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Switzerland – Agreement with Germany: Cross-Border 60 “Non-Return” Days Count

Switzerland – Agreement with Germany: Cross-Border 60 “

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stephen-turley

Senior Manager, Tax GMS Zurich

KPMG Switzerland

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In a new consultation agreement the Swiss and German federal tax authorities have redefined the “cross-border commuter.”1  In particular, a new “day-count” method applies for all cases starting 1 January 2019.

WHY THIS MATTERS

Under the terms of this new consultation agreement between Switzerland and Germany1, Germany’s right of taxation lapses if a cross-border commuter exceeds the maximum threshold of 60 non-return-days.  Cross-border commuters who have more than 60 non-return days per year no longer fall under the cross-border tax regime and instead are subject to the ordinary Swiss source tax rates on their Swiss work-days with an exemption of these work-days from German taxation.

Therefore, it is very important to clarify the cross-border working individual’s non-return days correctly in order to apply the correct tax rate.  The current minimum requirement is to provide the tax authorities with a list of non-return days; some cantons in Switzerland (e.g., Zurich and Basel) require this list to be signed by the employee as well as by the employer.  The consultation agreement clarifies the declaration of the non-return days, but will make it harder for employees to prove that they are not cross-border commuters and therefore fully taxable in their country of residence.

Background

In accordance with the double taxation treaty between the Federal Republic of Germany and the Swiss Confederation dated August 11, 1971 (“DTT Germany-Switzerland”), the salary of employees commuting between Switzerland and Germany or vice-versa is taxed in their country of residence.  The state of employment has a residual right to tax the employment income at a special commuter source tax rate of 4.5 percent, which is credited to the taxpayer’s overall tax liability in his or her country of residence.

Art. 15a of the DTT Germany-Switzerland qualifies a cross-border commuter as someone who is a resident in one state, but works in another, and usually commutes back daily to the place of residence.  In this regard “daily” signifies that an amount of 60 non-return days is not exceeded in a calendar year.  A “non-return day” is defined as a day when the return to the place of residence is not possible due to professional duties or because of unreasonableness.

Even though the interpretation of “professional duties” and “unreasonableness” in the past have been defined by court decisions, now for the first time the criteria have been published in an official consultation agreement.   

Previously, a “non-return day” was considered to be given if the commute distance was more than 110 kilometres between home and place of work or if the one-way commute to work took more than 1.5 hours.  Within these limits, a daily return home was generally considered reasonable.  If the distance between the place of residence and the place of work was longer, a daily return home was considered unreasonable and would qualify as a non-return day.

Terms under New Consultation Agreement

According to this new consultation agreement, a return to the place of residence is considered unreasonable if the daily commute from work to the place of residence by vehicle is more than 100 kilometres or if the commute by public transport takes more than 1.5 hours one way with the quickest connection.  Under the previous agreement, it was assumed that in case of unreasonableness the employee did not return home. Going forward, the cross-border commuter has to prove that a return to the place of residence in fact did not happen.

The German-Swiss consultation agreement dated 12 October 2018, is effective for facts and circumstances occurring from 1 January 2019 onwards.

FOOTNOTE

1To see the consultation agreement (in German) “Konsultationsvereinbarung: Nichtrückkehr eines Grenzgängers aufgrund der Arbeitsausübung nach Art. 15 Abs. 2 des Abkommens zwischen der Bundesrepublik Deutschland und der Schweizerischen Eidgenossenschaft zur Vermeidung der Doppelbesteuerung auf dem Gebiete der Steuern vom Einkommen und vom Vermögen vom 11. August 1971 (DBA)”, click here.

Also, see the .pdf format versión (PDF 89 KB).

The information contained in this newsletter was submitted by the KPMG International member firm in the Switzerland.

© 2019 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved.

Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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