European Union member states are set to face increased scrutiny to ensure their tax regimes do not penalise citizens who work or reside outside their country of origin.
The European Commission has identified tax discrimination as one the major barriers preventing EU citizens from leaving their home country and looking for employment elsewhere.
The Commission said free movement of people was vital to long-term growth and employment within the EU. Worker mobility for the EU-15 is estimated to have increased GDP almost one per cent in the long term as a result of post-enlargement mobility.
Algirdas Semeta, commissioner for taxation, customs, anti-fraud and audit, said:
EU rules are clear: all EU citizens must be treated equally within the Single Market. There cannot be discrimination, and workers' right to free movement must not be impaired. It is our duty to citizens to ensure that these principles are reflected in practice in all Member States' tax rules.
The Commission is already engaged in several initiatives to tackle barriers to free movement such as double taxation. Should the Commission take action to the prevent tax discrimination by EU member states, British citizens will be among the largest number of beneficiaries, with 1.4m residing in the European Union the fifth highest of any member state.
The Commission said citizens may be suffering tax disadvantages:
- because of the location of their investments or assets, the location of the taxpayer himself or due to the mere change of the taxpayer's residence;
- in respect of their contributions to pensions schemes, receipt of pensions or transfers of pension and life insurance capital;
- in respect of their self-employed activities carried-out in another State or due to the mere relocation of such activities;
- because of the refusal of certain tax deductions or tax benefits;
- in respect of their accumulated wealth.