Tax reform: ALEBA calls for more equal treatment for frontaliers!

bettelALEBA is once again highlighting the Bettel government’s tax reform plans. To be discussed in the Chamber of Deputies in mid-December, these would apply from 2018 regarding income earned in 2017.

As we had already pointed out in March, while this tax reform is mostly positive, it is unfair in several important ways that we cant support, and it remains vague on number of other points,” said Laurent MERTZ, General Secretary of ALEBA.

First of all, ALEBA is critical of the tax treatment of cross-border commuters: “yes, the reform seeks to tax residents and non-residents the same way, and this might seem logical, but the result is unfair and we cannot accept this.”

ALEBA is also opposed to the move to put all frontaliers who are married into tax class 1 by default, in contrast to residents who are put automatically into class 2. “Of course, frontaliers who are married or in a civil partnership can ask to be taxed under class 2, but we think it would be fairer and easier to put everyone directly into class 2.

In addition, for married/partnered cross-border workers to be put into class 2 they have to justify a certain proportion of their income being earned in Luxembourg. For Belgians this is 50% (no change) and for Germans and French this is henceforth 90% (50% currently). “This could have a considerable financial impact for those frontaliers who dont have a partner working in Luxembourg, for example!” ALEBA believes that unless class 2 is applied for those taxed as couples (resident or not) new and more adequate bilateral tax conventions are needed (especially with Germany and France) alongside the reform.

The new opportunity for couples to be taxed individually is welcomed by ALEBA, but it will be hard to implement: “there are numerous, complex implications for households, and everything will depend on the particular circumstances and income of each couple, particularly if they must chose in advance.”ALEBA suggests keeping this principle, but that taxpayers should be able to choose whether to be taxed individually or as a couple when they make their tax declarations.

Several practical questions remain open for ALEBA regarding the implementation of this measure. For example, on which form should children, household costs and tax breaks be declared? Similarly, ALEBA does not understand the different treatment proposed for families with children depending on whether the couple are married or in a civil partnership.

Nevertheless, ALEBA welcomes the new measures which will benefit households and families, such as the creation of a more equal tax scale, tax credits adapted to income (even if there is still a lack of precision regarding tax credits for employees, pensioners and single parents), the increase of the tax-free limit for housing savings plans and private pension plans, as well as reductions of interest rates linked to housing loans.

Households on low to medium income will be particularly affected and that can only have a positive impact on their spending power,” Laurent MERTZ pointed out with satisfaction. “The confirmation of the abolition of the 0.5% budget balance tax is also clearly good news. Nevertheless, it is essential that taxation should be truly fair, and it is regrettable, for example, that the government did not go further by lifting the tax burden on low-income single-parent families.” ALEBA also regrets that a lack of political courage meant there were no thoughts to merge, once and for all, the different tax classes to create just one. Also, the financial sector trade union believes a greater contribution could have been asked of companies.

ALEBA would like to remind people that these tax changes also follow much less pleasant moves made by this government. This includes the increase in VAT and the repeated delay of salary indexation (which will after all not be applied in 2016), not forgetting the introduction of the temporary budget balancing tax!

ALEBA is ready to join with other national organisations to denounce a reform which must be improved before being passed into law. We are also ready to act alone. Without movement by the government, ALEBA will call on its members to demonstrate our disagreement on front of the Chamber of Deputies on 14th December.

 (Luxembourg, 1st December 2016)


Press contact :

Laurent MERTZ, General Secretary ([email protected] / (+352) 621 232 295)

Sandra CARVALHO, Head of Communications & Strategy ([email protected] / (+352) 671 223 228)