EN    EN EN 
 
EN    EN  EUROPEAN COMMISSION 
Brussels, 20.12.2010 
SEC(2010) 1576 final 
  
COMMISSION STAFF WORKING DOCUMENT 
Accompanying Commission Communication "R emoving cross-border tax obstacles for  
COM(2010) 769 
 
EN    EN COMMISSION STAFF WORKING DOCUMENT 
Accompanying Commission Communication "Removing cross-border tax obstacles for 
EU citizens" 
Instruments available to EU citizens fo r resolving cross-border tax obstacles and 
examples of resolved case s of tax discrimination 
1. I NTRODUCTION  
It is inevitable that EU citizens investing, wo rking or operating across borders will have to 
contend with two or more sets of tax rules that  can differ quite considerably. This is because 
EU Member States exercise so vereignty in the tax area, excep t to the extent that EU-wide 
rules exist (such as in the VAT and excise duties areas) and they are free to establish the tax 
rules and rates that they wish, accord ing to their political preferences.  
However, Member States are obliged under EU law to ensure that their tax rules do not 
discriminate between EU citizens on the basis of  nationality. Nor can Member States, via their 
tax systems, impose unjustified restrictions to th e exercise by EU citizens of the fundamental 
Treaty "freedoms". One of the great achievements of the EU has been to  create a frontier-free 
area within which (1) people, (2) goods, (3) services and (4) capita l can all move around 
freely. The Court of Justice of the EU has in many cases ruled that elements of Member 
States' tax laws constituted a restriction to these freedoms.  
The European Commission, as guardian of the Tr eaty, is responsible fo r taking action against 
any Member States that apply tax ru les that conflict with EU law.  
Any EU citizen has at his/he r disposal easy-to-u se ways of contacting the Commission to 
enquire or make a complaint about an elemen t of the tax law of an EU Member State 
contravenes EU law. 
2. R EDRESS AT NATIONAL LEVEL  
It is national courts and administrative bodies th at are primarily responsible for ensuring that 
national legislation complies with EU law. 
Therefore, an EU citizen that considers a partic ular measure (law, regula tion or administrative 
action) or administrative practice of a Member State as incompatible with EU law, could, 
either prior to or in parallel  with his complaint to the Comm ission, seek redress from national 
administrative or judicial au thorities (including national or regional ombudsmen) and/or 
through the arbitration and conciliation proce dures available.  
It is advisable for citizens to use those nationa l means of redress because of the advantages 
they may offer. 
By using the means of redress available at nati onal level an EU citizen should, as a rule, be 
able to assert his rights more directly and more personally than he could following 
infringement proceedings successfully brought by the Commission which may take some time.  
Only national courts can issue orders to admi nistrative bodies and annul a national decision.  
It is also only national courts which have the power, where appropriate, to order a Member 
 
EN    EN State to make good the loss sustained by individua ls as a result of the infringement of 
Community law attributable to it.  
3. H OW THE EUROPEAN COMMISSION HELPS EU CITIZENS TO TACKLE CROSS -
BORDER TAX OBSTACLES  
3.1 Informal Channels 
As announced in the EU Citizenship Repor t 2010 (COM (2010) 603), the Commission is 
currently developing a one-stop shop inform ation point on the ri ghts of citizens and 
businesses in the EU. Citizens will be able to us e its services from anyw here in the EU to find 
answers to questions they may have about very  practical issues rela ted to taxation. The one-
stop shop consists of: 
• The EU Europe Direct Contact Centre1, which offers a free te lephone and e-mail service 
which citizens can use from anywhere in the European Union to find answers to questions 
they may have about the EU and EU-related is sues, including about very practical issues 
related to taxation.  
• The Europe Direct Information Centres2, which are located in all the EU Member States 
and which EU citizens can visit, call or e-mail for information  
• The Your Europe  web portal which contains user-frie ndly information for mobile citizens 
in the European Union. In addition to inform ation, Your Europe also guides users to the 
most appropriate assistance services, notably 
• Your Europe Advice3 (until recently called the Citi zens Signpost Service or CSS) 
which is an EU legal advi ce service for the public.  
• SOLVIT4, an EU problem solving netw ork closely associated with Your Europe 
Advice , which tries to resolve problems betw een individuals or companies and the 
authorities of another country in cases wh ere there is a possible misapplication of 
EU law. The SOLVIT network will end eavour to resolve th e matters without 
resorting to legal proceedings and is successful in over 90% of cases. 
Finally, EURES5, a cooperation network between the European Commission and the Public 
Employment Services of the Member States  of the European Economic Area, provides 
information, advice and recruitment/placement services for the benefit of workers and employers. EURES advisers working in EURES cross-border partnerships – composed of 
Public Employment Services and social partners  organisations – offer client services to 
mobile cross-border workers in order to meet their specific needs for information and advice 
in areas such as social security and taxation.  
3.2. Formal Channels 
Furthermore, all EU citizens ha ve a right to lodge a complain t with the European Commission 
about any practice of an EU Memb er State believed to be incompatible with EU law. Practical 
information on the steps to be followed can be found at the follow ing Internet link - : 
http://ec.europa.eu/taxation_customs/common/rights/index_en.htm
.  
                                                 
