EU Launches Multi-Year Review Of Cross-Border Taxation

by Ulrika Lomas, Tax-News.com, Brussels

23 December 2010

The European Commission has published a Consultation, which marks the commencement of a comprehensive multi-year review of the major cross-border issues faced by EU citizens, and proposes solutions for them.

Explaining the rationale of the review, launched on December 20, the Commission stated: “When individuals move or work or invest abroad, they can encounter double taxation and other difficulties such as in claiming tax refunds and in obtaining information on foreign tax rules. The Communication announces plans in some areas such as cross-border income, inheritance taxes, dividend taxes, car registration taxes and e-Commerce. Today's Communication also aims to see where further action could be taken, at both EU and national level, to make member states' tax systems more compatible so that citizens will not be deterred from engaging in cross-border activities.”

Commenting, Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit, added:

"Taxation has a crucial role to play in strengthening the Internal Market and re-building a strong and sustainable European economy. Good tax policies can promote employment, investment and growth. Today's Communication is another step forward in overturning tax obstacles and promoting fair taxation within the EU, so that citizens can enjoy all the benefits that the Single Market has to offer."

According to the Commission, each year a substantial proportion of all complaints and queries received from EU citizens relate to cross-border tax issues. The Commission said these complaints cover a whole range of issues from the difficulties caused by complex foreign tax rules, to lack of clear information for foreigners, to conflicting systems in different member states.

Taxpayers' correspondence to the Commission often highlights recurrent issues, according to the Commission's report. These issues include:

• Cross-border workers facing difficulties in getting tax allowances, relief and deductions from foreign tax authorities, and are frequently subject to double taxation;
• Citizens who buy foreign real estate often missing out on tax exemptions or are obliged to pay higher property taxes than residents, while those moving or buying cars cross-border face double registration taxes;
• People with foreign investment income find it difficult to claim entitlements to relief from withholding taxes applied by foreign countries;
• Many people with foreign pension funds experience problems with deductions and cross-border transfers, while inheritances from another member state are often subject to higher succession duties or double taxation; and,
• E-shopping is also severely hampered by tax obstacles such as complicated Value-Added Tax (VAT) rules and reporting requirements, with the result that only 7% of goods traded within the EU are bought online from another member state.

In addition, the Commission has reported that half of the tax infringement proceedings that it launches every year in the tax area relate to citizens' complaints. However, infringements do not solve everything, the Commission said. "The best way to solve issues such as double taxation and administrative complexities lies in proper cooperation between member states," the report argues.

According to the Communication, member states should design and implement tax measures and practices in a way which does not deter citizens from engaging in cross-border activities. They should also coordinate more closely with each other in order to prevent mismatched tax rules from creating obstacles and barriers to the International Market.

Alongside the publication of the report the Commission intends to ramp up its activities to help make member states' tax systems more compatible, and to propose concrete measures to prevent or remove tax problems for EU citizens.

With this object, the Commission, in its Communication, outlines a number of initiatives in this field, including:

• A Communication on double taxation, scheduled for publication in 2011, examining the extent and gravity of this problem across the EU, followed by legislative proposals in 2012, proposing solutions;
• Proposals in mid-2011 to address cross-border inheritance tax problems;
• Measures to resolve the double taxation that can arise when a car that is first registered in one member state and then moved to and re-registered in another member state;
• The extension of a "one-stop-shop" system for e-Commerce, in order to make reporting obligations for businesses much simpler and easier for them to offer goods and services online to foreign consumers. Obstacles to e-Commerce will also be addressed within the review of the EU's VAT System for which a consultation is currently open; and
• Proposals in 2012 to solve problems related to the taxation of cross-border dividend payments.

In addition, the Commission intends to promote a wide dialogue amongst national authorities and stakeholders to see what else could be done to simplify tax measures to the benefit of citizens and the Internal Market. Ideas include standardised tax claim and declaration forms throughout the EU; single info-points where workers and investors could get clear and reliable tax information; and special tax measures at national level to cater for the needs of mobile and border workers.

The Commission has said it is to comment on its progress in tackling cross-border tax problems within its Citizenship report, due for publication in 2013.

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