This contribution deals with the question whether – from the perspective of cross-border neutrality – tax reductions for personal circumstances should be applied only by the country of residence, or whether they should also be granted by the source country, and, if so, how such tax reductions should be allocated between the two countries. It starts from the rule for the deduction of business expenses, which is often also denied by source countries in the absence of a permanent establishment. Tax neutrality would require taxation of only net business income in the source country. The paper refers to Art. 24(3) of the OECD Model, which specifically excludes non-resident taxpayers from personal deductions in the country of source. It also refers to ECJ case law prescribing the mandatory deduction for personal circumstances in the source country, when substantially all of the income is earned in that country. However, deductions for business expenses mostly relate to income that is specifically taxable in the source country. Deductions for personal circumstances are mostly related to overall income, part of which may be taxable in the country of residence. The result would be an unjustified benefit to the taxpayer because of a double deduction for personal circumstances. In order to avoid such double deduction, the paper submits a proposal for “fractional taxation”, doing away with the traditional distinction between residence and source countries. Each country calculates the tax liability on worldwide taxable income, taking into account all personal related deductions, but it applies its tax rules only to the pro-rata fraction of the income that is subject to tax in its own jurisdiction. The principle is illustrated in the conclusion by a concrete example of tax calculation.