1 http://ec.europa.eu/europedirect/index_en.htm 
2 http://europa.eu/europedirect/index_en.htm 
3 http://ec.europa.eu/citizensrights/front_end/index_en.htm 
4 http://ec.europa.eu/solvit/ 
5 http://ec.europa.eu/eures/ 
 
EN    EN Under an EU Pilot project6 that is operating in  conjunction with 18 Memb er States since April 
2008 to resolve problems more quickly, th e Commission may forw ard the enquiry or 
complaint to the Member State authority co ncerned with any questions or indications 
identified by the Commission service. The Memb er State has to reply within 10 weeks. The 
Commission will not identify the complainant unl ess he/she has specifically authorised the 
Commission to do so.  
If the complaint appears to be founded, and th e Pilot approach does no t achieve results, the 
European Commission will consider making use of its Treaty powers to take legal action 
against the Member State concerned by openi ng infringement proceedings. Many Member 
States will change the offe nding law following the Commission' s action. However, if, a given 
Member State fails to change its national law although the Commission has formally stated its 
incompatibility with EU rules, the Commission can refer the Member State to the Court of 
Justice. Where the Court of Justice finds that the Treaty has been infringed, the Member State 
in question is required to take the measures n ecessary to conform. The EU Treaty also gives 
the Commission power to act against a Member State that does not comply with a previous 
judgment of the European Court of Justice and allows the Commission to ask the Court to impose a financial penalty on the Member State concerned. 
 
4. E XAMPLES OF AREAS WHERE MEMBER STATES ' TAX LAWS HAVE BEEN FOUND TO 
CONFLICT WITH EU LAW  
The following overview describes cases of disc rimination in the tax area that have been 
resolved, either via a request by a national court of a Member State for a preliminary ruling of 
the Court of Justice or via infringement pr oceedings launched by the European Commission. 
The overview will help both citizens and Member St ates to understand the principles involved 
in tax cases that have been examined and the impact of EU law on national tax laws.  
Cross frontier workers 
Example:  Christophe lives in Belgium and works in  Germany. His wife Aurélie lives with 
Christophe in Belgium and does not work so Ch ristophe's salary in Germany is their main 
source of income. Christophe pays taxes in Germany where he works. Although not tax 
resident in Germany, Christophe should be entitled to obtain al l the tax deductions and reliefs 
against his tax in Germany that he would obtain if he lived in Germany. This is because his global family income is mainly from Germany sources.  
 
If a citizen who lives  in one state earns all or almost a ll of his income in another State the 
other state should treat him as a resident; that is  the other state should give him the same tax 
relief and tax exemptions it would give to a re sident, following the Court of Justice's decision 
in the Schumacker  case7. In a number of infringement cases , Member States granted personal 
allowances only to nationals or residents. Fo r example, sometimes a joint tax assessment of 
spouses was granted only to residents, even wh ere non-residents earned all or almost all of 
their income in the Member State granting the joint assessment option. In other cases, frontier 
workers did not qualify for certain other allowan ces, such as family or pension allowances.  
Pensioners and students 
                                                 
6 See http://ec.europa.eu/community_law/infringements/application_monitoring_en.htm   
7 Case C-279/93, Finanzamt Köln-Altstadt v Schumacker , judgment of 14 February 1995 
 
EN    EN Example:  Paivi who is a Finnish pensioner lives for mo st of the year in Spain so is resident 
for tax purposes in Spain. Her sole income is  derived from a pensi on and investments in 
Finland. Finland must allow Paivi the same tax de ductions as those available to residents, and 
cannot apply higher tax to her income than it  would apply if she resided in Finland.  
 
