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Is the tax calculation method for exemptions with progression contrary to EU law? Quantitative and formal–analytical analysis

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  • Thomas Kollruss

    (IU International University of Applied Sciences)

Abstract

This study analyzes whether the tax progression proviso’s calculation method for foreign income exemptions under a tax treaty breaches EU law. This research question has not yet been examined in the literature. In such a case, a violation of the EU fundamental freedoms may result in taxpayers partially losing the tax-reducing effect of the basic allowance deduction due to the tax progression proviso’s calculation method in their EU or EEA state of residence. Theoretical, quantitative, and formal–analytical research methods were used to examine this issue. Moreover, the analysis uses Germany and Austria as examples. However, the findings can be replicated in all EU and EEA countries applying the same type of taxation. The study’s main contribution is demonstrating that the current progression proviso’s calculation method in Germany and Austria for income from other EU Member States and EEA states, exempt under DTAs, breaches EU law and is, therefore, prohibited. The fiscal policy implications of such unlawful taxation are highlighted. EU and EEA Member States must amend their tax laws if they violate EU law. Therefore, a new calculation method for taxation with a progression proviso is developed to bring the EU Member States’ tax legislation in line with EU law. The study expands the literature on taxation and public finance, since it has not yet dealt with this issue. Moreover, the economic policy implications of the research findings are outlined. This study belongs to the field of taxation and fiscal policy and is of fundamental relevance.

Suggested Citation

  • Thomas Kollruss, 2025. "Is the tax calculation method for exemptions with progression contrary to EU law? Quantitative and formal–analytical analysis," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-29, December.
    • Handle: RePEc:spr:fininn:v:11:y:2025:i:1:d:10.1186_s40854-024-00706-3
    DOI: 10.1186/s40854-024-00706-3
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    References listed on IDEAS

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    1. Frank Hechtner & Jochen Hundsdoerfer & Christian Sielaff, 2011. "Progressionseffekte und Varianten zur optimalen Steuerplanung bei der Thesaurierungsbegünstigung–Eine Abweichungsanalyse," Schmalenbach Journal of Business Research, Springer, vol. 63(3), pages 214-239, May.
    2. Claudia Gerber & Alexander Klemm & Li Liu & Victor Mylonas, 2020. "Income Tax Progressivity: Trends and Implications," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(2), pages 365-386, April.
    3. Salvador Barrios & Viginta Ivaškaitė-Tamošiūnė & Anamaria Maftei & Edlira Narazani & Janos Varga, 2020. "Progressive Tax Reforms in Flat Tax Countries," Eastern European Economics, Taylor & Francis Journals, vol. 58(2), pages 83-107, March.
    4. Katharina Jenderny, 2022. "Top Tax Progression and Capital Taxation in Germany," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 78(4), pages 422-469.
    5. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2023. "Rethinking capital and wealth taxation," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 39(3), pages 575-591.
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    More about this item

    Keywords

    Taxation; Public finance; European Union; EU law; Taxation with progression; Tax policy implications;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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