COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE Removing cross-border tax obstacles for EU citizens
Date: 2010-12-20
Institutions: European Commission
Subjects: European tax cooperation, approximation of laws, intra-EU trade, tax harmonisation

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EUROPEAN COMMISSION 

Brussels, 20.12.2010 
COM(2010) 769 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Removing cross-border tax obstacles for EU citizens  

SEC(2010) 1576 final 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE 
EUROPEAN PARLIAMENT AND THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE 

Removing cross-border tax obstacles for EU citizens 

1. 

INTRODUCTION 

Since  1992,  nationals  of  European  Union  Member  States  have  been  EU  citizens  as  well  as 
citizens of their Member States of origin. Europe's 500 million EU citizens derive from EU 
law  the  right  to  move  to  another  EU  country  to  live,  study,  work  or  retire  and  to  shop  and 
invest in other EU countries.  

In  its  "Europe  2020  strategy"1  for  smart,  sustainable  and  inclusive  growth  in  the  EU,  the 
European Commission concluded that an element of putting the EU economy back on track 
consists in empowering EU citizens to play a full part in the single market and giving them 
the confidence to do so. 

However, the reality is that EU citizens face many bottlenecks to cross-border activity in the 
single  market.  Citizens  should  be  able  to  benefit  from  their  full  rights  to  be  active  across 
national  borders  within  the  EU  as  citizens,  consumers,  students,  workers,  patients  or 
pensioners. The Single Market Act2 and the "EU Citizenship Report"3 have identified actions 
that need to be taken in a whole range of areas so that EU citizens' rights are fully effective. 
Taxation is one of those areas. 

This Communication identifies the most pressing cross-border tax problems that citizens face 
and outlines possible solutions. Depending on the case, solutions could involve changes to the 
national tax rules of individual Member States to remove discrimination, the introduction of 
common EU-wide rules, or closer co-operation between tax administrations across the EU in 
new areas as well as information and awareness initiatives. Tax rules should not discourage 
individuals from benefiting from the internal market. 

2. 

EU CITIZENS' CURRENT CROSS-BORDER TAXATION DIFFICULTIES 

Individual EU citizens frequently raise queries about cross-border taxation problems with the 
different contact points within the European Commission that are to be found under the Your 
Europe4 portal: The annual reports of the Your Europe Advice, SOLVIT and the Europe Direct 
Contact  Centres  indicate  that  they  receive  many  queries  and  complaints  from  EU  citizens 
about  taxation,  constituting  at  least  3-4%  of  the  total  volume  of  annual  queries  and 

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http://ec.europa.eu/eu2020/pdf/COMPLET%20EN%20BARROSO%20%20%20007%20-
%20Europe%202020%20-%20EN%20version.pdf  
COM(2010) 608 
COM(2010) 603 
http://ec.europa.eu/youreurope/citizens/index_en.htm 

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complaints. The relevant services of the Commission5, the European Consumer Centres, the 
European  Enterprise  Network  and  the  European  Employment  Services  (EURES)  in  cross-
border  regions  also  receive  many  and  varied  tax  queries  and  complaints.  In  addition,  the 
Commission  has  received  or  seen  many  reports  on  cross-border  tax  problems  produced  by 
cross-border associations. As EU citizens are increasingly active across borders, such queries 
and complaints are likely to increase further in the future. 

A  large  element  of  the  complaints  concerns  the  complexity  of  foreign  tax  rules  and  the 
difficulties in obtaining information on those rules and on rights and obligations under those 
rules.  These  difficulties  are  often  due  to  language  barriers  but  there  are  also  complaints  of 
lack of cooperation between tax authorities of different countries. Other common complaints 
concern  contradictory  information  provision  by  different  parts  of  Member  States'  tax 
authorities and the impact of the application of local taxes on foreign residents.  

In addition, 

•  EU citizens who move abroad to work temporarily or permanently or cross borders every 
day to go to work complain above all about difficulties in obtaining allowances, tax reliefs 
and  deductions  from  foreign  tax  authorities.  They  also  complain  frequently  about  higher 
progressive tax rates applied to non resident and higher taxation of foreign income. Double 
taxation  problems  also  feature  prominently,  arising  from  conflicts  in  tax  residence, 
limitations  in  the  amount  of  credit  available  under  bilateral  double  taxation  treaties  and 
even the lack of such treaties in certain cases.  

