5.2. Explore expatriate taxation options
If EU institutions are indeed unable or unwilling to put an end to harmful specifc regimes, an alternative
way to eliminate tax competition for individuals would be to establish a unilateral mechanism for the
temporary taxation of expatriates who decide to move their tax residency outside of a given country. A
former tax resident who has been resident for tax purposes for a substantial period of time in one of
the member states would continue to be subject to a tax obligation towards the original country of tax
residence for a specifed number of years, even after a change of tax residence.
Unilateral national measures facilitating the taxation of expatriates following their departure from a
given country are not new in European legislation. Some general schemes are currently in place to force
taxpayers to remain liable for taxation in their home country. These include e.g. a “tax quarantine” in
place in Spain, the Gesetz über die Besteuerung bei Auslandsbeziehungen (Foreign Tax Act) applied in
Germany or similar regimes in Italy and France, all of which in one way or another prolong the tax liability
of ex-residents for a period of time after expatriation (see Appendix A.3.1 for a more detailed overview).
If implemented, a reform would stipulate that this post-departure tax should be calculated according
to a differential taxation principle. The country of departure would tax the expatriate for a number of
years as if he/she were taxable on worldwide income while providing tax credits corresponding exactly
to amounts already paid abroad, especially to those paid in the new tax domicile. Since most schemes
are anti-progressive, aiming to reduce the tax burden of the wealthiest individuals, a minimum taxable
income above which this reform applies (e.g. EUR 100,000 taxable per year) might be considered, so as
not to burden involuntary business moves or mobility that does not give rise to particular tax benefts.
If introduced, such unilateral measures would immediately remove some of the tax incentive to change
one's country of tax residence, leaving the decision to expatriate to other motivations for departure that
are assumed to be completely legitimate. National tax exile would be strongly limited thanks to the
disincentive effects of the proposed mechanism. Thus, the argument that is raised against wealth taxes,
assuming that this type of measure encourages migration, cannot be applied here given that this reform
offsets part of the incentives to migrate for tax matters.
The main goal of this proposition is to put an end to EU tax competition to attract European taxpayers
by making preferential schemes inefficient. Indeed, implementing the measures outlined above may
be justified simply by pointing out that a taxpayer who has made a fortune in their home country while
also benefiting from its educational system, its public infrastructure, and its services, as well as from
the prevailing economic, political and legal climate, has a duty to continue to contribute temporarily to
the tax revenues of this country, even after moving to a country with a more advantageous tax regime.
The implementation of such measures would immediately raise many obstacles, especially in view
of existing community law and tax treaties governing the bilateral taxation rules of many member
states. The proposed reform may be incompatible with the freedom of establishment by contributing to
signifcant differences in tax treatment between two taxpayers. It also implies a review of the bilateral
tax treaties between different jurisdictions. However, these obstacles are not prohibitive in the light of
the current state of European case law (see Appendix A.3.2 for a more detailed discussion).
It is clear that this reform might face legal and political obstacles whose resolution goes far beyond
the scope of this report. However, EU institutions are reassessing permanently the prerogative of the
member states in matters of taxation. If EU cannot regulate aggressive personal income tax competition
on the grounds that it is overreaching, it may induce individual countries to take unilateral measures
against the tax departure of their taxpayers.
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