Tax arrangements for cross-border workers to be investigated

It intends to assess the direct tax provisions of its member states to ensure that they do not create unfair disadvantages for workers that live in one country but work in another. The Commission will flag discriminatory provisions to national authorities, who could face infringement procedures if they do not correct any problems.

"EU rules are clear: all EU citizens must be treated equally within the Single Market," said Tax Commissioner Algirdas Šemeta. "There cannot be discrimination, and workers' right to free movement must not be impaired. Most member states respect these core principles but I am ready to take any measure necessary to ensure that they are reflected in all member states' tax rules."

It is estimated that more than 1.2 million people work cross-border in the EU, with combined gross wages amounting to €46.9 billion in 2010. However, the Commission said that tax obstacles remained "one of the key deterrents" to cross-border mobility, despite its potential for increasing growth and employment in Europe.

Tax law expert Chris Thomas of Pinsent Masons, the law firm behind Out-Law.com, said that the UK was less likely to be affected by the Commission's investigation than it had been in relation to previous EU initiatives seeking to tackle discriminatory tax rules.

"The UK Government has been forced to review some key pieces of legislation, including the anti-avoidance rules which apply to the transfer of income streams out of the UK and to gains made by certain foreign companies," he said. "It probably has less to fear in relation to the rules for cross-border workers, but it will be interesting to see what the Commission concludes and how far it will go in applying the non-discriminatory principle."

For the purposes of the investigation, the Commission said it would scrutinise whether workers who earn most of their income in another EU member state are taxed more heavily than that state's own citizens, as well as whether all personal and family deductions available to residents are in practice available to workers resident elsewhere in the EU. It will also investigate whether member states differentiate between their own citizens and workers from other member states with regards to different tax rates and the right to deduct expenses.

The inquiry will consider the tax treatment of self-employed workers and pensioners as well as those in employment.

Last month the UK was told it must amend its rules for taxing companies who transfer their headquarters from the country to another member state or risk referral to the Court of Justice (ECJ). The Commission said that the UK's exit taxes, applied to gains in the value of any capital assets when a company moves its place of management and control to another country, "may breach the freedom of establishment" under EU rules because no similar charge arises when a company moves to another location within the UK.