WRITTEN QUESTION E-0405/02

by Toine Manders (ELDR) to the Commission

(20 February 2002)

Subject: Taxation agreement between Belgium and the Netherlands

On 5 June 2001 Belgium and the Netherlands signed a new taxation agreement, which has not yet entered into force but Article 27 of which introduces new compensation arrangements for Dutch frontier workers. In short, the Netherlands will reduce the tax burden on these workers if they pay more in social security contributions and taxation than they would have done if they were subject only to Dutch legislation. People who were frontier workers before the entry into force of the new agreement (existing frontier workers) will even be compensated for any loss of net income as a result of the new agreement. On the other hand, the new agreement has different, less favourable, compensation arrangements for people who become frontier workers after the new agreement enters into force. The agreement thus creates two kinds of compensation arrangements for two groups of frontier workers.

The Netherlands government intends that existing frontier workers who become unemployed involuntarily but find a new job as a frontier worker within six months will still be regarded as existing frontier workers. Consequently, they will continue to be covered by the favourable arrangements.

However, if frontier workers voluntarily change job within Belgium, they are not covered by the favourable arrangements. The existing frontier worker is then regarded as a new frontier worker and is subject to the less favourable compensation arrangements.

1. Does the Commission consider that the distinction made by the above taxation agreement between two groups of frontier workers, existing frontier workers and new frontier workers, is compatible with EC law? Does it not amount to unfair discrimination against new frontier workers compared with existing frontier workers?

2. Does the Commission consider it compatible with EU law for an existing frontier worker who voluntarily changes job to be at a disadvantage compared with an existing frontier worker who becomes unemployed involuntarily and finds a new job as a frontier worker within six months? Does this not amount to discrimination against existing frontier workers who voluntarily decide to change job?

Answer given by Mr Bolkestein on behalf of the Commission

(15 April 2002)

Under current Community law, direct taxation still falls essentially within the competence of Member States. The conclusion of agreements with a view to avoiding double taxation and in doing so allocating tax jurisdiction between themselves falls within that competence. The legitimacy of this practice has been recognised by the Court of Justice(1).

In the exercise of this competence, Member States, however, have to respect their obligations under the EC Treaty. Member States are not allowed to discriminate on the basis of nationality or install or maintain discriminations of nationals of other Member States who exercise their right of free movement, or to apply unjustified restrictions to their freedom of movement. Member States should also refrain from restricting the free movement of their own citizens.

The provisions of the agreement between Belgium and the Netherlands do not discriminate on the basis of nationality nor do they install a restriction to the free movement of workers. All Dutch frontier workers fall within the same tax jurisdiction. Only for those frontier workers who qualify as an existing frontier worker does the agreement provide for a transitional provision to overcome the loss of net income. Such transitional provisions are justified in order to protect the legitimate trust of existing frontier workers.

(1) Case C-336/96 Gilly [1998] ECR 2793; see in particular paragraph 30.