Press Release: 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, on 31 January, 2008, the European Commission 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.