Here is an interesting judgment coming from the EFTA Court in Case E-26/13 The Icelandic State v Atli Gunnarsson on 27 June 2014.
The case concerned Mr. Gunnarsson and his wife, Icelandic citizens, who resided in Denmark from 24 January 2004 to 3 September 2009. At the time, the couple’s total income consisted of unemployment benefit that Mr Gunnarsson’s wife received in Iceland and of Mr Gunnarsson’s own disability benefit together with benefit payments he received from two Icelandic pension funds. Mr Gunnarsson paid taxes on his income in Iceland, and claimed that he was overcharged in the period from 1 May 2004 to 1 October 2009 because he was prevented from utilising his wife’s personal tax credit while they resided in Denmark. Under the Icelandic tax legislation applicable at the time, the couple had to reside in Iceland for Mr Gunnarsson to be entitled to utilise his wife’s personal tax credit in addition to his own.
Against this background, the Supreme Court of Iceland requested an advisory opinion from the EFTA Court (which is equivalent to the preliminary reference procedure in the Court of Justice) regarding the interpretation of Article 28 EEA Agreement and Article 7 of Directive 2004/38 in a case where an EEA State does not give spouses who have moved to another EEA State the option of pooling their personal tax credits in connection with the assessment of income tax, whereas they would be entitled to do so if they lived in the home State, especially given the fact that the EEA Agreement does not contain any provision corresponding to Article 21 TFEU on Union Citizenship.
The EFTA Court starts from the fact that the incorporation of the Residence Directive into the EEA Agreement became effective on 1 March 2009 with the simultaneous repeal of Directive 90/365. Thus, the facts of the case taking place from 1 May 2004 to 1 October 2009 are to be assessed under first the one directive, then the other.
The EFTA Court then recalls that Article 28 EEA on free movement of workers cannot be relied upon by persons who have carried out all their occupational activity in the EEA State of which they are nationals. Directive 90/365, however, extended the right to reside in another EEA State to persons who have ceased their occupational activity, including those who have not carried out any economic activity in another EEA State during their working life. In particular, residence was granted to a formerly economically active person provided that he received a pension or benefits of an amount sufficient for him not to become a burden on the social security system of the host State. Furthermore, the spouse of such a person had a derived right of residence, according to that Directive.
Directive 90/365 was intended in particular to create a right of residence in an EEA State other than the home State of the person concerned. That presupposed, reasoned the EFTA Court, that the home State is prohibited from hindering the person concerned from moving to another EEA State.
The substance of Article 1 of Directive 90/365 has been maintained in Article 7(1)(b) of Directive 2004/38, argued the EFTA Court, and there is “nothing to suggest” that the latter provision must be interpreted more narrowly than the former with regard to a right to move within the EEA from the home State. It is of no consequence, says the EFTA Court, that the rights of economically inactive persons in Directive 2004/38 were adopted by the Union legislature on the basis of Article 21 TFEU on Union Citizenship. What is of importance is the fact that when Directive 90/365 was made part of the EEA Agreement in 1994, this Directive conferred rights on economically inactive persons.
Thus, the EFTA Court observes, it is not a matter of Union Citizenship rights (indeed Directive 2004/38 cannot introduce rights into the EEA Agreement based on the concept of Union Citizenship) but it is a matter of “acquired rights”, i.e. individuals cannot be deprived of rights they had already acquired under the EEA Agreement before the introduction of Union Citizenship in the EU. These acquired rights must therefore, argues the EFTA Court, be considered as maintained in Directive 2004/38.
Thus, the EFTA Court concludes that, Article 1(1) of Directive 90/365 and Article 7(1)(b) of Directive 2004/38 confer on a pensioner who receives a pension due to a former employment relationship, but who has not carried out any economic activity in another EEA State during his working life, not only a right of residence in relation to the host EEA State, but also a right to move freely from the home EEA State. The latter right prohibits the home State from hindering such a person from moving to another EEA State. The spouse of such a pensioner has similar derived rights.
On the basis of the prohibition on discrimination in EEA law less favourable tax treatment of a pensioner and his wife who have exercised the right to move freely within the EEA in comparison to a resident taxpayer and his wife, is not compatible with Article 1(1) and (2) of Directive 90/365 and Article 7(1)(b) and (d) of Directive 2004/38, where the pension received by the pensioner constitutes all or nearly all of that person’s income, unless objectively justified. However, the fiscal cohesion and the effectiveness of fiscal supervision in Iceland do not constitute grounds allowed under either Directive as they are of merely economic nature.
What is remarkable about this judgment is that it is the first time (unless I am missing something and pls correct me) that Directive 2004/38 is interpreted as granting “exit rights”, i.e. rights to be relied upon against the “home State” of the person making use of its right to free movement. Usually when a person needs to invoke its right to free movement against his/her home State, the EU Courts make use of the fundamental freedom of Article 45 TFEU when the person is a “worker” or of Article 21 TFEU on Union Citizenship.