Brussels Rides To The Rescue For EU Expats

Expat Briefing Editorial Team, 31 January, 2014

The European Commission has launched a "targeted initiative" aimed at ensuring that member states' tax laws do not discriminate against mobile citizens, which should hopefully make life easier for the millions of European expats living and working across the European Union.

Brussels has identified "worker mobility" as one of the key factors for increasing growth and employment in the EU. It therefore regards tax obstacles as a major deterrent to EU citizens leaving their state of origin to look for work in another country.

The Commission will focus on both economically active individuals, such as workers and the self-employed, and those like retirees that are not.

On the face of it, the 6.6m EU citizens who lived and worked in a Member State other than their own in 2012 sounds like a large number. However, they represented just 3.1% of workers in the EU, suggesting that the single economic area with freedom of movement at its heart hasn’t quite lived up to expectations. An additional 1.2 million people lived in one EU country but work in another in 2012. 

EU citizens may suffer tax disadvantages:

The right to live and work anywhere in the EU is a fundamental right for European citizens. However, it is also seen as a key instrument for developing a Europe-wide job market. Therefore, during the course of 2014, the Commission says that it will carry out “a thorough assessment” of each nation's tax regimes, to determine whether they create such disadvantages. If the Commission detects discrimination or breaches of the EU's fundamental freedoms, it will flag them up to the national authority in question, and insist that amendments are made. Should the problems persist, it may initiate infringement procedures, which could result in member states being referred to the European Court of Justice.

Tax Commissioner Algirdas Šemeta said of the review: "EU rules are clear: all EU citizens must be treated equally within the Single Market. There cannot be discrimination, and workers' right to free movement must not be impaired. It is our duty to citizens to ensure that these principles are reflected in practice in all member states' tax rules."

The Commission’s work to facilitate the free movement of workers, which includes initiatives such as the proposed modernisation of the pan European job search network EURES, is ongoing. However, there is a particular emphasis on tax, as national tax rules and tax treatment of non-residents continues to be considered as the largest obstacle to freedom of movement.

The Commission is currently fighting this battle on three fronts, by tackling double taxation, improving the application of workers’ rights to free movement, and boosting protection for posted workers.

Double Taxation

In 2010, a public consultation carried out by the Commission found that more than 20% of reported cases of double taxation of businesses were worth over EUR1m, while for individuals, more than 35% of double taxation cases were worth more than EUR100 000.

So in November 2011, the Commission adopted a Communication on Double Taxation highlighting where the main double taxation problems lie within the EU, and outlining measures that could be taken to address them. These include amending the scope of bilateral double tax avoidance treaties (DTAs) between member states, more consistent interpretation and application of DTAs, easing and accelerating dispute resolution in the EU, and new EU legislation.

Currently under EU law, there is nothing to oblige Member States to prevent non-discriminatory double taxation. Although Member States try to relieve double taxation through measures such as bilateral and multilateral DTAs, these do not provide adequate protection for citizens and businesses due to various shortcomings (e.g. too narrow scope, lack of uniformity amongst Member States' provisions, administrative burdens, long time-lines for dispute resolution etc.). 

As an immediate first step to strengthen existing legislation against double taxation, the Commission adopted on the same day as the Communication on Double Taxation a proposal to amend the Interest and Royalties Directive. This aims to reduce the instances of one Member State levying a withholding tax on a payment, while another Member State taxes the same payment. Other areas in which the Commission intends to propose specific solutions to double taxation problems include cross-border inheritance tax, and dividends paid to portfolio investors.

The Commission will also work on other possibilities to help eliminate cross-border double taxation, such as creating an EU Forum to develop a code of conduct on double taxation and a binding dispute resolution procedure for unresolved double taxation cases.

Apart from the proposed amendments to the Interest and Royalties Directive, little appears to have been achieved to alleviate double taxation in the EU, however.

Workers’ Rights To Freedom of Movement

On April 26, 2013,, the Commission proposed new measures to ensure the better application of EU law on people's right to work in another Member State and so make it easier for people to exercise their rights in practice.

The Commission sees “a persistent problem” with public and private employers' lack of awareness of EU rules, regardless of whether the national legislation is compliant or not. It says that this lack of awareness or understanding of the rules is a major source of discrimination based on nationality.

Another problem is the lack of information or means of recourse when workers feel that their right to freedom of movement is being infringed in the host Member State.

The right of EU citizens to work in another Member State, laid down in Article 45 of the Treaty on the Functioning of the European Union, includes the right not to be discriminated against on grounds of nationality as regards access to employment, pay and other working conditions. However, a September 2011 Eurobarometer poll indicated that 15% of EU citizens would not consider working in another Member State because they feel there are too many obstacles. Obstacles include:

The Commission’s proposal, if adopted by the European Parliament and the Council, would require Member States to:

Independently of this proposal, the Commission, as guardian of the Treaty, will also continue to pursue infringement procedures where necessary against Member States in cases where national law is not in line with the Treaty and the Regulation.

Posted Workers

The Commission proposed new rules to increase the protection of workers temporarily posted abroad on March 21, 2012. These proposals address specific issues of abuse where workers do not enjoy their full rights in terms of for example, pay or holidays, especially in the construction sector.

It is said that each year, around one million workers are posted by their employers across EU borders to provide services, representing 0.4% of the EU workforce. The biggest “sending” countries are Poland, Germany, France, Luxembourg, Belgium and Portugal. These usually fill labour and skill shortages in various sectors like construction, agriculture and transport. Posting also plays an important role in providing specialised, high-skilled services, such as information technology.

The 1996 Directive concerning the posting of workers seeks to ensure fair competition and guarantee an appropriate level of protection of posted workers. The Directive defines a core set of employment conditions which the service provider has to comply with during the posting in the host Member State. This includes the applicable minimum rates of pay, holidays, maximum working hours and minimum rest periods, as well as health and safety at work.

The proposed Enforcement Directive aims to improve the way the 1996 Directive on the posting of workers is applied in practice, without changing its provisions. In particular, the Enforcement Directive would:


It’s good to hear that the Commission has the interests of EU citizens and expats suffering at the hands of discriminatory tax rules as one of its priorities. Just how high a priority this is, though, is open to question. For all of its promises over the past couple of years, the Commission has yet to deliver many, if any, improvements with regard to double taxation, and the whole area of taxation for intra-EU migrants remains something of a minefield.

It doesn’t help of course that the EU’s legislative process is usually a very protracted one; 28 Member States will want to have their say on these initiatives, while the European Parliament could slow their progress further by adding its own amendments to the proposals. The Commission does have powers to force member states to change their laws when it finds evidence that national laws conflict with EU ones, and it intends to use them to protect the interests of mobile citizens. But this three-stage infringement process is not exactly expeditious, and if such proceedings end up in the EU Court it can take years for the offending laws to be changed. And there is always the possibility that with EU governments looking for additional revenue, new tax laws will be introduced in the future which discriminate against non-residents.

So, while these initiatives might bring about a gradual improvement in the EU tax situation for expats, please don’t hold your breath waiting!

Tags: business | interest | dividends | Tax | Europe | Work | individuals | pensions | investment | France | Germany | Poland | Portugal | Luxembourg | legislation | law | services | construction | insurance | tax | tax avoidance |


Features Archive