WRITTEN QUESTION E-1381/97 by Mark Watts (PSE) to the Commission (22 April 1997)

Subject: Discriminatory income tax systems within the EU

Is the Commission aware that Member States operate tax systems which choose to discriminate against families where the breadwinner lives in a different Member State to the family and where the breadwinner is classed and taxed as a single person?

What steps is the Commission taking to eliminate these anomalies and to ensure that families are taxed as a single unit regardless of the fact that they live in different Member States?

Answer given by Mr Monti on behalf of the Commission (4 June 1997)

The Commission would make the general observation that income tax is the responsibility of the Member States, which are free, therefore, to introduce the system of their choice when it comes to taxing families. An examination of the current tax systems for married couples in the Member States reveals that in eight of them

couples are taxed separately and in four they are taxed jointly, while three Member States allow them to choose between being taxed as separately or jointly. There are thus significant differences between Member States in the way that couples are taxed, with a majority of Member States opting to tax couples separately.

The tax advantages available for married couples also differ markedly between Member States. For example, some of them grant tax credits or specific deductions. Where couples are taxed jointly, certain deductions or exempt amounts are doubled. Other Member States apply reduced rates of taxation via a system of coefficients based on marital status/family situation or via the system known as 'splitting'. There are even some Member States that do not seem to grant married couples any special tax advantages at all.

It transpires that taxing married individuals as single persons in a Member State other than that in which the family resides does not necessarily involve differential tax treatment or tax treatment that might be in breach of Community law.

However, the Commission has noted that individuals who work or undertake any other economic activity in a Member State other than that in which they are resident are often subject to higher taxation than residents of that Member State (special tax regime for 'non-residents').

To remedy this situation, the Commission in 1993 adopted a Recommendation to the Member States which laid down common rules on the taxation of non-residents ((Commission Recommendation of 21 December 1993 on the taxation of certain items of income received by non-residents in a Member State other than that in which they are resident (OJ L 39, 10.2.1994). )). Moreover, in a series of recent judgments ((In particular the judgments in Case C-279/93 Roland Schumacker v Finanzamt Köln-Altstadt and Case C-80/94 G.H.E.J.Wielockx v Inspecteur der directe belastingen. )), the Court of Justice has laid down certain principles governing the taxation of non-residents. On the basis of this case-law and the above Recommendation, the Commission is currently involved in discussions with the Member States with a view to encouraging them to amend their laws in this field where necessary. Some Member States, such as Belgium, Denmark, Germany and Ireland, have already done so.

What is more, the Commission would inform the Honourable Member that the principle of non-recognition of marital status of non-residents is currently the subject of a reference to the Court of Justice for a preliminary ruling (Case C-336-96, M et Mme Gilly v Directeur des services fiscaux du Bas-Rhin). As part of the proceedings, the Commission has suggested that Article 48(2) of the EC Treaty and Article 7 of Regulation (EEC) No 1612/68 ((OJ L 257, 19.10.1968. )) should be interpreted as preventing a situation whereby, under a bilateral taxation agreement between two Member States, the right conferred on the Member State in which the taxpayer works but is not resident to tax certain items of income results, on account of the non-recognition by that Member State of the taxpayer's personal and marital status, in a higher tax burden for the income of a couple who are both employed and one of whom is exercising his or her right to freedom of movement. As soon as the Court has handed down its judgment in this case, the Commission will examine the repercussions of the Court's interpretation for tax legislation in the Member States.