The principle of the Schumacker  case mentioned above also applies to pensioners and 
students. So students or pensioners  earning all or almost all of their income in a state in which 
they are not resident should be tr eated for tax purposes by that state as if they were residents 
of that state and get the same deductions a nd allowances as resi dents of that state8.  
For example, one Member State provided for a scheme of pension savings accounts. Income 
paid out to a pensioner from this scheme was ex empt from personal income tax but only if the 
pensioner was resident in that  Member State. In reaction to the Commission's request the 
Member State concerned has extended the exempti on to individuals reside nt in all EEA states.  
Note , however, that, under the terms of most double taxation treaties between EU Member 
States, a pension will only be taxable in the country where the pensioner is actually resident. If he has moved to another country on retire ment, the pension might only be taxable there. 
The exception to this is a pensioner receiving a public sector pension (if he worked as a civil 
servant). He will, normally, under the terms of most bilateral dou ble taxation treaties 
concluded between Member States, be taxable on his pension only in the country that pays the 
pension, irrespective of hi s place of residence.  
Higher taxation of non-nationals 
In a number of Member States workers of a fore ign nationality were taxe d in situations where 
nationals would be exempt or partly exempt. For example, a Member State imposed a higher 
tax on the income of sailors and pilots who we re nationals of other Member States than on 
income of national sailors and pilots performi ng the same duties, who indeed benefited from 
full or partial exemption. As a result of th e action taken by the Commission, the Member 
States in question extended the favourable regime to non-national workers and the workers 
were allowed to request reimburse ment for previous tax years.  
Denial of tax deductions for contributions to foreign pension funds (or foreign life 
assurance or sickness funds) 
Example:  Sven, a Swedish national employed in Denmar k, is continuing to pay premiums to a 
Swedish pension fund under a contract that he concluded prior to his arrival in Denmark. 
Denmark must allow Sven a tax deduction agai nst Danish tax due on his employment income 
in respect of the premium he pays to the Sw edish pension fund, if it would allow such a tax 
deduction if Sven paid the premium to a Danish pension fund.  
 Many Member States did not give citizens tax re lief for contributions paid to foreign pension 
funds, whereas they would allow relief for contributions paid to domestic funds. The Commission therefore launched nine infringement procedures. Seven Member States 
complied after the formal notice or reasoned op inion while two Member States had to be 
                                                
 
8 Wallentin, Case C-169/03 for students and Turpeinen, Case C-520/04 , for pensioners. 
 
EN    EN referred to the Court of Justice. The C ourt ruled as suggested by the Commission9: if domestic 
pension contributions qualify for tax relief, then contributions pa id to pension funds elsewhere 
in the European Economic Area shou ld also qualify for tax relief.10 As a result of these cases, 
mobile workers can now remain in their home pension schemes if they wish and 
multinationals can set up pan-European pensio n funds. The same applies for contributions 
made to foreign life assurance or sickness schemes. 
Denial of tax deductions for school  fees paid to a foreign school 
The Commission has taken action against some Member States which did not allow a tax 
deduction for school fees paid to foreign school s while fees paid to local schools were tax 
deductible. These restrictions place at a disa dvantage both foreign sc hools which wish to 
provide services and parents who move abro ad while remaining subject to unlimited tax 
liability in their home Member State. These ru les therefore violate EU  law rules concerning 
people’s rights to reside, work and establish themselves in other EU Member States and 
concerning schools’ right to provide services in another Member State. The Court ruled 
against a Member State in one case on this point and other Member States changed the 
relevant law before the matter went to Court. 
Denial of tax deductions for mortgage interest paid to a foreign bank or in respect of a 
foreign property 
Example:  Pedro is a Spanish national working in Luxembourg and has taken out a mortgage 
with a Spanish bank to buy a house in Spain. Un der EU law, the Luxembourg tax authorities 
will have to give Pedro a mortgage deduction in respect of the interest paid to the Spanish bank on his Spanish house, if they would give Pe dro such a tax deduction if he was paying the 
mortgage interest to a Luxembourg bank or  in respect of a house in Luxembourg. 
 