•  EU  citizens  purchasing  property  in  countries  other  than  their  countries  of  residence 
complain  about  the  absence  of  tax  exemptions  for  foreign  real  estate;  the  lack  of 
deductions  and  compensation  for  non-residents  for  real  estate  tax  losses;  and  higher 
property registration taxes on non-residents. 

•  Those  investing  in  foreign  moveable  assets  complain  about  difficulties  in  claiming  relief 

from withholding taxes.  

•  Those  making  payments  to  foreign  pension  funds  complain  in  particular  of  the  non-
deductibility  of  such  contributions,  the  double  taxation  of  pensions  and  tax  obstacles  to 
cross-border transfers of pension capital.  

•  Many EU citizens inheriting property across borders have complained, inter alia, about the 
lack of provisions to relieve double taxation of inheritances and higher  succession duties 
on non-residents.  

•  Consumers complain above all about the double registration taxes and/or circulation taxes 
that they are obliged to pay when buying a car in a Member State other than that of their 
normal residence or when transferring a car to a Member State other than that in which it is 
registered. Many seem to have difficulty in understanding how EU rules on free movement 
apply to taxation and incorrectly assume that car tax rules within the EU are or should be 
harmonised. They also complain about the tax obstacles to purchasing goods online across 
borders  and  cross-border  shopping  difficulties.  Furthermore,  they  query  differences  in 

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duties  on  alcohol  and  tobacco  in  different  countries  and  complain  about  difficulties  in 
importing purchases of such goods.  

•  Associations of artists and musicians and other independent service providers complain of 
delays in obtaining refunds of taxes withheld on fees; lack of a single point of contact in 
tax  administrations;  strict  deadlines  imposed  by  tax  authorities  that  are  difficult  to  meet; 
lack  of  coordination  of  time  limits  for  charging  tax  and  for  claiming  tax  relief;  and  the 
problems  of  having  to  deal  with  complicated  tax  forms  that  differ  from  one  country  to 
another.  

•  Companies  frequently  point  to  the  tax  barriers  hindering  the  recruitment  of  employees 

from across borders and, in particular the way different tax systems interact.  

This Communication aims first to explain how the Commission can help EU citizens to find 
solutions to the problems of tax discrimination that they encounter.  

Use  of  the  Commission's  problem-solving  services  and  application  of  EU  Treaty  rules  can 
resolve many problems of discrimination in the tax area that may face EU citizens when they 
engage in cross-border activity. However they cannot resolve other problems such as double 
taxation due to the coexistence of two applicable tax systems and mismatches between such 
systems. Even where Member States' tax rules do not actually conflict with Treaty rules, the 
Commission believes that it is not appropriate in a single market that problems such as double 
taxation, incompatibilities between different tax systems and lack of access to information on 
the tax rules of Member States should deter individuals from engaging in cross-border activity 
or  penalise  them  when  they  do.  Harmonisation  of  all  aspects  of  Member  States'  tax  rules 
would be neither necessary nor feasible. But solutions are needed that recognise the legitimate 
interests of citizens in an area of free movement, such as the one established by the Treaties. 
This  may  well  mean  that  different  tax  problems  may  require  varying  levels  of  coordination 
and cooperation between Member States if they are to be solved.  

That  is  why  the  Commission  also  considers  it  important  that  EU  action  should  be  taken  to 
make the tax systems of the different Member States more compatible. The Communication 
describes plans in this area and also invites the Council and the Parliament, and all interested 
parties, to each take an active role in tackling these issues in a shared strategy for the benefit 
of EU citizens. 

3. 

