Due to the recent relaxation of the restrictions imposed in many countries during the COVID-19 pandemic, Switzerland and its neighbouring countries are deciding whether to discontinue the application of social security and tax rules in place in a cross-border context during the pandemic. Switzerland and Liechtenstein have decided to mutually end “The Application of the Flexibility Rules” pertaining to the application of flexible tax rules as per 1 April 2022.

In the case of the agreement between Switzerland and France, “The Application of the Flexibility Rules” for social security has been extended until 30 June 2022, according to the agreements with the other neighbouring countries regarding social security.

Since early 2020, Switzerland has had mutual agreements with all neighbouring countries to apply a certain degree of flexibility in terms of the regulations on social security, and with almost all neighbouring countries regarding tax coordination (for prior coverage, see GMS Flash Alert 2021-279, 15 November 2021; GMS Flash Alert 2020-283, 16 June 2020).  Below we provide an overview of the current status of such agreements.

WHY THIS MATTERS

COVID-19 has led to many cross-border employees being displaced, which could result in a switch of the social security status and tax position of employees in Europe if the coordination rules in place are applied.  In recognition of this fact, Swiss authorities agreed with neighbouring countries retaining the social security status and tax position of the employees that existed before the travel restrictions due to COVID-19 began to apply.

These agreements are temporary and gradually come to an end.  Employers therefore might soon need to account for all administrative obligations and compliance requirements as had been the case before the COVID-19 pandemic and these agreements.

Context

Different agreements apply for social security and tax.  Therefore, different periods of validity might apply per country. 

Social Security

Because of the exceptional circumstances, the member states of the European Union (EU)/European Economic Area (EEA) agreed to apply a more flexible approach to the social security coordination rules for the duration of the pandemic. As a consequence, Switzerland and other EU/EEA countries came to an understanding that the international social security rules between the countries should be interpreted flexibly and consequently not lead to a change in the social security regime of cross-border commuters increasingly working from home due to the measurements of the COVID-19 pandemic.

Flexible understanding of international social security rules amongst EU and European Free Trade Association (EFTA) countries is currently expected to last until the end of June 2022.  The Application of the Flexibility Rules was updated as noted below. 

Social Security - Overview of Mutual Agreements between Switzerland and EU / EFTA Countries

 

Country

Application of flexible social security regulations

Current validity

Extended validity*

*as of 31 March 2022

Germany

Yes

31.12.2021

30.06.2022

France

Yes

30.09.2021

30.06.2022

Italy

Yes

31.12.2021

30.06.2022

Austria

Yes

31.12.2021

30.06.2022

Liechtenstein

Yes

30.06.2021

30.06.2022

Other EU/EFTA countries

Yes, unilateral agreement from a Swiss perspective, but no fixed agreements in place

30.06.2021

30.06.2022

 

Tax

General

The Swiss authorities previously reached agreements with neighbouring countries (except Austria) to apply flexible rules to taxing rights of employment income (for prior coverage, see GMS Flash Alert 2020-283, 16 June 2020).  However, the flexible understanding of these tax rules amongst the relevant countries has not been extended or is expected to come to an end soon. 

Germany

Please note that in the case of Germany, it is likely that the agreement will be extended until 30 June 2022.  However, this has not yet been confirmed by the authorities of the two countries.  (For related coverage, see GMS Flash Alert 2020-283, 16 June 2020.)  

It is important to highlight that even if the agreement is prolonged, its applicability would only be possible if working from home is due to measures taken to counter the COVID-19 pandemic.  Considering that both Switzerland and Germany are lifting almost all restrictions, that would mean that the agreement is only applicable if companies have stricter measures in place that prevent employees from working in the country of employment (e.g., limitation in the number of employees that can work from the company’s premises.)  

Overview of Mutual Agreements between Switzerland and EU / EFTA Countries

Country

Application of flexible tax regulations

Applicability

Current validity

Extended validity*

*as of 23 March 2022

Germany2

Yes

“Grenzgänger” / other Cross-Border Commuters

31.12.2021

31.03.20223

France4

Yes

Frontaliers / other Cross-Border Commuters

30.09.2021

31.03.2022

Italy5

Yes

Frontaliers

30.09.2021

Automatic monthly extension until agreement is no longer valid (explicit withdrawing)

Austria

No

 

N/A

N/A

Liechtenstein6

Yes

Cross-Border Commuters

30.09.2021

31.03.2022 (no further extension)

Other EU/EFTA countries

No

 

N/A

N/A

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

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GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained 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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