In Svensson & Gustavsson
11 the Court ruled that where mortgage interest to domestic banks is 
tax deductible, the same should apply to interest  paid to a bank established elsewhere in the 
EU. The Commission has opened a number of in fringement cases on this issue. In all 
instances the Member States concerned have changed their law. 
Some Member States allowed a deduction for mortgage interest only in connection with 
properties within their territories. After Comm ission action, the Member States in question 
amended their law  
Another Member State required non-re sidents to register loans, in  order to be able to deduct 
interest in respect of mortgage interest pa yments. There was also a limit to the mortgage 
interest deduction available to non-residents wh ile residents were not subject to this limit. 
After being contacted by the Commission, the Member State in question amended its law to 
bring the tax treatment of mortgage interest paid  by non-residents into line with that applied to 
residents.  
Denial of tax deductions to non-residen t sportsmen, artists and consultants 
Certain Member States did not allow non-resident service spor tsmen, artists and consultants 
and other service providers to de duct professional expe nses related to income that was earned, 
                                                 
9 Case 150/04, Commission v Denmark; Case C-522/04, Commission v Belgium 
10 Cf. also Danner (Case C-136/00) and Skandia/Ramstedt (Case C-422/01) 
11 C-484/93. 
 
EN    EN and therefore taxable, in those Member States , whereas service providers resident in those 
countries were entitled to thos e deductions. These e xpenses could, for exam ple, include travel 
and hotel expenses, insurance premiums, and so on.  
Effectively, the non-resident serv ice providers were subject to  a withholding tax on the gross 
amount of their income whereas comparable resident service pr oviders were subject only to 
taxation on their net income, after deduction of expenses. This difference in taxation is 
contrary to EU law. As a result of the acti ons taken by the Commission, the Member States 
concerned changed their legislation so as to allow the deduction of expenses by non-resident 
service providers.  
Exit taxes applied when an individual leaves a country to move to another 
Example: Christos and Athena decide to move b ack to Greece after te n years working in 
Germany. Although moving from Germ any they decide to let rath er than sell their house in 
Germany and to retain their German investments. They should not be liable to any taxes in Germany on accrued capital gains on  their assets retained in Germ any after their move if they 
would not be liable to such an accrued capital  gains tax if they had stayed in Germany 
 
Exit taxes are taxes levied on accrued capital gains when taxpayers move their residence or 
transfer individual assets to another Member St ate. In domestic situat ions, such capital gains 
will usually be taxed only when they are actually realised; that is, when the assets are sold or otherwise disposed of. However,  if an individual taxpayer m oves to another Member State 
before selling his assets, his or iginal state of residence risk s losing the taxing rights on the 
capital gains which have accrued on those assets , because he will become taxable in his new 
State of residence. Many Member States have  attempted to deal with this issue by taxing 
accrued, although as yet unrealised, capital gains at the moment of transfer of the residence or 
assets by the taxpayer. However, the Court of Justice ruled that such immediate taxation of 
latent capital gains on assets transferred to another Member State infringes the principle of freedom of movement, where no such taxation occu rs in similar domestic situations. Member 
States should therefore provide for an unconditional deferral of collection of the tax due until 
the moment of actual realisat ion. Several Member States ha ve, as a result of Commission 
infringement action, changed their exit tax laws.  
Discriminatory taxation of dividends paid  to another Member State or received from 
another Member State 
Example:  Peter resides and works in the Netherlands. He is employed there by an Italian 
company and, under an employees' savings plan, ha s shares in that company. The Netherlands 
must give Peter any Dutch tax exemptions in re spect of dividends from that Italian company 
that would be available to him if he received dividends from a Dutch company rather than an 
Italian company.  
 
