With the home office obligation still in force, many employees who otherwise commute daily from their place of residence across the border to another state work from home. This means that the work is no longer performed in the same country. This can lead to consequences under tax law.
Working from home affects various double taxation agreements. Switzerland has agreements with Germany, France, Italy and Liechtenstein, whereby special regulations have been agreed upon regarding cross-border commuters. In principle, these agreements only apply if the employees actually commute daily between their place of residence and the foreign place of work. If these conditions are not fulfilled, taxation regularly takes place at the place of work. How these agreements are affected by the covid 19 pandemic and the home office obligation is explained in the following article.
In principle, the conditions and provisions from the agreements between Switzerland and Germany, France, Italy and Liechtenstein continue to apply despite the current circumstances. These could only be suspended by explicit new agreements.
Discussions are currently being held between Switzerland and the contracting states on the interpretation of the agreements in this exceptional situation. So far, however, it is unclear whether home office days abroad are subject to Swiss withholding income tax.
Consequently, it is recommended that Swiss employers continue to account for withholding tax according to the previous criteria. This is the case even if the cross-border commuter works from home at their foreign place of residence due to the home office. In this way, the liability risk for any withholding tax that is underpaid can be minimised.
Employees are also requested to note the non-return days that occurred independently of the pandemic. Furthermore, the days spent in the home office during the extraordinary situation should be documented.
It is possible that home office days at the foreign place of residence are subsequently found not to be taxed at source. In this case, there are two possibilities for correction. Firstly, until the end of March of the following year, an application for reassessment of the withholding tax can be submitted in order to check the extent of the withholding tax. Secondly, within 90 days of the notification of the foreign tax assessment notice, a request for a review can be submitted in order to contest international double taxation.
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