce a difference in the treatment of resident taxpayers according to whether health insurance contributions capable of being deducted from the amount of income tax due in Poland have or have not been paid under a national compulsory health insurance scheme. Under those rules, only taxpayers whose health insurance contributions are paid in the member state of taxation benefit from the right to a reduction of income tax.

“The Court concludes that a member state cannot treat less favourably the residence and taxation of resident taxpayers who, in reliance on the Community rules governing the coordination of social security schemes, pay contributions to a social insurance scheme of another member state.”

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