Cross-border double taxation occurs when two different countries subject the same item of income or property to tax for the same period and in the hands of the same taxpayer.
There is no general EU measure to eliminate double taxation. Most EU countries have bilateral tax treaties in place with each other to relieve double taxation when it occurs.
The Court of Justice of the EU has ruled that, in the absence of an EU-wide measure to eliminate double taxation, EU countries retain the power to define by double taxation treaty, or unilaterally, the criteria for allocating their power of taxation between them, particularly with a view to eliminating double taxation. Furthermore, EU countries are not obliged under EU law or international law to conclude tax treaties with each other
EU countries’ double tax treaties are generally based on the Model Convention drafted by the Organisation for Economic Co-operation and Development (the “OECD”). The basic principles explained below are based on that OECD Model Convention. Please note that an actual double tax treaty between two countries may depart from the Model so you should consult relevant national websites for more information. It should be noted that tax treaties may not all cover the same set of taxes (some treaties cover income only, others income and capital and so on). There can also be separate tax treaties relating to specific taxes such as inheritance tax.
Please note also that tax treaties are subject to re-negotiation and amendments. Sometimes new tax treaties are concluded to replace the existing ones and certain countries may have other, local or regional arrangements with each other that may influence your tax position if you are a cross-border worker.
We do not advise you to analyse the double tax agreements yourself, if you are not a tax expert. Please rather consider the consultation of specialists in EURES. To reach the appropriate EURES expert, please see the EURES advisers web site (the advice is free of charge).
Please also consult Your Europe for information on the likely tax rules applicable to individuals in different cross-border situations (e.g. migrant employees, cross-border workers, self-employed persons, directors of foreign companies, artistes, researchers).
Please also note that if you do business in another country you might be subject to other obligations such as VAT registration and compliance or keeping accounting records.
General Principles in double taxation treaties
To determine where you should pay your taxes it is important to establish in which country you are tax resident. Usually a country will tax a resident of that country on his income from all sources – domestic or foreign – whereas it will only tax a non-resident on his income arising in that country. The tax treaty normally contains rules to establish residence in cases where two countries regard someone as resident.
Double tax relief
If you are taxed in two countries, the country where you are deemed resident will probably grant you double taxation relief in the form of either a tax credit for any tax paid abroad or else an exemption for your foreign income so that the tax paid in the foreign country is the final tax on your foreign income. Note that the credit which the country of residence allows will only be for the amount of tax due in that country. If the tax in the other country is higher the excess over the amount of tax due in the country of residence will not be refunded. In addition, you may need to be able to prove that you have paid tax abroad.
In order to claim double taxation relief or a refund of tax which you have paid you may be required to provide certain documents proving your place of residence or place where taxes have been paid.
Mutual Agreement Procedure
Mutual agreements are instituted by most bilateral tax treaties and the standard provision can be found under Article 25 of the OECD Model Tax Convention. The procedure is intended for resolving difficulties arising out of the application of tax treaties. The purpose is for the authorities of the two countries to agree on solutions to individual cases in application of the bilateral treaty. The problems in question could concern the interpretation or application of the treaty or the elimination of double taxation. This procedure can be used instead of or in addition to procedures in the courts of the two countries concerned. The advantage of the mutual procedure is that both countries’ administrations are involved.
Tax treaties distinguish between public pensions, private pensions and social security pensions. In most cases public pensions are taxed in the source country (the country that pays out your pension) and private pensions are taxed in the country of residence.
Savings income (interest)
Interest that you earn, whether on a savings account or otherwise, could be taxed in the EU country where the payer of the interest is based. Normally, the payer – a bank or other financial institution – is obliged to withhold and pay tax to the authorities of the state where it is based.
However, the interest income could also be subject to tax in your country of residence.
You should note the fact that under EU rules your bank will report interest paid on your savings to the tax authorities of your EU country of residence (unless your bank is based in Austria or Luxembourg).
For more information please see the Savings Directive sub-page.
You may receive dividends from another EU country. In this case that country may, depending on the tax treaty with your country of residence, be entitled to apply a withholding tax to the dividends; you will then only receive an amount net of tax. Furthermore, the country may apply a higher withholding tax rate than the rate applicable under the tax treaty. In that case you will have to claim back the excess withholding tax from that country by providing proof of residence in your country.
If you sell a property (such as your house or a car or securities) you may be subject to tax on capital gains (profit) you make on such a sale.
Most often capital gains from the sale of a house (“immovable property”) could be subject to tax in both the country where it is located and the country of your residence whereas movable property (such securities) might be taxable only in the country of your residence.
Property income (rent)
Income from immovable property – such as income from renting a house or income from agriculture and forestry – situated in an EU country different from your country of residence may be subject to tax in the country where that property is situated.
Please note that the above explanations are general. The tax treaties concluded by EU countries may contain exceptions to these general rules. Also, each country has its own definition of 'tax residence' and definitions of various types of income/capital gains which you need to consult. Your specific circumstances should always be taken into account. To know more about your particular situation you can contact the tax authorities of your country of residence or of any country where you earn your income.