TACKLING DISCRIMINATION IN THE TAX LAWS OF MEMBER STATES 

The  Commission  attaches  great  importance  to  tackling  discriminatory  tax  rules  in  Member 
States  in  order  to  facilitate  citizens  who  wish  to  exercise  their  freedom  to  engage  in  cross-
border activity. Member States are not allowed to discriminate on the basis of nationality or to 
apply unjustified restrictions to the exercise of the four fundamental freedoms guaranteed by 
the EU Treaties. A Member State may treat a cross-border situation differently to a domestic 
situation only if this is justified by a difference in the taxpayer’s circumstances.  

Over  the  years  as  EU  citizens  are  more  active  across  borders,  it  has  become  apparent  that 
there are numerous aspects of Member States' tax laws that conflict with these Treaty rules. 
Many  problems  identified  have  already  been  addressed  and  resolved.  They  mostly  concern 
rules applied to cross-border income, foreign properties, pensions, dividends, imports of cars 
and  imports  of  alcohol  and  tobacco  A  detailed  overview  of  such  cases  can  be  found  in  the 

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Commission  staff  working  paper  accompanying  this  Communication6.  This  paper  provides 
information on the Commission's problem-solving services at the disposal of EU citizens and 
gives examples of the types of tax rules in Member States that have been found incompatible 
with the EU Treaties. 

The  Commission  encourages  citizens  to  draw  its  attention  to  problems  with  the  tax  laws  of 
EU Member States which they believe may be incompatible with EU law. Any EU citizen can 
make use of the contact points in the Your Europe portal described in Chapter 2. Furthermore, 
all EU citizens have a right to lodge a complaint with the European Commission about any 
practice of an EU Member State believed to be incompatible with EU law.  

The Commission for its part intends to increase its efforts to  

•  ensure greater transparency and information for citizens on the results of complaints about 

Member States’ tax laws and infringement actions taken in the tax field  

•  monitor  Member  States’  tax  legislation  and  systematically  request  Member  States  to 

rectify any incompatibilities with EU law within a certain deadline.  

•  monitor  the  implementation  by  EU  Member  States  of  Court  of  Justice  rulings  in  the  tax 
field and ensure that they are implemented also in Member States that were not the subject 
of the ruling;  

•  ensure  that  the  EU  citizens'  advice  services  have  the  information,  training  and 
documentation  in  order  to  equip  them  to  deal  with  citizens'  complaints  regarding  cross-
border tax obstacles.  

4. 

PLANNED EU ACTIONS IN SPECIFIC AREAS 

The  Commission  is  planning  certain  actions  to  address  the  most  important  unresolved  tax 
problems faced by EU citizens in cross-border situations.  

1. 

Double taxation of income and capital 

Above all, the Commission believes that action must be taken to resolve problems of double 
taxation in the EU in a definitive way that goes beyond the solutions contained in bilateral tax 
treaties.  The  Commission  is  currently  examining  the  problems  that  both  individuals  and 
companies  face  when  their  income,  profits  and  capital  gains  are  taxed  by  more  than  one 
Member State. It will consider these double taxation problems in detail in a Communication 
that it aims to adopt in 2011, with a view to presenting possible solutions in 2012, on the basis 
on an impact assessment, such as a binding dispute resolution mechanism, as suggested by the 
recent Monti Report7, in order to tackle shortcomings in the Member States' bilateral double 
taxation treaties on income and capital. 

2. 

Inheritance tax  

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SEC(2010)1576 
http://ec.europa.eu/bepa/pdf/monti_report_final_10_05_2010_en.pdf 

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Cross-border inheritance tax issues appear to be a matter of increasing concern to EU citizens. 
The Court of Justice of the European Union never examined the inheritance tax rules of EU 
Member  States  before  2003  but  since  then  national  courts  have  referred  eight  cases  to  the 
Court. In addition, the Commission has received many complaints and queries about problems 
of  both  discrimination  and  double  taxation  in  this  area.  The  double  taxation  problems  arise 
because the laws in those Member States that apply taxes on inheritances differ considerably 
even  as  regards  who  is  taxable.  Furthermore,  there  are  very  few  bilateral  tax  conventions 
between  Member  States  addressing  double  taxation  of  inheritances  and  Member  States' 
unilateral relief mechanisms do not appear to be comprehensive. The Commission is currently 
analysing these cross-border inheritance tax problems and consulting widely. It is examining 
solutions such as providing guidelines concerning the removal of discriminatory features and 
asking  Member  States  to  make  their  unilateral  double  taxation  relief  mechanisms  more 
comprehensive.  The  Commission  intends  to  present  proposals  to  address  cross-border 
inheritance tax problems in mid-2011 based on the results of the ongoing impact assessment.  

