Dossier questions
In March 2018, questions were raised about Dossier 2 of the ITEM Cross-Border Impact Assessment 2017. We can imagine that similar questions exist elsewhere and in this context, we would like to share our response publicly. Our statement regarding ‘Annex 1.3 Scenario 3: Single-earner‘ of Dossier 2 can be found in the document below:
Full dossier
The entire dossier is available in Dutch and English here.
Netherlands-Germany tax treaty
Professor Anouk Bollen-Vandenboorn
Kilian Heller, LL.M.
Bastiaan Didden, LL.M.
Sander Kramer, LL.M.
Professor Marjon Weerepas
Introduction
On 1 January 2016, the new tax treaty between the Netherlands and Germany entered into force.[1] The Cross-Border Impact Assessment 2016 also looked at the border effects of the new tax treaty by taking a closer look at the changes to the specific treaty articles on earned income and pensions in more detail.[2] One of the recommendations in the 2016 Cross-Border Impact Assessment was to make a comparison between the income situation of border workers (both Dutch and German) and their neighbours and colleagues.[3] The Cross-Border Impact Assessment 2017 follows this up with an expost analysis at an early stage of the border effects under the theme ‘European integration’.[4] Based on the detailed, practical calculations by Bol Adviseurs, insight is provided into how Dutch and German cross-border workers are treated for tax purposes: to what extent will they be treated equally with their colleagues or neighbours for tax purposes under the new tax treaty?
Method
Three scenarios have been drawn up to compare the differences in the net disposable income of German and Dutch cross-border workers under the new tax treaty. These comparisons also consider the significance of the two concessions for cross-border workers included in the protocol to the new tax treaty: the compensation scheme and the ‘Splittingverfahren’.
Conclusions
One of the main conclusions that can be drawn is that under the new treaty, there is no longer full parity with neighbours and colleagues. In general, ‘the same pay for the same work in the same place’, i.e. equal net pay, is not only achieved through bilateral tax treaties between states,[5] as the purpose of tax treaties is to avoid double taxation by sharing tax rights between the contracting states. Depending on the scenario, the tax treaty appears to put affected frontier workers at a disadvantage compared to their neighbours and colleagues. The relief in the form of the compensation scheme does not always seem to provide sufficient relief for Dutch cross-border workers.
Scenario 1
Based on the calculations in scenario 1 (single earner plus partner), the compensation scheme seems to improve the position of Dutch cross-border workers if they are not married to their partner. In that case, there is a marked increase in net income, while the difference with neighbours and colleagues is reduced. For German cross-border workers, the calculations suggest that the new tax treaty has no effect on the net income of married partners when only one of the partners earns. However, it is worth noting that German cross-border workers are generally in a better tax position than their German neighbours.
Scenario 2
Based on the calculations in scenario 2 (dual earners), Dutch cross-border workers are generally in a worse tax position than their neighbours, more specifically in a lower income bracket. Thus, the compensation scheme seems to fail to achieve sufficient equality between Dutch cross-border workers and their neighbours. In contrast, Dutch cross-border workers are in a better tax position than their counterparts, thanks in part to the relief under the compensation scheme. By comparison, German cross-border workers are generally in a more favourable tax position than their neighbours. This advantage is greater in both absolute and relative terms in the low-income bracket. Moreover, German cross-border workers are in some cases in a better tax position than their counterparts, largely because of the export of German child benefits to the Netherlands.
Scenario 3
The calculations under scenario 3 (single earners) show that Dutch cross-border workers are significantly worse off than their neighbours in terms of net income, even though they are entitled to the compensation scheme. From an income perspective, however, they are in a better position than their German counterparts. German cross-border workers in the Netherlands working alone also lack parity and take home significantly more than their German neighbours. Yet they do have parity with their Dutch colleagues.
Future research
Although achieving full parity in the future seems difficult due to the lack of harmonised national tax and social security systems, we believe it is worth monitoring border effects in this dossier. A quantitative and qualitative data analysis could be conducted to establish the relationship between the convention and cross-border labour mobility and the impact on sustainable/socio-economic development. To this end, the cross-border activities of cross-border workers should be monitored in a coherent manner, as mentioned in last year’s Cross-Border Impact Assessment, to get a representative picture of the effects of new legislation on the positions of these individuals. The coherent collection of such data will make the analysis more representative, which will then allow us to evaluate cross-border mobility and thus the success of the European integration project.
_____________________________________________
[1] Bundesgesetzblatt Jahrgang 2012 Teil II no. 38; Tractatenblad van het Koninkrijk der Nederlanden Jaargang 2012, no. 123.
[2] The Cross-Border Impact Assessment Tax Treaty Netherlands-Germany can be found on ITEM’s website:
[3] For the recommendations on this point from the ITEM Cross-Border Impact Assessment 2016, see Dossier 1B: Tax Treaty Netherlands-Germany, Pensions (NL), p. 38.
[4] Note that the specific impact on frontier workers and frontier regions still cannot be quantifiably measured, as the treaty has only been in force for a year and a half, no consistent data on frontier work has been collected, and the beneficiaries of the treaty had the option to continue with the old treaty in 2016, based on the general transitional regime (Article 33(6) of the new treaty).
[5] See also European Commission, Speech 15-6074 by the Commissioner for Employment, Social Affairs and Labour Mobility, Marianne Thyssen (Maynooth University of Ireland, Dublin), 13 November 2015. At: http://europa.eu/rapid/press-release_SPEECH-15-6074_en.htm?locale=en.
