Employees working from home: Workplace risk in the Swiss intercantonal context

The Covid 19 pandemic made working from home the new norm for many companies and employees. This trend of people working outside the office will continue in the future. This new form of working raises several legal questions, including tax issues. One of these tax issues is where the company is taxed when its employees conduct their work in a decentralised manner. From a tax point of view, teleworking entails the risk that an employee’s work in a home office could constitute a permanent business establishment. If a company maintains a permanent business establishment at a location, this leads to a limited tax liability at the respective location. 

While this problem is already known and widely discussed in the international context, the same questions and challenges now arise in the intercantonal context. Due to the federalism in Switzerland and the associated, far-reaching sovereignty of the cantons in tax matters and the widely varying tax rates between the cantons, teleworking gives rise to discussions. On 26 April 2022, the Swiss Tax Conference has now also addressed this issue and has published an analysis on the interpretation and application of the existing tax regulations to the current situation.

This analysis has come to the conclusion that employees who work from home generally do not establish an additional permanent establishment for the company with regard to intercantonal tax allocation. This also applies to those companies that operate a fully decentralised business model, where all employees must work from home and the company does not offer any workplaces on its own premises. If a company has a permanent establishment in a second canton, the employees remain assigned to the tax domicile in which they were employed, even if they work from home. A prerequisite for this, however, is that the company continues to have a physical presence at this location. Otherwise, they would be assigned to the main tax domicile of the company.

In principle, the main tax domicile of a legal entity is at the location of its place of business. However, this principle is deviated from if the management and administration of the company, takes place at a location other than the registered office. In the case of large companies, teleworking by one employee in this function will not cause any problems. However, for smaller companies with only one employee or a very limited number of employees, caution is advised. In fact, the place of actual corporate management may be transferred to another canton if the employee in charge of management permanently performs the day-to-day management from home.

In Switzerland, there is a well-established practice for tax decisions. For example, it is common for taxpayers to apply for an advance tax ruling in order to obtain legal certainty from the competent tax authorities regarding a specific request and a specific issue. In case of uncertainty, it is therefore advisable to obtain such a tax ruling in advance. In this way, subsequent problems can be prevented.