3. 

Taxation of dividends paid across borders  

In  cross-border  situations,  withholding  taxes  on  dividends  split  the  right  to  tax  income 
between the source state of the income and the investor's state of residence. However, the fact 
that dividend payments are subject to taxes in two Member States is often a cause of major 
problems:  it  can  be  difficult  to  claim  a  tax  refund,  there  may  be  multiple  layers  of  taxation 
involved and the tax applicable to dividends paid to foreign investors may be heavier than that 
on  dividends  paid  to  local  investors.  This  has  given  rise  to  an  increase  in  the  number  of 
complaints by citizens about discrimination and of cases referred to the Court of Justice.  

The  Commission  is  currently  analysing  this  issue  and  on  the  basis  of  an  impact  assessment 
intends to present an initiative in 2012 to resolve the problems that arise when two Member 
States  have  taxing  rights  over  dividends  paid  to  individual  investors.  Pending  this  fuller 
analysis of dividend taxation in the EU, the Commission is also working with Member States 
to ensure that any withholding tax relief on securities income, including dividends, to which 
investors are entitled under tax treaties will be granted in the simplest and quickest possible 
manner,  ideally  at  the  time  of  payment  of  the  income  in  question  (cf.  Commission 
Recommendation 2009/784/EC of 19 October 2009).  

4. 

Vehicle Registration and Circulation Taxes 

When  buying  a  car  in  a  Member  State  other  than  that  of  their  normal  residence  or  when 
transferring  a  car  to  a  Member  State  other  than  that  in  which  it  is  registered,  EU  citizens 
frequently face excessive red tape and may have to pay registration and/or circulation taxes 
twice.  

In  2005,  the  Commission  proposed  a  Directive8  on  passenger  car  related  taxes  aimed  at 
gradually  phasing  out  car  registration  taxes  and  introducing  a  refund  system  for  the 
transitional  period.  Member  States  have  not,  so  far,  reached  the  unanimous  agreement 
required  for  adoption  of  this  proposal.  The  Commission  is  currently  re-assessing  the  issues 

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with a view to solving the problem of double registration taxes on carsand will come forward 
with new suggestions in 2011.9. 

5. 

E-commerce 

EU consumers currently find it difficult to purchase goods or services online across borders. 
One in three EU consumers has made an internet purchase but only 7% made a cross border 
purchase  online.  This  is  at  a  time  when  33%  of  consumers  would  be  interested  in  buying 
cross-border.  

Research  has  shown  that  60%  of  consumers  attempt  to  buy  online  across  borders  but  fail 
because the transaction or shipping is declined by the vendor10. In half of the cases tested, the 
transaction could not be completed even though consumers could have saved at least 10% if 
the transaction had been carried out. There are various factors that discourage businesses from 
selling across borders but VAT related issues have been identified as a main factor. 62% of 
retailers said that differences in national tax regulations are an important practical obstacle to 
cross-border trade. Online traders are reluctant to sell goods abroad because if they do so they 
may be subject to tax, and reporting obligations, in the countries into which they sell  

A partial improvement of the current situation has been achieved through adoption of a one-
stop shop for traders supplying consumers in the telecoms, broadcasting and e-services fields 
and work has already started towards the implementation of such a scheme. The Commission 
continues  to  push  for  a  broader  application  of  such  a  one-stop  shop11.  In  this  context,  the 
Commission on 1 December launched a Green Paper enabling all stakeholders to be consulted 
on the future of VAT, including on one-stop shops. The Commission encourages stakeholders 
to  contribute  actively  to  this  consultation  which  will  help  prepare  for  future  actions  in  this 
area.  

5. 

