In this article, we provide an update on the measures, taken by the tax authorities to cope with the impact on the travel restrictions for employees, who are normally working across borders. We also make some reflections on what to expect in the future.

Working at home – 4 agreements extended

Belgium has signed specific agreements with Luxembourg, The Netherlands, France, and Germany. Under these agreements, employees, who must work from home, due to the COVID-19 measures have the possibility to opt for the continued taxation in the country, where they would normally have carried out their work. This is a deviation of the general tax treaty principle, where taxation follows the place where the work is performed.

The 4 agreements have now been extended up to August 31, 2020. This is no longer due to force majeure, caused by governmental travel bans since the borders have recently re-opened. The new arrangements are based on requirements by employers to work from home to ensure social distancing at the work location.

This may lead to some uncertainty and even discussions, as working at home can be done for multiple reasons:

• employer policy to ensure social distancing at the work location
• a choice by the employee for personal convenience or need to care for children or other family members

From the comments from the Belgian tax authorities, it is the responsibility of the employer to properly identify the working at home days, that are caused by employer decisions. We will further comment on this matter below.

What about the other countries?

Belgium has not entered into specific agreements with any other country. This leaves many cross-border employees in a difficult situation.

The Belgian tax authorities have published their point of view that the physical presence requirement of article 15 of the OECD tax treaties remains strictly applicable for all countries, in case no other formal agreement is made. The result of this approach is that working days, that are performed at home in Belgium are considered as Belgian taxable days, even if under normal circumstances, they would have been performed in another country.

Given the fact that Belgian taxes are usually higher as compared to the taxes of most other countries, this comes as a nasty surprise for many cross-border employees and/or their employers, who now see the overall tax cost (Belgium + other countries) increase.

We wonder whether Belgium also took into consideration the expectations of other countries, who may see their tax revenues go down to the benefit of Belgium. Maybe Belgium did not yet properly consult with them and this topic may need further discussion at international leve before final conclusions can be reached. In recent months, we have noted foreign taxes to continue to be withheld and paid. These foreign taxes will come into conflict with the Belgian claim for tax on the working days at home.

Another question that comes up is the equal treatment of taxpayers and the principles of free movement within Europe. Taxpayers may now have a different tax treatment in Belgium, depending on whether they are usually working in one of the 4 countries with a COVID-19 exception as compared to all other countries. The risk of discussions on this matter can not be excluded.

Employer’s statement

The agreements with Germany and France explicitly impose the requirement for the employer to issue a specific employer attestation for each employee, who wants to make use of the COVID-19 exception and identify and list the days, for which the tolerance is applied. Although such attestation is not mentioned in the agreements with Luxembourg and The Netherlands, the Belgian tax authorities have unilaterally extended their requirement for these two countries as well (Tax Authority FAQ of June 17).

As mentioned earlier, it may not be so clear for the employer on how to make a distinction between home working days, caused by employer decisions on the one hand and home working days, caused by employee decisions (for personal convenience or family reasons) on the other hand.

Expatriate tax regime (tax circular letter of 8/8/1983)

The Belgian tax authorities want to exclude the beneficiaries of the special tax regime from the possibility to also apply the COVID-19 exception (as agreed with the 4 neighboring countries).

Most of these individuals live with their families in Belgium and therefore can not claim the protection of the work state principle of article 15 the OECD tax treaties. Consequently, their business travel deduction will decrease in 2020. This immediately causes 2 nasty issues:

• in case the employee is remunerated on a net basis (tax equalization or similar agreement), the actual Belgian and foreign taxes are paid by the employer. As the Belgian taxes of these employees will increase, the cost of employment for the company will go up. It is hard to understand why the Belgian government on the one hand wants to support employers, who are financially affected by the COVID crisis, while on the other hand no attention is paid at all to this type of cost increase.

• in case the employee is remunerated on a gross income basis, his Belgian tax cost will go up and the employee is faced with a loss of net income, that can be quite severe. It is again difficult to understand why the Belgian government is not willing to support this group of employees, especially in view of the generous support to so many others, who could benefit from multiple measures to protect their family income.

There are (more exceptional) cases, where an expatriate qualifies as a tax resident taxpayer of another country, while working in Belgium. This is the case for families with dual homes (one in Belgium and one in another country) and can also happen in the first or the last year of the assignment to Belgium (if the foreign country defines tax residency on a full annual basis). In these cases, the tax treaty between Belgium and the employee’s home country remains applicable in combination with the special tax regime. For these employees, the travel exemption will fully be applicable.

If the employee is performing working days at the family home abroad (not in Belgium) during the COVID-19 period, the Belgian travel exclusion will go up. This will not only be the case for working days at home on the request of the employer, but also for any working day at home, performed for personal convenience at the initiative of the employee. These employees may have a lucky windfall benefit this year in case their home country tax rates are lower than the Belgian ones.

Hidden issues

Apart from the matters, described above, we have observed hidden shifts in the taxable basis between countries during recent months. Indeed, the starting or ending date of international assignments has been shifting due to the travel restrictions. Assignments have started later than initially foreseen or continue longer as planned. From an operational point of view, however, the employee, who is employed in an international group of companies may already be carrying out his professional activities in a country to the benefit of group company in another country.

For example, we have the case of employees, who are assigned within a multinational group of companies and whose assignment physical starting date is delayed due to COVID-19. They may already have started to work from home for the new group company before coming to Belgium.

Any remuneration, paid by the Belgian group company for workdays, performed at home prior to the formal move to Belgium, may still qualify for exemption from tax in Belgium, based on the physical work state principle of tax treaties or under the travel exclusion of the special tax regime (the income clearly relates to working days, spent at home outside Belgium).

The issue can also come up at the end of an assignment, when an employee is still working on Belgian territory for the benefit of the group company, where a new assignment should already have started. Also in these situations issues may come up for the proper allocation of taxable income between Belgium and another country, based on the work state principle of the tax treaties.

Another hidden issue may be the taxation of share-based remuneration or incentive pay, that is accumulated over a period of multiple months or years. The question then comes up on how to allocate the taxation on such income in case the normal working pattern is disrupted due to COVID-19. If countries do not apply the same principles for allocating this type of taxable income, this can lead to strange results when the taxable basis is calculated by countries in a different way.

Some upcoming homework?

• Proper recording and counting of working days per country should already have started by cross-border employees, affected by the COVID-19 crisis. Should they be able to identify days, worked at home on request of the employer versus other home working days?
• Employer and employee will have to understand the tax impact, proper to each individual working scenario and should identify the Belgian and foreign tax cost at an early stage. They should clearly agree on who is going to pay the various tax bills in the end.
• The employer will have to issue attestations for the 4 neighboring countries in due time in agreement with each employee.
• The employer must during the year properly follow up on withholding taxes in Belgium and abroad to ensure that the tax withholdings during the year remain in line with the final taxes, expected to be due in each country at the end of the year.
• The preparation of individual tax returns is likely to become more challenging next year when the tax returns on income of 2020 are to be filed for each country. At that moment, the work calendar will have to be further scrutinized and a final allocation of taxable income and taxes per country is to take place. Surprises may come up if double taxation comes up or if unexpected additional taxes become due.