Highlights & Insights on European Taxation 2014, 284, (The Icelandic State and Atli Gunnarsson. Free movement of persons. Personal tax credits. EFTA Court)

On 27 June 2014, the EFTA Court (the Court) gave its decision in the case of The Icelandic State and Atli Gunnarsson on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States. The issue was whether the Icelandic law which disallowed the transfer of personal tax credits to the other spouse when the spouses were residents in another EEA state but only subject to limited tax liability in Iceland as non-residents was compatible with the free movement of workers as provided by the EEA Agreement and the Directive 90/35. The Court gives the following Advisory Opinion: It is not compatible with Article 1 of Directive 90/365/EEC and Article 7(1)(b) and (d) of Directive 2004/38/EC that 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 pool their personal tax credits if they lived in the home State, in a situation where one of them receives a pension from the home State, and that pension constitutes all or nearly all of that person’s income, while the other spouse has no income.