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Brussels, 31 January 2008

Direct taxation: Commission requests Germany to end discriminatory rules applied to non-resident taxpayers (mainly artists, sportsmen and journalists)

By a Supplementary Reasoned Opinion under Article 226 of the EC Treaty, the European Commission has formally requested Germany to modify the withholding tax system applied at source on the income of certain categories of non-resident taxpayers – particularly artists, journalists and sportsmen. Following the Reasoned Opinion sent in March 2007 (see IP/07/413), Germany introduced in April 2007 a restricted possibility to deduct business expenses from the gross income and increased the withholding tax rate from 25% to 40% in case business expenses were allowed for deduction. On the other hand, similar German resident tax payers are allowed to declare their net (deduction of business expenses taken into account) income annually. The Commission considers that the new restricted possibility to deduct business expenses and the increased withholding tax rate are incompatible with the principle of freedom to provide services in the Internal Market.

Contrary to resident tax payers who have to declare their income annually, Germany applies a withholding tax at source of maximum 25% on income paid to certain categories of non-residents (artists, sportsmen, journalists or other similar categories). It is only in a subsequent refund procedure that the non-residents have the right to ask for reimbursement of overpaid tax.

Following the Reasoned Opinion sent in March 2007, non-resident taxpayers can deduct their business expenses only in specific situations.

On 5 April 2007, the German Federal Ministry of Finance published a circular according to which:

  • business expenses may be deducted in the withholding-tax procedure, only where they exceed 50% of income, and
  • the withholding tax rate is increased from 25% to 40% in cases where business expenses are allowed for deduction.

In the Commission's view the amendments introduced by the circular constitute a considerable obstacle to the cross-border provision of services as guaranteed by Article 49 of the EC Treaty. Indeed, the limitation of the deduction of business expenses from gross receipts to only where they exceed 50 % and the increased tax rate of 40 % in many cases result in an objectively unjustified higher taxation of such non-residents as compared with residents. The Commission's opinion is supported by the judgments of the European Court of Justice of 03.10.2006 and 15.02.2007 in Cases C-290/04 ("Scorpio"), C-345/04 ("Centro Equestre") and C-234/01 ("Gerritse").

The Commission's case reference number is 1999/4852.

For the press releases issued on infringement procedures in the area of taxation or customs, see:

For the latest general information on infringement measures against Member States see:

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