Termination of the consultation agreement with Germany (COVID-19)

The mutual agreement between Switzerland and Germany has been implemented for guidance in relation to the new situation due to COVID-19. With this, both countries agreed that home office by sole reason of the pandemic should not have any impact on the taxation of the employees’ employment income.

In principle, employees who worked or are working from home solely due to pandemic-related reasons, will be taxed as if they had attended their usual place
of work on these workdays. It is to be noted, that this does not apply to home office days that are contractually agreed. Neither are these days considered as non-return days. In that case, the maximum number of work-related non-return days must be reduced proportionally according to the duration of the measures. In addition, it was agreed in an addendum that no permanent establishment would be established in the other country. Further details about the content of the consultation agreement can be found in our blog post from April 30 2021.

Termination of the consultation agreement between Germany and Switzerland

The consultation agreement of June 11 2020, including the amendments dated November 30 2020, and April 27 2021 was consensually terminated and will therefore expire on July 1 2022. In the event that the pandemic situation should get worse again, the responsible authorities will consult with each other to discuss further actions.

We recommend employers to carefully evaluate such cases by end of June at the latest before approving them. Besides (withholding) tax consequences such as income allocation and exemption in relation to foreign working days depending on the cross-border commuter status, also the employer’s permanent establishment risk should be analyzed upfront.

Tax rules may differ from the principles of social security and other
liabilities and need to be evaluated separately, on a case-by-case basis.

Cross-border characteristic

The real cross-border commuter status from a tax point of view is preserved as long as the maximum number of non-return days per calendar year agreed by both parties in the double tax treaty are not exceeded. For cross-border commuters from Germany, who are usually returning to their German residence on a daily basis (if reasonable), the annual amount of work-related non-return days is limited to 60 (fulltime workload). If this number isn’t exceeded, the employee is taxed at source at a maximum or flat rate of 4,5% (depending on the canton) of the gross salary. Due to his/her center of life in Germany, the employee is subject to unlimited tax liability there and the Swiss withholding tax is offset against the German income tax. The employer must be provided with a certificate of residence (form Gre-1, respectively in case of extension Gre-2) on an annual basis. Without this form, the cross-border tariff cannot be applied in the payroll, even if the daily return is given.

In case that the 60 non-return days are exceeded due to professional reasons, e.g., business travels, the real cross-border status is lost, and the employee has to be taxed at source with the ordinary tariffs. The number of non-return days must be proven with the form Gre-3 (employer’s certificate of non-return days). In this situation, foreign working days need to be excluded from tax at source in Switzerland, therefore, it is unavoidable that the employee is keeping a travel calendar. This has also to be signed by the employer and enclosed to the confirmation (Gre-3).

Calculation example

Days that German cross-border commuters work in their home office at their place of residence in Germany don’t count as work-related non-return days. Below is a fictitious example in a calendar year partially affected by the pandemic:

• Real cross-border commuter from a tax perspective with a 100% workload, the employer based in the canton of Zurich is in possession of a certificate of residence and therefore charges a flat-rate withholding tax deduction of 4,5%
• Ordered home office by the Federal Council due to measures to combat the pandemic: January 1st until February 15th
• Ordered home office by the employer due to measures to combat the pandemic: January 1st until February 28th
• Contractually agreed home office (already in place even before the pandemic started): one day per week
•  Business-related overnight stays in western Switzerland due to a customer project:
      o Between February 16 and February 28: 6 overnight stays and
      o Between March 1 and December 31: 31 overnight stays
  
  

What are the consequences of those facts for the taxation of the employee? The number of non-return days must be proportionally reduced proportionally due to the measures to combat the pandemic. The contractual home office days are to be excluded from the reduction, as these would have been worked from the place of residence in any case. 

Reduction: 60 / 365¹) * (59²) – 6³)) = 8.712… * 80%⁴) = 6.969... ~7 days

1) total number of days in this calendar year
2) number of days from January 1st to February 28th
3) less the effective non-return days
4) proportional reduction due to the contractually agreed home office day per working week

The maximum number of non-return days therefore amounts to 53 days in total. Neither the contractually agreed nor the pandemic-related home office days are considered non-return days. Since the maximum number of business-related overnight stays in western Switzerland isn’t exceeded, the employee’s real cross-border status remains unchanged.