National borders within Europe have long ceased to be an obstacle to international employment relationships. Around 58,000 cross-border commuters are employed in the Basel region alone. Their working-day border crossing remained guaranteed, even during the border closures last year. During the course of the pandemic, however, their work also shifted to the home office wherever this was possible.
Now the discussions are on whether, when and under what circumstances the staff will return to the deserted offices. Due to the positive experiences made with the home office work that was brought about by the pandemic, many employees have expressed the desire for more flexibility. And employers are often willing to comply with this request.
What applies to cross-border commuters?
However, with regard to cross-border commuters employed in a company, the legal framework conditions mean the home office experience is often far from untroubled. If cross-border commuters work for a foreign company in their country of residence, this can have consequences in relation to social insurance as well as tax law.
In international employment relationships, the first question is which social insurance law the employee is subject to. European law, which also applies in relation to Switzerland via the Agreement on the Free Movement of Persons, stipulates that a person can only be subject to the social insurance law of one state at a time. Under normal circumstances, i.e. without taking the corona pandemic into account, the status under social insurance law changes for cross-border commuters if they perform more than 25% of their regular professional activity at their place of residence (e.g. in Germany) instead of at the employer’s place of business (e.g. in Switzerland). In such a situation, all social insurance contributions must be paid in the country of residence. For companies, this means a lot of bureaucratic effort when it comes to payroll accounting as well as an additional liability risk. For the employee, the change may result, above all, in losses in pension provision.
At the moment, due to the corona pandemic, both the Swiss and the German authorities are refraining from implementing the 25% rule consistently. This exception will remain valid until the end of this year for now. If the work in the home office is to be continued after this time, the employer should definitely check whether the amount of work carried out there should be limited contractually.
The income tax side also plays a role in the decision for or against the cross-border home office. The legal basis for the taxation of cross-border commuters is the applicable double taxation treaty (e.g. the DTT Switzerland-Germany).
Consequences of home office
Carrying out the work activity in the country of residence and the omission of journeys from the place of residence to the place of work may have consequences for the cross-border commuter status of the employees concerned. In this regard, particular attention must be paid to so-called weekly residents who pay tax on their salaries in Switzerland. While working in a home office in Germany, there is a risk of losing the status of international weekly resident as the limit of at least 60 “non-return” days may not be met. As a result of this, the salaries would be taxed in the country of residence, i.e. Germany. Due to a temporary agreement between the German and Swiss tax authorities, the corona-related home office days have no tax-related effect on the status of the employee initially. However, this will change as soon as one of the parties terminates the corresponding agreement. This is possible at the end of each month with a notice period of seven days.
Finally, it remains to be mentioned that long-term activity in the “cross-border home office” can lead to the establishment of a permanent business location for the employer in the employee’s country of residence, with the associated tax requirements. The employer would then be liable to pay tax on the profits attributable to the permanent business location in the employee’s country of residence. And this can be particularly problematic if the employee concludes contracts for the company from the home office.
At the moment, neither the employers nor the cross-border commuters concerned have to worry about any consequences under tax or social insurance law for corona-related home office activities. However, for cross-border commuters who will (continue) to be employed in the home office regardless of the pandemic situation, the rules described should be observed in order to avoid any unpleasant surprises. Affected employers should therefore start to collect detailed information now.