29 June 2017

Removing obstacles for cross-border workers. How do you do that?

On 28 June, the Vereniging voor Belastingwetenschap presented their report, Grenswerkers in Europa: Een onderzoek naar fiscale, sociaalverzekerings- en pensioenaspecten van grensoverschrijdend werken (Cross-border workers in Europe: An investigation into the tax, social insurance and pension aspects of cross-border work).  The report was drafted by a committee chaired by assistant professor Marjon Weerepas, who is affiliated with the Institute for Transnational and Euregional Cross Border Cooperation and Mobility (ITEM) at Maastricht University.

Together with experts from the various disciplines, they made an inventory of the problems encountered by cross-border workers in the areas of taxation, social insurance and pensions. The committee offered 39 recommendations for solving these problems. These recommendations are concrete enough to be implemented in policy such as the new tax treaty between the Netherlands and Belgium. In its mandate to the committee, the Vereniging voor Belastingwetenschap explicitly asked for a multidisciplinary investigation that was not only focused on taxation. The report’s recommendations can be applied by policymakers and governments throughout Europe.

Cross-border worker

In the past, a cross-border worker was someone who lived on one side of a border and worked on the other side. Thanks to greater mobility and new means of communication, cross-border employment can now also take other forms. For instance, a short- or long-term secondment, telecommuting or people who work in more than one member state (e.g. highly mobile workers such as international drivers, pilots and artists). They can be employees, or be self-employed. In short, there is no typical cross-border worker. That means that, in many cases, customisation is required.

Educational staff

Imagine you live in Belgium and work at an educational institution in the Netherlands. Because of a provision in the tax treaty, you are required to pay tax in Belgium for the first two years and make social insurance contributions in the Netherlands. As a result, the tax and social insurance payments are out of sync. The committee recommends removing that provision from the treaty.

Unfit for work

Now imagine that you are a Dutch citizen working in Germany who becomes unfit for work after five years there. Before you went to work in Germany, you were socially insured for 15 years in the Netherlands. Thus you had a total of 20 years [A1] of social insurance within the EU. You receive six weeks’ pay from your German employer and thereafter receive 72 weeks of German sickness benefit. In other words, only after those 78 weeks will you be entitled to collect the German Erwerbsminderungsrente (disability benefit). If you are entitled to a Dutch WIA (work and income according to labour capacity) benefit to supplement the German benefit, you will only receive it after 104 weeks. This leaves a 26-week-long ‘hole’ in your income, due to the different waiting periods in Germany (78 weeks) and the Netherlands (104 weeks).

An additional problem is that the Netherlands, Belgium and Germany have no reciprocal recognition of the degree of incapacity for work. The committee recommends that these countries make an agreement that ensures that these member states will make arrangements to overcome losses in cases such as this.

Retired

In 2017, the legal retirement age in the Netherlands is 65 years and 9 months. This age will increase by 3 months in 2018 and every 4 months in the years thereafter. In 2021, the legal retirement age will thus be 67 years. However, the legal retirement age in Belgium is 65 years. And if you have worked there for 40 years, you can retire at the age of 62 without any loss in benefits. In Germany, you can retire this year at the age of 65 years and 5 or 6 months if you were born in 1951 or 1952. It is possible to apply for an early retirement pension, but then your life-long benefit will be reduced.

If you are a Dutch cross-border worker who works in Belgium and has built up both Dutch and Belgian pensions, you can retire and collect your Belgian pension at the age of 62. But if your Belgian pension is low, you are basically forced to keep working until you reach the Dutch legal retirement age. That is difficult because by Belgian law you are automatically dismissed from your job at the age of 65. You are then almost forced to continue working part-time in the Netherlands.

Europe

Marjon Weerepas is convinced of the importance of a multidisciplinary approach: ‘When there are negotiations about tax treaties, experts in the field of social insurance must also be involved. Then they can ensure that allocation rules in the international regulations for social insurance coincide with those in the tax treaties. It is important that the different jurisdictions not only focus on their own jurisdiction and professional discipline, but literally and figuratively focus on looking over their own borders, also in cross-border effect tests. Cross-border workers are the pioneers of Europe. If Europe succeeds in solving the problems of cross-border workers, this will ensure great commitment among European citizens and a stronger European spirit.’