I am lost
The recent
outbreak of the Corona crisis may have a significant impact on the overall income
tax situation of individuals, who were either sent by their employer on an
assignment to work in another country or who have a normal working location outside
the country, where they live with their family.
This is caused
by the fact that international taxation of employees is to a large extent governed
by the ‘working state principle’. Indeed, the taxation rights between countries
in international tax treaties to a large extent are allocated on the basis of
the place where the work is actually performed.
As a result
of the Corona crisis, there has been a sudden disruption in the working pattern
of many employees, including persons with cross-border professional activities.
The measures often oblige them to work at home for an indefinite period. For
international assignees, we see cases where assignments have been suspended
well before the normal end of the assignment contract period or where new
assignments can not immediately be started.
All these
cases have in common a sudden change of the location where work is performed and
a significant shift of working time to
the country, where the family home was located on the moment the Corona crisis
has started. The malicious virus has already started to infected our tax systems
as well and it is an open question how countries will react to this force
majeur.
Working
across borders
Employees,
who live in one country and who work in another country are often taxed in the country
of employment, based on the number of working days they actually spend in that
country.
If they are
suddenly forced to work from home (i.e. in their country of residence), the
number of days worked in the other country will decrease. This seems to lead to
a sudden shift of taxation rights from the normal state of employment to the
home state of these employees.
It is still
highly unclear how countries will deal with this shift in work location. If no specific
measures are taken to cope with this issue, employees may become subject to
unpleasant fiscal surprises, as is illustrated by some examples:
Example 1
Thomas is
residing with this family in Belgium. He is employed by an employer, located in
France, and during the past 5 years, he has been working in France during 35% of his time and for the remaining
65% of his time, he worked in Belgium.
Thomas was
paying French income taxes on 35% of his salary at the moderate French tax
rates for non-residents of the country (usually up to 25%). He has been paying
the high Belgian income taxes (up to approximately 55%) on the remaining
income.
If Thomas
is now forced to work 100% in Belgium, the question arises whether all of his
income will suddenly become subject to the high Belgian taxes or whether the
working days at home will still be split between Belgium and France in the same
way (35/65 split) as was the case during the past 5 years.
The
question is not only relevant for the employee, but also for the employer, as
the correct implementation of withholding taxes, both in France and in Belgium,
in many cases is an obligation for the employer.
Example 2
Margareta
has been assigned by a Spanish employer on 1 December 2019 to work on an
engineering project in Belgium that is planned to take one year to complete. As
the expected duration of the work exceeded 183 days, both Margareta and her
employer have implemented Belgian taxes on her salary from December 1 onwards.
On March 10
of 2020, she was suddenly repatriated to Spain, where she was asked to continue
to work on the project from a home office. It is not known when the period of
work in the home office will end.
Both
Margareta and her employer have no way to know whether or not the 183 days, as
defined under the tax treaty, will actually be exceeded in the 12-month
reference period, that started on 1 December 2019. They have no clue whether
Belgian or Spanish taxes will be due in the end and what taxes should be
calculated on her salary on an ongoing basis.
Example 3
John has
been working in Belgium during the past 2 years. He benefits from the special taxation
regime for expatriates in Belgium (Tax Circular letter of 8/8/1983) and has
only been taxed the past years on his income for working days, actually spent
on Belgian territory (80% of his total working time). In his assignment letter,
it is indicated that his assignment ends on 30 April 2020 and than thereafter,
he will start working for a company of the same multinational group, located in
Switzerland.
Due to the
obligation to work at home, his regular business travel pattern is disrupted and he is afraid that he will be
faced with a Belgian tax bill on the travel exemption of 20% that was
applicable in the past. If this is the case, his current net spendable income is
likely to decrease by 10%.
Due to the
work at home restrictions, he can start to work on projects of the Swiss
company from May onwards, but he may be forced to spend the working days at his
home office in Belgium. Consequently, he remains under the scope of the Belgian
tax legislation, which was not foreseen by him nor by the Swiss group company.
All of the
examples show that many consequences may arise from the Corona crisis and that it
is most difficult at this moment to forecast how matters will evolve in the
coming weeks or months.
Tax
treaties are generally based on bilateral agreements between individual
countries. It is hard to expect that rules will be rolled out that will in an
equal way be implemented in all countries across the globe, that have signed
tax treaties with each other.
Some
initial, but very limited measures have been implemented by the Belgian government.
One of
these is the impact of the Corona crisis on the special cross-border worker
scheme between Belgium and France. The Belgian and French governments have recently
announced an agreement on the application of the tax treaty between the two
countries.
Due to
force majeure, the days of home work by employees in France during the Corona
period will not be included in the calculation of the 30-day border (for
working days outside the Belgian border region). In this way, the frontier
worker scheme can continue to run unabated. The normal day count will only resume
as soon as the crisis ends.
There is
also a special scheme for employees , who work in Luxembourg. A protocol has recently been signed with the Luxembourg
government for the application of the so-called ‘24-day rule’ under Article 15
(non-self-employment). Due to force majeure, days of home work during the Corona
period are not taken into account for the 24-day count.
The recent
agreements with France and Luxembourg have only a limited scope and offer no
general solution for cross border employment issues and for the implementation
of all bilateral tax treaties, signed with so many countries. This fiscal
iceberg remains mostly under the surface and will start to come up in the
coming months.
The tax authorities are becoming more and more aware
of these issues and we are closely following up on further developments in
these matters.
Fiscaal kluwen van de gemeubelde verhuur
+32 (0)476 49 09 01
Rijsenbergstraat 150
9000 Gent
Belgium
Corona crisis may disrupt the application of international tax rules
Corona crisis may disrupt the application of international tax rules
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