When cross-border workers are working from home

Allocation of the right of taxation

Em­ployees are sub­ject to un­li­mited tax lia­bi­lity in their coun­try of re­si­dence and are the­re­fore also ta­xed on their re­mu­nera­tion in that coun­try. If the pro­fes­sio­nal ac­tivity is not car­ried out in the coun­try of re­si­dence, the dou­ble tax trea­ties re­gu­late in which coun­try the ta­xa­tion is to take place.

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Many em­ployees live along the Ger­man bor­ders who re­gu­larly com­mute from their for­eign re­si­dence to their place of work in Ger­many or, in the op­po­site case, per­form their work ab­road. In the dou­ble tax trea­ties with Aus­tria, France and Swit­zer­land, a so-cal­led cross-bor­der com­mu­ter re­gu­la­tion is ex­pli­citly in­clu­ded. Con­trary to the prin­ci­ple that re­mu­nera­tion is ta­xable to the ex­tent where the pro­fes­sio­nal ac­tivity is car­ried out, the right of ta­xa­tion in its ent­irety is as­si­gned to the coun­try of re­si­dence, pro­vi­ded the em­ployee qua­li­fies as a cross-bor­der com­mu­ter. To this end, the em­ployee must live close to the bor­der, which is re­gu­la­ted in the re­spec­tive agree­ment, and re­turn to his place of re­si­dence on each working day.

In the case of other dou­ble tax trea­ties which do not con­tain any ru­les on cross-bor­der com­mu­ters, the clas­sic cri­te­ria for the al­lo­ca­tion of the right of ta­xa­tion are ap­plied.

Effects of working from home?

In ti­mes of the Corona cri­sis, com­pa­nies have in many in­stan­ces or­de­red that work, as far as fac­tually pos­si­ble, should no lon­ger be car­ried out at the com­pa­nies’ pre­mi­ses but from home for re­asons of health pro­tec­tion. This also af­fects cross-bor­der com­mu­ters, who would other­wise re­gu­larly com­mute across the bor­der to their work­place. In this case, working from home is of­ten also eco­no­mi­cally more sen­si­ble be­cause other­wise, as a re­sult of the bor­der con­trols tem­pora­rily reintro­du­ced wi­thin the EU, an enor­mously time-con­su­ming bor­der cros­sing on the way to work would have to be ac­cep­ted.

This would mean that the con­di­ti­ons for the ap­pli­ca­tion of the cross-bor­der com­mu­ter re­gu­la­tion pro­vi­ded for in the dou­ble tax trea­ties would no lon­ger be met. Mo­re­over, if working from home were to be car­ried out over a lon­ger pe­riod of time, the 183-day rule pro­vi­ded for in a large num­ber of dou­ble tax trea­ties might no lon­ger ap­ply, which would lead to the risk of a salary split and cor­re­spon­din­gly to a pro­por­tio­nal ta­xa­tion in the coun­try of work and the coun­try of re­si­dence.

In or­der to avoid a change in the pre­vious tax tre­at­ment of cross-bor­der com­mu­ting as a re­sult of tem­porary work from home, bi­la­te­ral agree­ments have been made with both Aus­tria (let­ter of 16/04/2020 by the Ger­man tax aut­ho­ri­ties) and Swit­zer­land (let­ter of 12/06/2020 by the Ger­man tax aut­ho­ri­ties). The em­ployee can make use of this by no­ti­fy­ing the em­ployer and the re­spon­si­ble tax of­fice in the coun­try of re­si­dence. A me­mo­ran­dum of un­der­stan­ding for the dou­ble ta­xa­tion agree­ment with France al­re­ady con­ta­ins a pro­vi­sion ac­cor­ding to which working days spent in the home of­fice have no ef­fect on the right of ta­xa­tion. This was again dealt with in de­tail in a con­sul­ta­tion agree­ment (let­ter of 25/05/2020 by the Ger­man tax aut­ho­ri­ties). In the dou­ble tax treaty with Swit­zer­land it has al­re­ady been agreed that it is harm­less if there is no bor­der cros­sing for up to 60 working days.

