Under the EC Treaty, individuals are entitled to move freely for work reasons from one EU Member State to another without suffering discrimination as regards employment, remuneration or other conditions of work and employment. Cross-border workers are persons who work in one EU Member State but live in another. It should however be stressed that the definition of what a cross-border worker exactly is may vary from one field to another (e.g. tax law, right of residence, welfare entitlements).
Social security and cross-border workers - special Community rules exist
In the field of social security there exist Community rules which define the concept of cross-border worker for the purpose of determining in which Member State they are entitled to social benefits. The Community definition in the social security field covers both employed and self-employed persons.
Taxation and cross-border workers - no special Community rules exist
In the field of taxation there exist no rules at Community level regarding the definition of cross-border workers, the division of taxing rights between Member States or the tax rules to be applied.
Neighbouring Member States with many persons crossing borders to work often agree special rules for cross-border workers in their bilateral double taxation conventions.
Since these rules reflect the special situation between two Member States and are the result of negotiations between them, it follows that these rules vary from one double taxation convention to another. This applies both to the definition as such, and the division of taxing rights between the Member States concerned. Normally any special rules for cross-border workers are limited to persons who both live and work close to the border and are employed. They may even be limited to persons employed in the private sector (as opposed to the public sector).
Income earned by a cross-border worker may be taxed in one or both of the Member States concerned, depending on the tax arrangements. In the latter case, tax paid in the Member State where the work is carried out would normally be taken into account when determining the tax liability in the Member State of residence, in order to avoid double taxation.
There are no rules which guarantee the cross-border worker the right to the most favourable of the tax regimes of the Member States involved (see the Gilly case, para 46. C-336/96).
Cross-border workers and the non-discrimination principle
Taxation in the State of residence
The EC Treaty freedoms and the non-discrimination principle mean that the cross-border worker may not be discriminated against in his State of residence, because he works in another Member State .
To the extent that he/she is taxed in the State of residence on income from employment or self-employment exercised in another Member State , he/she should therefore normally have the same right to deduction for work-related costs or costs of a personal kind in the State of residence as if the work had been carried out there. This may be the case for instance as regards costs for travelling to and from work, social security contributions paid in the Member State of employment/self-employment, child-care fees, pension contributions etc.
Taxation in the State of employment
From the point of view of the State of employment, a cross-border worker falls within the broader category of non-resident workers - non-resident meaning that they have their tax residence somewhere else.
According to Article 39 EC and Article 7 of Regulation 1612/68, non-resident workers shall enjoy the same tax advantages as national workers. For tax advantages related to the personal and family situation, this rule applies as long as the situation of a non-resident worker is comparable to that of a resident worker. The Court of Justice has constantly held that residents and non-residents are not generally in the same situation. Differences in taxation between residents and non-residents may therefore not necessarily constitute discrimination.
However, where a non-resident worker - including a cross-border worker - is virtually in the same situation as a resident worker (for instance because he/she earns all or almost all of his/her income in that State), the non-resident worker may not be subject to less favourable tax rules in the State of employment than residents of that State. National rules denying the deduction of costs and expenses from a taxable income are not allowed if the costs and expenses are directly linked to the economic activity which generated the taxable income.
The Commission Recommendation of 1993 regarding non-resident workers
On 21 December 1993 the Commission issued a Recommendation (94/079/EC) on the taxation of certain items of income received by non-residents in a Member State other than that in which they are resident.
The recommendation proposes to Member States a Community system for taxing income of non-resident workers. The main feature is that non-resident persons should benefit from the same tax-treatment as residents, if they obtain the major part of their total income in one Member State . In such situations, the Member State of residence would be allowed to reduce the personal tax advantages correspondingly in order to avoid that personal allowances could be enjoyed twice.
The case-law of the Court of Justice relating to cross-border workers
The principles of the Recommendation were largely confirmed by the Court of Justice in its judgment of 14 February 1995 in the Schumacker case (C-279/93). They have been further settled in later judgments such as Gschwind C-391/97 , Zurstrassen C-87/99 , Gerritse C-234/01, Wallentin C-169/03 and Meindl C-329/05. The Gschwind case suggests that non-residents obtaining 90% or more of their total income in the state of employment should normally be entitled to the same tax treatment as residents.
For further information on the personal tax systems of the different Member States and on the network of bilateral tax treaties between Member States see the links section of this website.