The Independent Luxembourg Trade Union Confederation (OGBL) and the Luxembourg Confederation of Christian Trade Unions (LCGB) have raised alarms, urging a review of the tax cooperation agreement between Luxembourg and Germany.

This agreement, enacted at the outset of 2024, aligns with the updated double taxation agreement between the two countries, finalised in mid-2023. According to the trade unions, the agreement stipulates that additional income from overtime is "not effectively taxed," potentially triggering retroactive taxation in Germany from 1 January.

Christophe Knebeler, Assistant General Secretary of the LCGB, deems this prospect unacceptable, emphasising Luxembourg's primary taxation jurisdiction and the aim of preventing double taxation. Furthermore, Knebeler argues that this taxation shift would disadvantage cross-border workers living in Germany compared to Luxembourg residents as well as their Belgian and French counterparts.

German tax law expert Stephan Wonnebauer also shares no sympathy for the measure, speculating it could be a potential oversight. In fact, Wonnebauer wonders whether the interim director of the Luxembourg tax administration, Luc Schmit, may not have been aware of the details of the agreement when he signed it. While the regulation offers no advantages to Luxembourg, it also brings minimal benefits to Germany, according to Wonnebauer:

"German tax officials can clearly see the overtime on the tax card. Now let's assume it's €1,500. They enter it into the tax software, then the tax software in Germany deducts €1,200 from it as a lump sum for income-related expenses and everyone has another €300 with car insurance, personal liability insurance, etc. In other words, I'll just say it's a lead balloon, it's a lot of work for nothing."

Response by Luxembourg's Minister of Finance

Gilles Roth, Luxembourg's Minister of Finance, clarifies that the issue pertains not to the additional income itself, but specifically to the taxation of overtime hours. He asserts that this regulation is not an oversight but rather the outcome of bilateral negotiations. In exchange for 34 days of remote work, Germany sought precision in overtime taxation.

The aim of a double taxation agreement would be to ensure that no taxes are paid twice and not that none are paid at all, according to Roth. The Minister also refutes claims of discrimination against German cross-border workers:

"There can't really be any discrimination because in Luxembourg we apply the same taxation principle to the French, the Germans, and the Luxembourgers plus the Belgians, namely that we don't charge tax on overtime. Of course, Luxembourg has no influence on how this situation is viewed in the individual member states, which, as I said, are different countries."

A meeting between the Minister of Finance and representatives of trade unions is scheduled for Thursday to further address these concerns.