The Court of Justice has ruled that a Member  State cannot tax dividends which leave that 
State to go to another Member State ("outbound dividends") at a higher rate than dividends 
which remain in that Member State in the country ("domestic dividends")
12, unless the other 
                                                 
12 European Commission v Kingdom of Spain (C-487/08) 
 
EN    EN Member State compensates for the higher taxation on the outbound dividends. Similarly, a 
Member State cannot tax dividends comi ng from another Member State ("inbound 
dividends") at a higher ra te than domestic dividends13. Essentially the Cour t stated that higher 
taxation of inbound or outbound dividends constitu tes a restriction on the free movement of 
capital within the Internal Market. The Comm ission has launched over forty infringement 
cases against Member States because of their discriminatory tax rules in this area. A number of Member States have already made changes to  their tax laws as a result and, in two cases 
that went to the Court of Ju stice, the Court found the rules incompatible with EU law.  
For example, the Commission commenced infringement proceedings against one Member 
State which exempted a certain amount of divi dend income from income tax only if the 
related shares were issued in that Member St ate. The Commission informed the Member State 
that this rule could be in conflict with the pr incipal of freedom of m ovement of capital and as 
a result the exemption has been extended also to dividends from shares issued in other 
countries. 
Discriminatory taxation of investment in securities 
In principle heavier or discriminatory taxati on of investments with cross-border element is 
prohibited under the EU law. The Commission ha s investigated a case where a Member State 
did not tax capital gains from th e disposal of shares on a regul ated market of that Member 
State but did apply tax to capital gains from the disposal of shares traded on regulated markets 
in other Member States. This was not in comp liance with the principl e of the free movement 
of capital.  
Another Member State applied hi gher taxation to bonds issued  in foreign currencies than 
bonds issued in the local currency.  
In both cases the Member States decided, afte r being contacted by the Commission, to extend 
the preferential treatment al so to investments made in to other Member States.  
Property taxes 
Capital gains taxes on sales of houses  
Example: Dorota has sold her house in Portugal, and bought a house in Poland in order to live 
there. Dorota should benefit from any Portuguese  tax relief in respec t of her capital gains 
from the sale of the house that she would en joy if she purchased her new home in Portugal 
rather than Poland.   
 
Some Member States allowed an exemption from  capital gains tax on the sale of a property if 
the vendor bought a replacement property in th at Member State but did not allow the 
exemption if the vendor bought the replacement pr operty in another Memb er State. This was 
an obstacle to the right to move and reside freely  within the EU. Most of the Member States in 
question have now changed their law.  
Capital gains taxes on sales of holiday homes 
Some Member States levied higher capital ga ins taxes on non-residents selling their holiday 
home. After Commission action, the Member States concerned amended their law.  
Inheritance taxes on house s and other real estate 
                                                
 
13 Verkooijen Case C-35/98 
 
EN    EN Some Member States had a favourable mechan ism for the calculation for inheritance tax 
purposes of the value of domestic immovable pr operty, whereas the valu e of property situated 
abroad was set at the normal market value14. After Commission action, the Member States 
concerned amended their law. Similarly nation al rules that provide  more favourable tax 
deductions if the deceased was resident in the Me mber State in question before death are also 
illegal. 
An exemption from inheritance tax on property situ ated in the taxing Member State that is not 
available in relation to property situated in ot her Member States is also illegal. One Member 
State limited inheritance tax reliefs to forestry la nd and agricultural land situated within that 
Member State. The Commission informed the Memb er State concerned that such a restriction 
appears to be contrary to the principle of the free movement of capital. As a result, the 
Member State extended the relief to all su ch properties and land in EEA countries. 
Tax exemptions on purchase  
Tax deductions for the construction or purchase of a dwelling that are only available if the 
dwelling is situated in the territory of the Member State concerned are illegal as are exemptions from purchase taxes available only to citizens of the Member State granting the 
exemption. For example, one Member State allowe d a tax exemption for the first purchase of 
real estate in that Member State, but did no t allow that exemption in respect of property 
purchased abroad. As a result of the Commissi on's infringement action the Member State has 
changed its law. 
Taxation of income from letti ng or leasing of real estate 
Tax deductions available only if the real estate is located in the Member State in question are 
illegal.  
So is a system whereby residents are taxed on a net basis, while non-residents are taxed on a 
gross basis, resulting in hi gher tax for non-residents.  
Higher taxation of foreign investment funds and companies in relation to income from real 
estate is contrary to EU law.  
For example, in one case, a foreign national w ho lived and was subject to tax in a certain 
Member State owned a house in his Member State of origin which was let out to tenants. He 
was unable to reduce his taxabl e rental income by an amount  representing depreciation for 
wear and tear as he would have been able to do if the house had been situated in the Member 
State in which he lived. The Co mmission requested the Member St ate concerned to change its 
law and as a result the favourable depreciation re gime was extended to buildings situated in 
all EEA countries.  
Donations to foreign charities  
A number of Member States did not grant the sa me tax relief for donations to foreign charities 
as for donations to domestic charities. Most Member States complied with the Commission's 
request to change their law, while  a few cases are still pending.  
Tax problems related to the registr ation of imported second hand cars 
Example: Michael, who has been living for a few year s in Hungary, has reti red and decided to 
change his normal residence to Ireland, where he has a holiday house. To take his car, 
                                                
