Cross-border commuters residing in Germany - Taxation of overtime

The Luxembourg and German tax authorities signed an amicable agreement on 11 January 2024. The purpose of the agreement is the interpretation and application of the Convention for the Avoidance of Double Taxation and the Prevention of Tax Evasion with Respect to Taxes on Income and on Capital (hereinafter referred to as the "Convention")1 signed between the two countries on 23 April 2012.
It follows from this amicable agreement that Germany will henceforth tax all wages paid by Luxembourg employers for overtime worked by cross-border workers residing in Germany, even if the overtime was worked in Luxembourg and the base remuneration of the German cross-border workers is fully taxable in Luxembourg (which is the case if an employee has worked exclusively in Luxembourg or if an employee has worked less than 35 days outside Luxembourg).
On the face of it, the taxation of all overtime in Germany appears to be contrary to the method of taxation provided for in the Convention, which provides that wages to be taxed in Luxembourg are exempt from income tax in Germany.

 

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1 The amicable agreement is based on the Convention in the version resulting from the Amendment signed on 6 July 2023 between the Grand Duchy of Luxembourg and the Federal Republic of Germany and ratified by the Grand Duchy of Luxembourg on 22 December 2023.  The exchange of instruments of ratification was published on 29 December 2023.
The amicable agreement replaces the amicable agreement of 26 May 2011 on the taxation of cross-border workers’ wages, the amicable agreement of 7 September 2011 on the taxation of compensation paid as a result of a dismissal and/or a redundancy plan, as well as unemployment benefits, and the amicable agreement of 7 September 2011 on the taxation of drivers, locomotive drivers and accompanying personnel.