Deductibility of Health Insurance and Social Security Contributions

Abstract

The article analyses two recent European Court of Justice (ECJ) decisions (C-544/07, Rüffler, and C-314/08, Filipiak) addressing the question of whether a Member State can limit the deductibility of social security or health insurance contributions under income tax law to those paid to a domestic institution. In the first case, the ECJ found a violation of the right to free movement; in the second case, a violation of the freedom of establishment and the freedom to provide services. The article follows the structure of the ECJ's decisions, providing critical analysis of all steps of the ECJ's reasoning and relating the decisions to established principles of European law on direct taxation. Although agreeing with the outcome of the decisions, the article highlights important issues with regard to EU law requirements on Member State direct taxation regimes that the decisions do not address or do address but not in an entirely convincing way. Focal points of the analysis include the criteria of identity or comparability of the health care and social security systems and contributions, the different possibilities of the allocation of personal deductions to various Member States, and the limitations as to the deductible rate or the deductible amount under EU law (partial deductibility).