Statement on the consultation agreement DE/LU of January 11, 2024

Dear Sir or Madam,

The consultation agreement between the Federal Republic of Germany and the Grand Duchy of Luxembourg dated January 11, 2024 raises urgent legal questions that may have a significant impact on cross-border issues. One of the points of contention, which has also been discussed in the media in recent days, is the so-called “subject to
tax” clause: To the extent that Luxembourg “does not actually tax” income, Germany
may apply “subsequent taxation” in accordance with this clause.

The consequences of this clause can be seen, for example, when employees are paid overtime remuneration: As overtime remuneration is fully tax-exempt in Luxembourg,
Germany may tax it – even if it was paid for activities physically carried out in Luxembourg. This means that an income tax return may have to be submitted in Germany even if the income received is marginally tax-free in Luxembourg.

In addition to this problem, which has already been discussed in the media, we see further problem areas:

• Insufficient definition of the term “actually taxed”: Neither the consultation agreement nor the existing case law or commentary literature provide a consistent definition of what is meant by “actually taxed”.
• Contradictory or missing detailed definitions: Wage supplements for work on Sundays, public holidays and at night and overtime pay are treated differently with regard to subsequent taxation, although they are both tax-free in Luxembourg. The question also arises as to how to deal with the other tax-privileged salary components in Luxembourg (interest subsidy, cheques repas, etc.), as the consultation agreement is silent on this.
• Application to all open cases: The wording of the consultation agreement indicates that the above-mentioned “subject to tax” clause is to apply in all open cases, i.e. also for past assessment periods.
• Advantageousness and administrability of the clause: The clause leads to considerable bureaucratic costs and increased workload on the part of cross-border commuters and border tax offices. In its current form, the clause is not legally applicable or comprehensible.

We have forwarded our legal opinion, an interpretation of the previous clause from our point of view and recommendations for a simplification of the regulation – should the clause nevertheless be retained – to the responsible political decision-makers on both sides of the border. We will be happy to advocate for you!

Should you have any questions on the issues raised or require assistance in assessing your tax situation, please do not hesitate to contact us at