WRITTEN QUESTION P-2769/98

by Xaver Mayer (PPE) to the Commission

(7 September 1998)

Subject: Taxation of pensioners resident in an EU country other than their own

An EU citizen, a German national, is married to a Frenchwoman and lives permanently in France. Both receive pensions from their respective countries. The husband is classified by the German tax authorities in Bracket 1 (as a single person) and assessed for income tax, although he has his permanent residence in France, on the grounds that his pension is being paid from public funds (Federal Defence Ministry).

His income from German benefit payments is declared a second time to the French tax authorities and included with his wife's income in the assessment base ("taux effectif"). That results in a tax demand on the couple that is higher than if they were assessed for tax solely in France.

Could the Commission indicate whether it regards the state of affairs described above as being compatible with the principle of non-discrimination and whether it sees a need for action at European level. In its view, is it admissible that the couple has to pay more in tax than would a comparable French couple?

Answer given by Mr Monti on behalf of the Commission

(12 October 1998)

1. The apportionment of the right of taxation in bilateral relations between France and Germany is governed by the 1959 Tax Convention, Article 14 of which states that amounts paid by way of a retirement pension from a statutory social insurance fund are taxable in the country in which the fund is situated, i.e. Germany in the case in hand.

As for this taxable income being included in the basis of assessment of the couple in question, who are resident in France, it should be pointed out that the Tax Convention provides that the relevant income is also taxable in that country. However, in order to avoid double taxation, a tax credit equal to the amount of French tax corresponding to the income is granted (Article 20 of the Convention). This method of avoiding double taxation, which also appears in the OECD model convention, is widely used internationally.

In reply to the question whether these provisions of the Convention are compatible with Community law, the Commission would point out that, as Community law stands, Member States are in principle free to lay down the rules governing income tax in general and the apportionment of the right of taxation in their bilateral relations with other Member States in particular. Community law is applicable solely with regard to the matter of compliance with the principle of non-discrimination in the context of the basic freedoms enshrined in the Treaty. The Commission has not detected any infringement of that principle. Moreover, in its judgment in Case C-336/96 Gilly v Directeur des services fiscaux du Bas-Rhin, the Court of Justice ruled that the above-mentioned tax credit mechanism was not inconsistent with Article 48 of the EC Treaty.

2. The Honourable Member also indicates that the couple in question have to pay more in tax than they would if all their income were taxed solely in France.

The Commission would point out that, generally speaking, income tax is not harmonised at Community level and that, consequently, the basis of assessment and tax rates may vary considerably from one Member State to another. It is therefore possible that, when incomes are apportioned under a tax convention between Member States, the tax burden will be higher than it would be if the combined incomes were taxed in the country of residence.

The Commission takes the view that the situation described above does not infringe existing Community law provided, of course, that the principle of non-discrimination is complied with.

3. Finally, the Commission would point out that no general harmonisation of personal income tax at Community level is planned.