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9 February 2021 Man with headphone sitting at his desk

Due to country-specific health regulations, many cross-border commuters could not and still cannot physically visit their workplace. With the associated increase in home office work, various uncertainties arise in terms of tax and social security law. It is important to distinguish between the two issues, as the rules are not necessarily comparable.

Taxes: Relaxations for cross-border commuters

In response to the Covid-19 pandemic, Switzerland has concluded provisional agreements with Germany, France, Italy and Liechtenstein on the taxation of cross-border teleworkers (home office). For the duration of the Covid-19 pandemic, these agreements solve the income tax problems that would otherwise arise for cross-border workers working from their home-office. According to the agreement, existing tax treaties will continue to apply as before as long as the Covid-19 exemptions are in effect. This means that cross-border commuters who have to work from home will continue to be subject to the same tax rules as if they were physically working at their previous place of work, so the Covid-19 situation is effectively ignored. No special agreement has been or is likely to be concluded with Austria, which means that there is a risk that Austria will insist on the place where the activity is carried out being decisive in the case of a home office. As a result, the earned income of affected cross-border commuters would be taxable in Austria. Whether Switzerland would then exempt this income from taxation is unclear, but we assume that this would surely be the case. To be able to prove the effective place of work by means of a calendar remains indispensable for these cross-border commuters. The mentioned regulations have different time limits depending on the country and it is therefore important to keep an eye on the time periods set by each country.

Social security: No changes

With regard to Germany, France, Italy, Austria and Liechtenstein, Switzerland has agreed on a flexible application of the subordination rules until June 30, 2021. Under social security law, the insurance subordination with respect to persons subject to the Agreement on the Free Movement of Persons or the EFTA Convention will not change due to the Covid-19 restrictions. Accordingly, a person is considered to be gainfully employed in Switzerland even if he or she cannot physically perform his or her activity here due to Corona. This particularly affects cross-border commuters working from home. This flexible interpretation is in line with EU recommendations regarding the application of European coordination law. The flexible application is expected to apply until June 30, 2021. As soon as the health situation has normalized, the usual subordination rules will apply again in full. Due to Brexit, it should be noted that the EU recommendations are no longer applicable for the UK.

  Taxes:
Provisional agreements on cross-border commuter taxation
Social security:
Flexible application of the subordination rules in social security law
Germany Consultation Agreement:
Valid until 31.03.2021
Until June 30, 2021
France Memorandum of Understanding:
Valid until 31.03.2021
Until June 30, 2021
Italy Memorandum of Understanding:
Valid until further notice; extension by one month at a time; authorities must agree in advance on termination date
Until June 30, 2021
Liechtenstein Memorandum of Understanding:
Valid until further notice; extension by one month at a time; can be terminated unilaterally at least one week before expiry date
Until June 30, 2021
Austria None Until June 30, 2021

Home office abroad poses a risk for businesses

The agreements mentioned do not contain any provisions that would change the rules regarding the establishment of a permanent establishment of the employer in the employee's country of residence. From Switzerland's perspective, an employer can in principle establish a permanent establishment at the employee's place of residence if the company's business activities are carried out continuously in whole or in part at a fixed place of business. (1) In other countries, however, the requirements for establishing a permanent establishment may be significantly lower. An OECD analysis of current double taxation agreements (DTAs) nonetheless noted that the Covid-19 pandemic is a force majeure. It summarized that "teleworking by individuals from home (i.e., home office), as a public health measure imposed or recommended by at least one of the governments of the countries involved to prevent the spread of the Covid-19 virus, does not create a permanent establishment for the employer." (2) To reduce the risk of creating a permanent establishment, we recommend that employers with cross-border home office workers always keep this risk in mind - even more so the longer the situation lasts. From a tax perspective - i.e. with a view to avoiding a foreign permanent establishment - regular home offices should be avoided for international cross-border commuters if presence at the workplace is possible in principle. This applies in particular to the period after the Corona pandemic and especially to employees with signing powers. For the time during Corona, it is advisable to document which rules applied in the company regarding home office.

(1) cf. Art. 51 para. 2 DBG

(2) Updated guidance on tax treaties and the impact of the COVID-19 pandemic, OECD, 21. Januar 2021, Ziff. 19

Authors: Adrian Briner, Flurin Bleisch

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