Germany Asked To Amend Tax Treatment Of Expats

by Ulrika Lomas, for LawAndTax-News.com, Brussels

27 March 2007

The European Commission on Monday formally requested Germany to modify the withholding tax system applied to the income of certain categories of non-resident taxpayers – particularly artists and sportsmen.

Under German law, a flat-rate withholding tax is applied to the total income without any possibility of deducting business expenses. A subsequent refund procedure allows non-resident tax payers to ask for reimbursement of the overpaid tax.

However, the Commission considers the tax deduction at source and refund procedure to be incompatible with the principle of freedom to provide services in the Internal Market.

It also argues that the prohibition of the deduction of business expenses from gross receipts and prohibition of the deduction of indirect expenditure could in many cases result in an objectively unjustified higher taxation of such non-residents as compared with residents.

If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the European Court of Justice.

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