CONSIDERATIONS FOR FUTURE ACTIONS 

The  Commission  also  proposes 
tax 
administrations  and  stakeholders  on  other  appropriate  solutions  to  EU  citizens'  cross-border 
tax obstacles. Suggestions that have already been made include: 

to  establish  a  dialogue  with  Member  States' 

•  Setting  up  central  one-stop-shops  in  tax  administrations  where  mobile  workers  and 
investors  could  not  only  seek  relevant  and  reliable  tax  information,  but  also  directly  pay 
taxes and receive all the necessary certificates for their home country’s tax authorities 

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A matter separate from double car registration taxes is requirements for double registration of vehicles. 
Regarding  the  latter,  as  announced  in  the  EU  Citizenship  Report  2010  (COM(2010)  603),  the 
Commission  will  also  propose  a  legislative  instrument  in  2011  to  simplify  the  formalities  and 
conditions for the registration of vehicles which have already been registered in one Member State, in 
order to remove obstacles to the cross-border transfer of such vehicles. 
Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  the  Regions  on  Cross-Border  Business  to 
Consumer  e-Commerce  in  the  EU  of  22.10.2009  (COM(2009)  557  final),  and  Commission  staff 
working document: report on cross-border e-commerce in the EU’, SEC(2009) 283 
In 2004 the Commission proposed a "one-stop shop" system (COM(2004) 728) that would allow certain 
reporting  obligations  to  be  met  in  the  Member  State  where  the  business  is  established.  However,  the 
proposal has not yet been adopted. 

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•  Facilitating  cross-border  tax  compliance  by  seeking  greater  alignment  of  tax  claim  and 
declaration  forms,  translating  information  into  other  EU  official  languages  and  making 
greater use of information technology 

•  Encouraging Member States to adopt special rules for frontier workers and mobile workers 
that take account of the interaction of tax and social security systems in different Member 
States  

•  Promoting  better  interaction  between  the  different  pension  taxation  regimes  so  as  to 

encourage worker mobility.  

6. 

CONCLUSION 

Eliminating tax obstacles can play an important role in strengthening EU citizens' ability and 
confidence  to  cross  borders  to  work,  retire,  invest  and  buy  goods  and  services.  The 
Commission proposes for its part to: 

•  Actively pursue complaints and ensure greater transparency and information for citizens on 
the results of complaints about Member States’ tax laws and infringement cases in the tax 
field.  This  will  be  done  in  particular  by  publishing  citizen-friendly  information  on  the 
Europa website on an annual basis; 

•  Make access  easier to the Commission's Europe  Direct and Your Europe citizens' advice 
services and ensure that these services can better deal with tax related questions and that 
citizens can more directly get help and advice. Information available on the Your Europe 
website will be provided in a user-friendly format;  

•  Present a detailed analysis of double taxation problems in 2011 and work on a definitive 

solution for 2012, on the basis of the results of an impact assessment; 

•  Propose  solutions  to  cross-border  inheritance  tax  problems  in  2011,  on  the  basis  of  the 

results of an impact assessment; 

•  Propose  solutions  in  2012  to  problems  arising  from  the  taxes  applied  to  cross  border 

payments of dividends, on the basis of the results of an impact assessment;  

•  Propose  solutions  concerning  the  cross-border  problems  for  EU  citizens  in  the  fields  of 

passenger car taxation and online purchases of goods and services; 

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•  Launch a debate with Member States in 2011, in a working group of tax experts, on ways 

of simplifying tax compliance in cross-border situations. 

In order to tackle successfully EU citizens' cross-border tax problems such as double taxation, 
complicated  tax  procedures  and  the  lack  of  clear  information  for  foreign  taxpayers,  the 
Commission needs the support of the Council, the European Parliament, the Member States 
and  other  stakeholders.  The  Commission  therefore  calls  on  all  interested  parties  to  take  an 
active  role  in  tackling  the  tax  obstacles  outlined  in  this  paper,  in  order  to  make  the  single 
market  of  real  benefit  to  EU  citizens.  The  Commission  will  report  on  the  progress 
accomplished in tackling cross-border tax problems, in particular the double taxation of cars, 
in the report on EU citizenship planned for 2013, a European year to be dedicated to citizens.  

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