 
14 Jäger, Case C-256/06. 
 
EN    EN previously bought and registered in  Hungary, to Ireland, he will  have to re-register it in 
Ireland and pay registration tax ther e. EU rules do not require Ir eland to refrai n from applying 
tax to a car which has already suffered regist ration tax in Hungary and nor do they require 
Hungary to partially refund registration tax. Ho wever, the amount of registration tax to be 
paid in Ireland should, under EU  non-discrimination rules, take  account of the age of the 
vehicle.  
 
EU law does not preclude Member States from imposing a registration tax on a car when it is 
used for the first time in that Member State. Th erefore, when a second hand car is brought in 
from abroad, a Member State can impose a regi stration tax even if a similar tax was also 
applied in the original country when the car was new. However, the registration tax on the 
imported second hand car should be applied in a non-discriminatory way. This means that the 
amount of tax on the imported second-hand car should correspond to th e residual amount of 
tax contained in the value of a si milar car that was registered in  that Member State when new. 
In practice, however, the methods applied for calculatin g the tax on imported cars may in 
certain Member States be based on criteria such as mileage or the age of vehicles and these 
are not always sufficient to reflect accurately changes in the cars' values. The result can be 
that the amount of registration tax on imported cars is higher than the equivalent tax included 
in the prices of domestic cars. This contra venes EU law that prohibits discriminatory 
treatment of goods which should be able to be  moved freely across bor ders within the EU. 
Following the Commission's actions in this area, one Member State has abolished registration 
tax on second hand cars and others have adjust ed their method of valuation of second hand 
cars or brought their legisla tion into line with EU law in  other ways. The Commission is 
continuing its investigations into Memb er States' tax rules in this area.  
Difficulties with purchases of alcohol and tobacco from other Member States for own 
use in Member State of residence  
Example:  Marina, who is English, has been in Spai n on her holidays and has purchased a case 
of 12 bottles of wine and 600 cigarettes to br ing back with her to the UK. As long as the 
goods are for her personal use and not for resale she will not ha ve to pay excise duty in the 
UK. However, if she is bringi ng alcohol and tobacco which is not for her personal use excise 
duty on them becomes liable in the UK.  
 
Under EU legislation, EU  citizens are entitled to bring ba ck to their home country excise 
goods (tobacco and alcoholic beverages) which have been bought in another Member State 
without incurring further tax in thei r Member State of residence.  
However, this only applies if 1) the goods are transported by the individuals themselves and 
2) the goods are for the individuals' own use; the rule does not appl y if the goods are bought 
on behalf of a third party.  
Where Member States suspect th at such goods are not for own us e, they are required to have 
regard to specified criteria before concluding th at the goods are not, in fact, for own use. One 
such criterion is the quantity of goods15. However quantity is only one  criterion that should be 
                                                 
15 See "Your Europe" website at http://ec.europa.eu/youreurope/citizen s/travel/allowed-banned/alcohol-
tobacco-cash/index_en.htm?profile=0  
 
EN    EN taken into account for excise duty purposes an d the Member States ma y not apply any strict 
quantitative limits (except in respect of certa in new Member States whose duty rates do not 
meet EU minimum levels). If a Member State d ecides in a particular case that goods are not 
for own use, it is entitled to apply sanctions, but  these must be reasonable and proportionate in 
accordance with general principles of EU law.  
Some Member States take account only of the criterion of quantit y. This is not in conformity 
with the spirit of EU legislation and the Co mmission has, therefore, opened infringement 
procedures against these Member States.  
Higher administrative burdens on non-residents 
Sometimes Member States impose heavier tax compliance burdens on non-residents 
compared to residents. For example, one Member  State required its non-resident taxpayers to 
appoint a fiscal representative when registering with tax author ities. As a result of the action 
taken by the Commission the Member State in  question has recently abolished this 
requirement.