In ad­di­tion, Ger­many and the Nether­lands have al­re­ady agreed that, days worked from home as a re­sult of the Corona pan­de­mic are con­side­red as days worked in the coun­try of em­ploy­ment (as an­noun­ced by let­ter of the Ger­man tax aut­ho­ri­ties of 08/04/2020). This re­gu­la­tion ap­plies from 11/03/2020 un­til the pos­si­ble uni­la­te­ral ter­mi­na­tion of the agree­ment. Howe­ver, it can only be ap­plied uni­formly in both con­trac­ting sta­tes. In ad­di­tion, sui­ta­ble re­cords must be kept, such as a cer­ti­fi­cate from the em­ployer on days worked from home due to the corona cri­sis. A si­mi­lar ar­ran­ge­ment has also been re­ached bet­ween Ger­many and Lu­xem­bourg (as an­noun­ced by let­ter of the Ger­man tax aut­ho­ri­ties of 06/04/2020) and bet­ween Ger­many and Bel­gium (as an­noun­ced by let­ter of the Ger­man tax aut­ho­ri­ties of 07/05/2020). This me­ans that the state in which the work is car­ried out should con­ti­nue to have the full right of ta­xa­tion, pro­vi­ded that the 183-day rule is ful­fil­led with due re­gard to the fic­tion.

Howe­ver, it is also con­ceivable that em­ployees use their se­cond or ho­li­day home ab­road for re­mote working or are sim­ply stran­ded ab­road. Thanks to tech­no­logy they should be able to con­ti­nue working from there. It is cur­rently still un­clear how to deal with these tax­pay­ers, who are not clas­sic cross-bor­der com­mu­ters in the fis­cal sense, but who now work from ab­road ne­vert­he­less. In the case of a tem­porary na­ture, this should have no ef­fect. Howe­ver, if the pro­fes­sio­nal ac­tivity from ab­road con­so­li­da­tes, we re­com­mend cla­ri­fi­ca­tion in the re­spec­tive state in which the ac­tivity is car­ried out. In ad­di­tion, a re­gu­larly used home of­fice quickly leads to a per­ma­nent es­ta­blish­ment of the em­ployer ab­road. The­re­fore, we re­com­mend to check the im­pacts to­ge­ther with the em­ployer.

Social security status when working from home?

So­cial se­cu­rity co­ver for an em­ployee who li­ves in one state and works in ano­ther or se­veral other sta­tes is ge­ne­rally pro­vi­ded in one state only. Wi­thin the EU and Swit­zer­land, there are uni­form re­qui­re­ments ac­cor­ding to which the so­cial in­surance ob­li­ga­tion exists in the coun­try of em­ploy­ment if more than 75% of the pro­fes­sio­nal ac­tivity is car­ried out there. If at least 25% of the work is per­for­med in the coun­try of re­si­dence, so­cial in­surance co­ver­age is pro­vi­ded there. For ac­tivi­ties in se­veral EU sta­tes and re­spec­tively Swit­zer­land, which are not the coun­try of re­si­dence, the so­cial se­cu­rity ob­li­ga­tion exists in the coun­try of re­si­dence, even if no si­gni­fi­cant part of the ac­tivity is per­for­med there.

Tem­pora­rily working from home ac­tivity trig­ge­red by the Corona pan­de­mic should, in prin­ci­ple, not change the exis­ting so­cial se­cu­rity sta­tus. The Ger­man Na­tio­nal As­so­cia­tion of Sta­tutory Health In­surance points this out in a cir­cu­lar da­ted 17/03/2020. The pro­fes­sio­nal ac­tivity ta­kes place wi­thin the frame­work of the em­ployer's right of di­rec­tion and is the­re­fore not de­tri­men­tal to the exis­ting so­cial se­cu­rity sta­tus un­der so­cial se­cu­rity law.

Note

The an­noun­ce­ments fo­cus on the tem­porary na­ture of working from home and re­com­mend to ne­gate im­pacts on tax and so­cial se­cu­rity. Howe­ver, this should not be re­lied upon un­re­ser­vedly, as a tem­porary ac­tivity can also be­come a re­gu­lar ac­tivity in the fu­ture. Tax­pay­ers and their em­ploy­ers should take a close look and ex­amine the re­spec­tive in­di­vi­dual si­tua­tion in more de­tail early on.

In ad­di­tion, em­ploy­ers should, ac­cor­ding to their sta­tutory duty of care, in­form af­fec­ted em­ployees about the pos­si­ble tax and so­cial se­cu­rity con­se­quen­ces of working from home and cla­rify the hand­ling in each in­di­vi­dual case with them.