Documents considered by the Committee on 26 January 2011 - European Scrutiny Committee Contents

3   Taxation



+ ADD 1

COM(10) 769

Commission Communication: Removing cross-border tax obstacles for EU citizens

Legal base
Document originated20 December 2010
Deposited in Parliament6 January 2011
DepartmentHM Treasury
Basis of considerationEM of 18 January 2011
Previous Committee ReportNone
To be discussed in CouncilNone planned
Committee's assessmentPolitically important
Committee's decisionFor debate in European Committee B


3.1  Amongst other matters the Europe 2020 Strategy emphasises the importance of empowering EU citizens to play a full part in the single market. The Commission's "EU Citizenship Report 2010: Dismantling the obstacles to EU citizens' rights"[13] and its Communication on the Single Market Act[14] both identified several cross-border taxation issues that the Commission believes pose a barrier to EU citizens operating in the single market.

The document

3.2  In this Communication the Commission identifies what it perceives to be the most pressing cross-border tax problems that EU citizens face and outlines possible solutions. Several of the tax obstacles the Commission highlights are ones which it has previously identified in the two earlier Communications. The present Communication is accompanied by a staff working document that provides more detail of instruments available to citizens for resolving cross-border tax obstacles and of previous instances where the Commission believes that Member States' tax laws have been in conflict with EU law and have caused problems for citizens in cross-border situations.

3.3  The tax obstacles identified by the Commission in the Communication are based on complaints it has received from EU citizens and relate to the following broad categories:

  • the complexity of foreign tax rules and the difficulties in obtaining information on them;
  • the application of local taxes on foreign residents;
  • the difficulties faced by cross-border workers (that is, those who move abroad to work temporarily or permanently or cross borders every day to go to work);
  • cross-border property taxation issues;
  • difficulties in obtaining relief from withholding taxes on foreign moveable assets;
  • cross-border pension taxation issues;
  • cross-border inheritance tax issues;
  • double registration taxes and/or circulation taxes for cars;
  • tax obstacles to cross-border shopping (including e-commerce);
  • difficulties faced by artists, musicians and other independent service providers; and
  • barriers hindering the recruitment of employees from across borders.

3.4  Given the obstacles it outlines, the Commission says that:

  • EU action, for example closer cooperation and coordination between Member States, is needed to make the tax systems of different Member States more compatible and to facilitate the ease of cross-border transactions for EU citizens;
  • it will actively pursue citizens' complaints about Member States' tax laws and ensure greater transparency and information, including through the EU citizens' advice services; and
  • it undertakes to continue monitoring Member States' tax legislation and to systematically require (and monitor) the rectification of any incompatibilities with EU law.

3.5  The Commission also highlights actions it plans in order to address what it perceives to be the most important unresolved tax problems faced by EU citizens in cross-border situations:

  • presenting a detailed analysis of double taxation problems in 2011 and working on a definitive solution for 2012 (based on an impact assessment), such as a binding dispute resolution mechanism between Member States;
  • proposing solutions to cross-border inheritance tax problems in 2011 (based on an impact assessment);
  • proposing solutions in 2012 to problems arising from taxation of cross-border dividend payments (based on an impact assessment);
  • proposing solutions concerning the cross-border problems for EU citizens in the field of passenger car taxation;
  • preparing future action based on stakeholder responses to the Green Paper on the future of VAT, including the One Stop Shop concept, which could help reduce tax and reporting obligations on cross-border shopping;[15] and
  • launching a debate with Member States in 2011, in a working group of tax experts, on ways of simplifying tax compliance in cross-border situations.

The Government's view

3.6  The Exchequer Secretary to the Treasury (Mr David Gauke), noting that the Communication is a discussion document and, as such, makes no legislative proposals, says that:

  • if any legislative proposals in this area were to be put forward, they would need to be examined carefully for any implications for UK tax policy;
  • any such proposals would be subject to the usual scrutiny process; and
  • as tax matters, the Government would expect decisions on such proposals within the EU to be subject to unanimity.

3.7  Noting that many of the issues addressed in the Communication relate to direct taxation, the Minister comments that:

  • the Commission may bring forward direct tax proposals if it believes it is necessary for the functioning of the single market;
  • the European Court of Justice has, however, consistently held that direct taxation falls within the competence of Member States, though Member States must nonetheless exercise that competence consistently with EU law;
  • the Government remains of the view that direct taxation falls primarily within the competence of Member States; and
  • it would consider any proposal from the Commission in that light.

In relation to the Commission's advocacy of coordination and cooperation between Member States to address issues such as double taxation and incompatibilities between different tax systems the Minister says that:

  • the Government has expressed its continued commitment to addressing double taxation where it occurs and remains willing to engage with the Commission and other Member States on this issue; however
  • it would require any proposals for action at EU level to be supported by clear evidence that there are problems which cannot be effectively dealt with by existing Directives, bilateral agreements and countries' unilateral relief arrangements.

3.8  The Minister tells us that the staff working document accompanying the Communication covers several issues where there are ongoing infraction or court proceedings against the UK or other Member States. He comments that:

  • the Government would be cautious of any policy development in these areas that appeared to pre-empt the outcome of the legal process; and
  • there is a risk that the European Court of Justice could come to a different conclusion, which would then have primacy over any policy communication by the Commission.

3.9  Finally the Minister says that the Government will continue to engage with the Commission as this work develops and will consider the details of any communications or proposals on specific aspects of cross-border taxation it brings forward.


3.10  This Communication deals with important issues and touches on potentially troublesome matters. We note both that it is, as the Minister says, a discussion document and that the Government is taking a robust stance in relation to any potential encroachment on national tax sovereignty. Nevertheless we recommend the document for debate in European Committee B so that Members may reinforce the need to avoid any encroachment on national tax sovereignty.

13   (32139) 15936/10: see HC 428-xiii (2010-11), chapter 1 (19 January 2011). Back

14   (32132) 13977/10: see HC 428-x (2010-11), chapter 11 (8 December 2010). Back

15   (32317) 17491/10 + ADD 1: see HC 428-xiii (2010-11), chapter 7 (19 January 2011). Back

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