New developments in the German-Luxembourg tax treaty: Current regulations and assessments

On 29.12.2023, Germany and Luxembourg ratified the amended double taxation agreement. A consultation agreement was also concluded on 11.01.2024. This was clarified by a Circulaire of the Luxembourg tax administration dated 18.03.2024.

The consultation agreement states

• on overtime wages and bonuses: "Wages paid for overtime that are fully exempt from income tax in Luxembourg are deemed not to be effectively taxed."
• On supplements for Sunday, public holiday or night work: "Supplements for Sunday, public holiday or night work paid in addition to the basic gross wage are also deemed to be effectively taxed if they do not exceed the basic gross wage in a calendar year."
• These two parts of the consultation agreement are to apply in all open cases, i.e. retroactively.

According to Luxembourg tax law

• Hourly wages for overtime and overtime bonuses are only tax-exempt to the extent that (i) they are prescribed by law or collective agreement, (ii) the recipient is not a manager, (iii) they remain within the legal/collective agreement framework and (iv) for persons outside the statut unique (roughly speaking civil servants and public sector employees) they do not exceed EUR 1,800.
• Hourly wages for Sunday, public holiday or night work are taxable and only the bonuses are tax-exempt.

The German tax authorities currently conclude from this:

• Hourly wages for overtime and their supplements are taxable in Germany, even if they were paid in Luxembourg. This also applies to payments made before 01.01.2024.
• Hourly wages for night/Sunday/holiday work and their bonuses are not taxable in Germany.

Whether the agreement regarding the overtime issue in the consultation agreement, in particular the retroactive effect, is valid is currently being clarified. It is currently not possible to predict how long the clarification will take.

• ALEBA understands the concerns of German cross-border workers and will work to eliminate this injustice.

Although it is difficult to influence German political decisions, we will contact the employers' associations ABBL and ACA and the Luxembourg Ministry of the Economy to discuss the issue.

We are also already in contact with those responsible at the Trier tax authority.