Taxing times for cross-border workers

The financial crisis has led governments around the world to raise taxes, cut credits, reduce or abolish deductions, and even target pensions. More and more of us are paying higher taxes while seeing a reduction or removal of social benefits. Yet few consider the implications for a large and growing sector of the labour force: migrant workers. PhD fellow Irina Burlacu recently joined a major tax conference in Austria, where she linked the discussions and findings to her own research.

One of the largest conferences in Europe on tax and related laws took place from 4-6 July 2013 in Rust, Austria, under the theme ‘Trends and Players in Tax Policy’. Co-organized by the Institute for Austrian and International Tax Law, Vienna, the WU Global Tax Policy Center, and the Research Council of Norway, the event drew around 100 participants, mainly researchers and practitioners in the area of international and European tax legislation.

2013-08-05_105003Tracking trends
Ahead of the conference, many delegates were asked a series of questions including: “What, since 2000, have been the drivers of change in your country? What are the current trends in environmental and corporate income tax? How do you perceive the relationships between tax administrations and taxpayers? What do you see as the current policy priorities and future trends?” The results will be published in a joint collection in the coming weeks; but for now I wanted to summarize the key findings below.

First and foremost, many countries are moving to simplify their fiscal policy rules. This key trend has the potential to improve the relationship between tax administrations and taxpayers, and — in a globalized labour market — could usher in more fruitful cooperation between tax authorities.

These developments are crucial because of the mounting burdens facing taxpayers around the world. For example, workers now face increases in personal taxation in France, Germany, Greece, UK and USA; the abolition or reduction of personal deductions; discussions or shifts from no taxation to taxation of the retirement income in Germany, Colombia and Chile; and a shift from progressive to flat rates in Hungary, Kazakhstan and Romania.

Clearly, not just individuals but also businesses move country in search of lower taxes and greater profits. This can be mutually beneficial in the short-term, but in the long-term may create problems that spill over borders in different ways. The movement of large corporations has created economic shock waves, including what some observers see as the rising “global tax chaos”. The job of tax experts therefore is to identify regulatory gaps – covering both individuals and large businesses – and present policy makers with evidence-based solutions.

Defining agreements
One current anomaly in the EU is that there is still no agreed definition for tax purposes of a cross-border worker. Additionally, while social security benefits are coordinated under EC Regulation 883/2004, there is no tax regulation on income from more than two countries. Double tax agreements and national laws are the main policy instruments that determine the tax status of cross-border workers; yet these vary considerably from country to country and fail to cover all eventualities. In some cases, double tax agreements do not include any provisions on cross-border workers, relying on the main principle of the agreement by which the individuals are not confronted with the situation of being taxed twice.

Equality is a further problem. Mobility for work across EU (and other) borders creates both vertical and horizontal inequalities among domestic and mobile earners. Mobility deductions, child credits, and other tax policy instruments play a significant role in supporting welfare and balancing incomes. However, gaps remain that require more research, more ‘joined-up thinking’, and more effective policies.

Ultimately, the fact that a worker can be subject to multiple or bilateral tax treaties may, in one respect, be irrelevant. In the current economic climate, both migrants and domestic workers are likely to face net cuts in income. All tax experts can do is to ensure that (supra)national governments have the latest, most comprehensive information available to design, implement and coordinate effective cross-border tax policies. That was the goal of this particular meeting, which I was privileged to attend, and of my work in general.

By Irina Burlacu, PhD fellow at UNU-MERIT / School of Governance.



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