EU to simplify taxation for people moving across borders

The European Commission will launch next year an initiative to simplify tax obligations for EU citizens who move or have activities across borders.

The initiative was announced in the latest report on EU citizenship and is part of the tax action plan presented in July 2020.

A public consultation carried out in preparation for the EU citizenship report has shown that understanding taxation rules when living and working in another EU member state is considered a cumbersome exercise, which requires at times the support of a tax advisor. The difficult language used in tax declarations can also be a barrier.

A simplification effort

Taxation is decided at the national level, so different regimes coexist within the European Union. In some cases they are complemented by bilateral conventions between member states, making it difficult for citizens to navigate the variety of rules.

The European Commission intends to issue recommendations to member states to make things easier, especially for those who move or have activities across borders.

Simplifying procedures and increasing awareness of taxpayers’ rights can also improve tax compliance, the Commission says.

One of the areas that will be looked into is the taxpayer identification number (TIN), which is issued to individuals and companies. There is no TIN at EU level, and not all EU countries issue TINs. Despite these differences, when moving to another EU country or setting up business there, registering and obtaining a TIN should be simple, the Commission argues. Equally, submitting tax returns should not be complicated.

The initiative also aims to determine in a consistent way where tax residence is. Typically, an individual has to pay tax in a country if living there for at least 6 months in a year. But EU member states use various criteria to decide tax residence status, which can result in double taxation or double non-taxation, according to the Commission.

Under the plan, taxpayers active across borders should know “clearly and in advance” where they are expected to pay tax.

Tax status of frontier workers

Specific problems concern the 2 million frontier workers, who work in one EU country and live in another. Depending on the tax arrangements, their income may be taxed in one or both countries.

At present, there are no EU-wide rules on the division of taxation rights between member states or the tax to be applied in such cases. Neighbouring countries with many cross-border workers often include special rules in their bilateral double taxation conventions. But these rules reflect their specific reality, so they are not necessarily applicable across the EU.

The Commission intends to provide clarifications and more legal certainty in this regard.

Charter on taxpayers’ rights

As part of the initiative, the Commission also intends to publish a Charter on taxpayer’s rights, combining rules and principles deriving from the EU Treaties and the Charter of Fundamental Rights.

A key principle is the protection against discrimination: EU member states cannot tax citizens of other EU countries differently than their own, but the situation can be different for citizens from outside the EU.

An example is the taxation of second homes in Spain, where income from real estate is taxed at 19% for non-resident EU citizens, but jumps to 24% for non-residents from outside the EU. The Spanish taxation agency has published a note explaining what this will mean for non-resident British citizens as a result of Brexit.

The status of EU citizenship

The EU citizenship report is published every three years to assess existing measures and propose new priorities for the following period.

In the coming years, the Commission will update the guidelines on free movement of people in consideration of the disruptions occurred during the Covid-19 pandemic.

“To address the outbreak of the pandemic, many member states introduced partial or almost complete closures of their external and internal borders, restricting the movement of citizens entering and leaving the country. As a result, many mobile EU citizens were separated from their loved ones and found themselves unable to return home,” notes non-profit group European Citizen Action Service (ECAS).

The EU executive will also review rules on consular protection of EU citizens in third countries, and continue legal procedures against citizenship by investment programmes, such as those set up in Malta and Cyprus.

In addition, the Commission will propose next year an update of the rules that allow EU citizens to vote in municipal and European elections in other EU countries.

“Our research indicates that mobile EU citizens are often unaware of deadlines, rules and the correct steps they should take in order to register on the electoral roll. Therefore, access to targeted, reliable and relevant information is of key importance for improving inclusive participation,” ECAS commented.

The ECIT Foundation on EU citizenship however noted that plans do not include the extension of voting rights to regional or national elections for EU nationals who live in another EU member state.

EU citizenship is at the core of the European project. And yet we have seen unprecedented challenges to some of the basic rights we tend to take for granted in Europe – from restrictions to free movement because of the pandemic to challenges to our democratic institutions,” EU Justice Commissioner Didier Reynders said presenting the report. “Today, we are reaffirming our commitment to further empower citizens and protect their rights for a stronger and more resilient EU,” he added.

Claudia Delpero © all rights reserved

Photo by Helena Lopes on Unsplash

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