Cross border taxation of citizens

10 April 2014
by eub2 -- last modified 10 April 2014

The European Commission is launching two public consultations and creating an expert group to gather ideas on how to tackle any tax obstacles that hinder the cross-border activity of individuals in the Single Market. At the same time, the Commission has launched new web pages aimed at providing useful tax information to individuals who are active across borders.

What is the aim of the public consultation on tax problems faced by EU citizens who are active across borders within the EU?

The public consultation is designed to inform the Commission about the actual tax problems encountered by individuals in cross-border situations and about any good practices that EU countries' tax administrations apply in order to prevent these problems. The Commission wishes to use the information provided in the replies to come up with recommendations for all EU tax administrations. The period of consultation is from 10 April 2014 to 3 July 2014.

What is the aim of the public consultation on inheritance tax problems?

The main objective of the consultation is to find out what, if any, inheritance tax problems individuals face when they inherit across borders. In 2011 the Commission presented a Recommendation to Member States on how, by some small adjustments to their national laws, they could prevent double taxation of inheritances and gifts in the Single Market. In consulting the public the Commission would like to see how the situation has evolved since then. The information received will be used to prepare a report on the progress made in removing double taxation of inheritances in the EU. The period of consultation is from 10 April 2014 to 3 July 2014.

What figures exist on the amount of cross-border activity of EU citizens?

A Eurobarometer 2011 survey found that 3% of working-age EU citizens have moved from their original country to live in a different EU country. It also found that almost one in three EU citizens (30%) purchase offline and online goods from businesses based in other Member States.

Eurostat statistics from the end of 2012 show that there were around 14.1 million EU citizens residing in an EU Member State other than their own i.e. 2.8% of the total EU population. 10% of the population (aged 15 and over) have lived and worked in another country at some point in the past. For 38% of that group (of persons having who have experience of mobility), the last move was for less than a year (i.e.: 'a few weeks or less' for 8% and from 'a few months to less than 1 year' for 30%); 13% stayed from '1 to less than 2 years'. Close to one European in five (17%) envisage working abroad at some time in the future.

What is the purpose of the new web pages for citizens?

Citizens can get basic information about cross-border tax issues on the web site of Your Europe. The new web pages published on the web site of the Directorate General for Taxation and Customs Union are intended to provide further and more in-depth information about citizens' rights under EU law in the tax area and how citizens can find more information or get in contact with the competent services within national tax administrations.

What is the purpose of the expert group?

The Commission wants to obtain from the expert group further information on the tax problems that individuals are facing when migrating, working cross-border or investing in another EU country and their scale, together with ideas for solutions. The problems identified so far include lack of information that would assist foreign citizens in fulfilling their tax obligations in another country, language barriers and difficulties in getting the right documents (certificates, receipts statements). Some EU countries' tax authorities deal with those problems better than others and the group should also identify any good practices that exist. The group will also discuss the progress and the best ways to follow up on the Commission's Recommendation regarding relief for double taxation of inheritances. Stakeholders are invited to submit their applications on or before 2 May 2014.

What is the Commission doing about tackling double taxation in the Single Market?

The Commission presented a Communication on double taxation in 2011 outlining the double taxation problems that can occur when individuals or companies are active across borders within the EU as well as possible solutions that could be considered. It is now working further on ideas for solutions. It presented a Recommendation to Member States in the same year on how they could tackle the specific problems of double taxation in the field of inheritances. The Commission hopes to get further information on double taxation problems in the personal tax and inheritance tax areas and possible solutions in the responses to the public consultations and in the work of the expert group launched today.

What are the planned next steps?

The Commission services will analyse the information about good practices gathered through the public consultation and the work of the expert group as well as through studies carried out by external experts and decide on appropriate next steps such as recommending that all EU countries apply the same good practices in order to eliminate cross-border tax obstacles.

As regards inheritance tax, the Commission announced in 2011 that it would prepare a report three years later on the progress made in eliminating double taxation of inheritances within the EU.

Examples of real cross-border tax problems

The examples below are real life examples that were reported to the Commission via Solvit

Income tax

1. An artiste gave a concert in country A and the agency organising the event collected and paid tax on her behalf to the tax authorities of country A. The artiste is resident in country B and she is obliged to report and pay taxes on all her income in country B. She was entitled, under the double tax treaty in place between country A and country B, to have the tax paid in country A deducted from the amount of tax due in country B. But the tax authorities of country B told her that for this to happen she would have to give them both a certificate confirming that taxes were paid in country A and a sworn translation of that certificate. The cost of a sworn translation would only have been slightly lower than the amount of the tax paid in country A. So the artiste decided not to present the certificate and ended up paying taxes in both countries.

2. A retired citizen of Denmark moved to France a few years ago. She receives a pension from Denmark. Since there is no treaty for the avoidance of double taxation between the two countries, both countries require her to pay tax on her pension. Since there is currently no solution to this problem she has decided to move back to Denmark.

Inheritance tax

A Danish national inherited a summer house in Portugal from her uncle who was resident in Denmark before his death. Under Portuguese law transfers of Portuguese property on the occasion of death are subject to stamp duty so the Danish heir had to pay Portuguese stamp duty amounting to 10% of the net value of the summer house. In addition, she had to pay Danish inheritance tax on the Portuguese summer house because, under Danish rules, all property of the deceased, wherever situated, is taxable if the deceased was a Danish resident. The Portuguese stamp duty could not be credited against the Danish inheritance tax because the Portuguese stamp duty is a transfer tax and not strictly speaking an inheritance tax. Hence the Danish heir had to pay taxes twice on the same real estate.

Difficulties with tax administrations

1. A French airline pilot who is resident in France works for an airline company based in Ireland. Due to different interpretations of the provisions of the tax treaty between France and Ireland the pilot is required to pay tax on his income in both countries. As in all cases of double taxation, the taxpayer can ask the tax authorities of the countries involved to resolve the matter between them via the "mutual agreement procedure" that is set out in tax treaties. However, this procedure takes a long time and may not result in a satisfactory solution as the countries are not legally obliged to resolve the matter.

2. A Slovak truck driver residing in country A and working for an employer in country A drives his lorry all over Europe, but spends on average four months of a year in country B, six months in country C and two months in country A. His employer reports his wages in country A and the truck driver as a result pays tax in country A on his total income for the year. However, the tax authorities of country B and country C have recently requested the truck driver to pay tax in those two countries. They have also asked him to present a certificate proving his residence in country A. The truck driver therefore now has administrative obligations in several different countries and, on top of that, faces being doubly taxed on his annual salary, unless country A agrees to refund him some tax on account of tax he has to pay in countries B and C.

3. A Swedish sailor is employed on a vessel registered in Portugal. She is paying tax on her income in Sweden. She spends her holidays in Portugal every year and has a home there. The tax authorities of Portugal have informed her that she has to pay tax on her income in Portugal. She has tried to prove to them that she pays tax on her salary in Sweden but the authorities of Portugal do not accept the documents that she has received from the tax authorities of Sweden. She may have to pay double tax on her salary if the Swedish tax authorities do not believe she should have paid tax in Portugal and therefore do not allow tax relief for the Portuguese tax.