EN Official Journal of the European Union C 127/2

Multiple Complaints registered under the reference CHAP(2015) 2880

(2016/C 127/02)

The European Commission has received a series of complaints concerning the alleged discriminatory taxation of cross-border workers in Slovenia. The Commission has registered these letters under the reference CHAP(2015) 2880.

Given the high number of complaints received on this subject and in order to ensure a rapid response to those concerned, while making efficient use of its administrative resources, the Commission published the acknowledgment of receipt in the Official Journal of the European Union C 74 of 26 February 2016, p. 26 and on the internet at http://ec.europa.eu/eu_law/complaints/receipt/index_en.htm, and is publishing its reply in the same way.

1. The complaints

The complaints concern the alleged disproportionate level of income taxation in Slovenia for cross-border workers residing in Slovenia and working in Austria, which according to them, breaches the free movement of persons and workers as guaranteed by the Treaty on the Functioning of the European Union (TFEU). They indicate that they have to pay additional income tax in Slovenia, although they had already paid income tax in Austria. The complainants further state that due to this additional income tax burden, which does not apply to their co-workers from the other Member States, they are worse off. Finally, they ask the Commission to review the compatibility of the Slovenian legislation at issue, to regulate the status of taxable persons receiving their income abroad and to bring it in line with the legislation of other Member States.

2. The Commission’s successful action in dismantling discriminatory tax measures for cross-border workers

First, it is to be noted that worker mobility has been identified as one of the key potentials for increasing growth and employment in Europe. It also contributes to attaining the objectives outlined in the EU 2020 economic strategy in favour of growth and jobs and in the Communication ‘Towards a job-rich recovery’ (1). Tax obstacles remain one of the key deterrents to persons looking for work in another Member State. This is why, since 2012, the Commission has been carrying out a thorough assessment of national direct taxes to determine whether they create unfair disadvantages for workers that live in one Member State and work in another (2). Where breaches of TFEU freedoms were identified, the Commission has flagged the issues to the national authorities and, if no measures were taken to correct the national legislation, has launched infringement procedures. The Commission’s action has brought almost all of the national tax rules of the Member States into line with EU law and has thus successfully eliminated a high number of violations of the rights of cross-border workers.

3. Limited EU direct tax legislation

As regards the complaints at issue in the present case, the Commission notes the situation raised in the numerous letters of cross-border workers residing in Slovenia and working in Austria. However, the Commission considers that it does not constitute discrimination prohibited by EU law for the following reasons.

Firstly, at the present stage of development of EU law there is limited EU legislation in the area of direct taxation. In the absence of harmonisation, direct taxation (including the conclusion and enforcement of double tax agreements) falls essentially within the competence of Member States. In the exercise of this competence, however, Member States have to respect their obligations under the TFEU as interpreted by the Court of Justice of the EU. Member States are not allowed to discriminate on the basis of nationality or to create or maintain discrimination against nationals of Member States, including their own, who exercise their freedoms under the TFEU. Nor can they apply unjustified or disproportionate restrictions to these freedoms.

Secondly, there is no EU legislation determining a single State of taxation when a taxpayer has fiscal links to several Member States, such as in the present case. The attribution of taxing rights is made in double taxation agreements that are bilaterally concluded by the Member States. The application and interpretation of these agreements is not governed by EU law. Thus, the Member States remain competent and free to determine the criteria for the exercise of their taxation rights. It should be added that following the settled case-law of the Court of Justice of the EU, double taxation as such does not run contrary to EU law (3).

Thirdly, in international tax law it is a general principle that the so-called residence State (Slovenia, in this case) usually taxes the worldwide income of its residents, including the income earned from the so-called source State (Austria, in this case), but subsequently grants relief from the domestic tax due on that foreign income. This is done either by (i) not taxing the foreign income again (either by completely disregarding it, i.e. full exemption method, or by taking it into account only for the purpose of determining the rate of taxation, i.e. exemption with progression method) or by (ii) recognising that income for the purpose of determining the tax due under domestic legislation and then deducting the tax actually levied aboard from the total tax due (credit method). The Court of Justice of the EU has recognised that both of the above approaches to eliminate double taxation are in line with EU law (4).

In conclusion, due to the aforementioned lack of harmonisation of income taxation in the EU, Member States remain competent to determine the criteria both for division of their respective taxing powers and for the method of double taxation relief.

4. Double Tax Agreement between Slovenia and Austria (DTA) (5)

When a Slovenian tax resident is employed in Austria, the latter has the right to tax the earnings received there. However, under Article 15(1) of the DTA Slovenia has also retained for itself the right to tax the income of its tax residents received from ‘dependent work’ carried out in Austria. As both Slovenia and Austria can tax the employment income, these earnings may be taxed in both countries. Any double taxation is however avoided in Slovenia by Article 24(2) DTA which provides that ‘where a resident of Slovenia derives income (…) which, in accordance with the provisions for this Agreement may be taxed in Austria, Slovenia shall allow as a deduction from the tax on the income of the resident, an amount equal to the income tax paid in Austria.’ Accordingly, the DTA provides that for the purpose of avoiding double taxation Slovenia shall apply the credit method explained above.

Thus, where the tax due in Austria is lower than the corresponding tax in Slovenia, the taxpayer will always have to pay the difference. As a result, he will pay the same total amount of taxes, Austrian and Slovenian added up, as he would have had to pay if he were taxed only in Slovenia. He is therefore not worse off than if he had earned all of his employment income in Slovenia. It follows that no infringement of the freedom of workers is at hand.

It also follows from the above mentioned lack of harmonisation of income taxation in the EU as well as from the settled case-law of the Court of Justice, that the fact that other Member States have concluded DTAs with Austria which differ from the one concluded with Slovenia, providing for a different attribution of taxing rights or for an exemption method of relieving double taxation, does not lead to any breach of EU law by Slovenia or any other Member State.

5. Proposed closure of this case

Taking into consideration the above elements, the Commission services will close the case unless the complainants submit new information which would warrant a further assessment within four weeks from the publication of this notice.

(1) COM(2012) 173 final of 18.4.2012.

(2) See Commission’s press release IP/12/340 available at http://europa.eu/rapid/press-release_IP-12-340_en.htm

(3) See Cases C-128/08 Damseaux and C-67/08 Block.

(4) See Case C-336/96 Gilly.

(5) Convention between the Republic of Austria and the Republic of Slovenia for the avoidance of double taxation with respect to taxes on income and on capital concluded on 1 October 1997 and in force since 1 February 1999.