SME Chamber

Cross-border Tax Obstacles – GRTU DG presents paper at EESC

 Vince Farrugia GRTU's Director General and EESC employers representative has yesterday presented at EESC his final draft report for an EESC opinion in his position as Rapporteur on the Commission Communication on removing cross-border tax obstacles for EU citizens. The paper was very welcomed even by representatives of other institutions.


The existence of different tax jurisdictions in the EU may impose an added burden on EU citizens who work, invest and operate across borders because of double taxation and an overlap of administrative requirements among other reasons. General tax rules have been implemented to prevent discrimination between citizens of the EU and to eliminate as much as possible obstacles on the freedom of movement of people, goods, services and capital such as VAT on consumption of goods and services and anti-avoidance general rules. The aim of the Commission is to design tax policies and regulations that promote economic growth and job creation while enhancing competition.

Over the past decade, growth in the movement of goods, services and capital raised more concern on problems associated with cross-border taxation. These are likely to increase if measures are not implemented to lower the barriers as much as possible. The queries highlight the need for simplifications in tax rules and application procedures, enhanced availability of all information related to these rules together with the need to remove language barriers and barriers which hinder cooperation between the authorities involved.

Tax discrimination issues related to nationality and other unjustified restrictions are mainly tackled through EU Treaty rules. However, the current system does not protect EU citizens against various other problems including limited tax information access, double taxation and mismatches occurring from different tax structures. Although it has been widely recognised that complete tax harmonisation is neither desirable nor feasible, measures that lower tax barriers to cross-order business are necessary.


Double Taxation

There are various tax obstacles that EU workers and investors face when dealing with Member States other than their home country. Double taxation is one of the main obstacles for cross-border activity and it limits the functions of the Internal Market. Other tax barriers relate to problems in obtaining allowances, tax reliefs and deductions from foreign tax authorities. Moreover, in some cases EU citizens pay higher taxes on foreign income.

Inheritance tax

Different Member States endorse different inheritance tax rules while bilateral tax agreements among Member States are very limited. From all 27 Member States, 18 have an inheritance or estate tax which is specifically paid by the heirs or from the estate of the deceased. Over 80% of these Member States have an inheritance tax while the remaining adopted an estate tax. Denmark is the only Member State with both taxes.

Taxation of dividends paid across borders

Taxes on dividend payments are usually paid in two Member States where cross-border situations are involved. Problems associated with these circumstances include difficulties in relation to tax refunds particularly when various layers of taxation are involved and also where there exist difference in taxes among foreign and local investors.

Vehicle registration and circulation tax

When individuals buy and transfer cars from a Member States which is not their residential country, they face additional taxes such as double registration and/or circulation taxes. A Directive proposed by the Commission in 2005, aims at phasing out car registration taxes while applying a system of refund. Still, there has been no unanimous agreement in this regard.


Research has shown that around 60% of EU customers find problems in buying goods and services online across borders. In fact, certain transactions are not completed even if customers could save money on the purchase. VAT issues are one of the many tax obstacles discouraging businesses to sell their product to foreign Member States. The availability of a one-stop shop has facilitated trade in this regard and encouragement of broader application of this application is deemed to be a priority.

Next step will be for the paper to be formally approved by the ECO Section next month.

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