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Special tax and social security regulations for cross-border employees

  • Simon Koch, Director |

In coordination with their foreign counterparts the Swiss government extends the special social security regulations for COVID-19 with Germany and France by four months to 31 December 2020. In regards to taxes, the signed consultation agreements with Germany and Italy remain unchanged. Concerning the agreement with France, the cancellation of the consultation agreement was reversed as of 31 August 2020 and the agreement has been extended until 31 December 2020.

Taxes

The trigger for these consultation agreements is the stay-at-home orders and home office activities of various cross-border commuters abroad due to the COVID-19 pandemic. Due to the quarantine measures Switzerland concluded consultation agreements with Germany, France and Italy regarding the bilateral tax treaties to have a legal basis for exceptional rules – especially for cross-border commuters. So far, the agreements between Switzerland and Germany, as well as those with France and Italy, were only valid until the end of August 2020 with the possibility of extending the agreements one month at a time in case they should not be terminated in due time and by mutual agreement.

Due to the ongoing pandemic and the respective measures taken, the agreement with France has now been formally extended until 31 December 2020.

What does this mean?

With regard to the taxation of cross-border workers, it was determined that employees who are forced to work from home as a result of measures taken by governments or employers will continue to be subject to the same tax regulations as if they were physically working at their usual place of work (fiction of place of work).

The following two cases are to be distinguished:

  • Daily cross-border commuters
  • Weekly and international commuters

In general, cross-border commuters must return to their home country every day in order to qualify as a cross-border commuter for tax purposes. To this end, Switzerland has signed corresponding agreements with Germany, Italy and France which regulate the rights of taxation and what constitutes a workday. The consultation agreements put into place due to COVID-19 measures supersede the application of these agreements for a defined period of time. For daily cross-border commuters, the fiction of the place of work applies for Germany, France and Italy.

For employees, who do not qualify as daily cross-border commuters but instead as weekly- or international commuters, it is further accepted for Germany and France that COVID-19 workdays in the state of residence are considered work days in the state in which the person would have worked if no COVID-19 measures had been taken (opt-in clause for employees). This rule is included in the consultation agreements in France and Germany. The consultation agreement with Italy, on the other hand, only covers daily cross-border commuters and does not cover other employees.

The regulations for France came into force on 13 March 2020 and were initially valid until 31 August 2020. Per 28 August 2020, these regulations have been extended until 31 December 20201.

Overview of Consultation Agreements with German, France, Italy (status per 28. August 2020)

Germany (daily cross-border commuters and weekly residents) 11.03.2020
no termination date known
France (daily cross-border commuters and weekly residents) 14.03.2020 31.12.2020
Italy (daily cross-border commuters only) 24.02.2020 no termination date known

For countries that have not signed separate consultation agreements with Switzerland, no fiction of a Swiss place of work or other form of relief applies. In this respect, the general regulations of the respective double tax treaties as well as OECD recommendations continue to apply with regard to the allocation of taxation rights regardless of the COVID-19 pandemic.

Social Security

For Swiss employees with Swiss, EU or EFTA nationalities the Swiss social security authorities in coordination with their foreign counterparts have stated that stay-at-home orders and foreign home office days will not lead to a change in social security subordination during the period of COVID-19, even if the cross-border employees reach the threshold to be considered multi-state workers or assignees. The flexible understanding of the international social security rules with the EU and EFTA countries will end with increasing normalization of the situation. For Germany, France and Austria the term for the flexible implementation of the regulations has been extended until 31 December 20202. Once the flexible regulations end, the regulations as set-out in the bilateral free movement of people agreements the principle, that 25% of the work activity in the country of residence may not be exceeded in order to not change the social security subordination, applies again.

Action points

COVID-19 measures will continue to influence our daily work routine. For cross-border commuters it is therefore important to keep track of work days in order to be able to make the correct tax and social security determinations at the end of the year as this may have an impact on source tax withholdings, salary certificates or the employee’s tax return filings. In some cantons the tax authorities may request that the travel diary be countersigned by the employer. It is also important to determine the point in time when the employees could theoretically have returned to their usual place of work once the COVID-19 stay-at-home measures are lifted by the authorities.

 

1) Source
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