Social security
Something is going on with the social security provisions for telework within the scope of the EU Agreement on the Free Movement of Persons (VO 883/2004). The group commissioned by the EU drafted a Multilateral Framework Agreement (MFA) at the end of March 2023, which now needs to be signed by the countries concerned. Due to the various other agreements, these are the EU countries, the EFTA countries and UK (for those affected who fall under the EU-UK successor agreement).
The MFA introduces a right of option (opt-in) to remain in the social security system of the employer state, even if the telework in the state of residence is from 25% to 49%.
Which states will give their consent and how concretely the implementation will take place will be revealed in the coming weeks. So it continues to be quite exciting.
As soon as it is known which states will apply this agreement (including Switzerland), attention will have to be paid to the concrete implementation. Switzerland will communicate under the following link as soon as a decision has been made and further key data is clear: (available in German, French and Italian) https://www.bsv.admin.ch/bsv/de/home/sozialversicherungen/int/grundlagen-und-abkommen/telearbeit.html
In Switzerland, it will be important for the companies affected to see what the surrounding countries decide. The official statistics of the Federal Statistical Office on cross-border commuters with a G permit (cross-border commuters and international weekly commuters) show the distribution among the countries and the regions affected in Switzerland:
https://www.bfs.admin.ch/bfs/en/home/statistics/work-income/employment-working-hours/economically-active-population/cross-border-commuters.html
The following questions are advisable for the companies to be answered:
- What is the exact definition of telework in relation to this agreement?
- Which employees can be specifically granted telework between 25% and 49% as of July 2023? Does this also apply, for example, to situations with several employers?
Furthermore, not only the social security criteria but also other aspects such as applicable double taxation agreements and special agreements for cross-border commuters (withholding taxes, company taxes), labour law – mandatory provisions in the country of residence incl. telework provisions – etc. must be taken into account. - What formalities are needed in concrete terms? (a process with form A1 is envisaged)
- What and on what basis (e.g. contract addendum?) has the company promised the employee telework and how can this be adapted if necessary?
Please note that these explanations only apply to the application of the Free Movement of Persons Regulation 883/2004. For other cases of application (e.g. bilateral social security agreements or no social security agreement), no special telework provisions are provided. The tax treaties differ in some respects greatly from the social security provisions. Therefore, do not confuse them with each other, but check which conditions are fulfilled for which population and which area of law..
Taxes
Yesterday, the FTA published a consultation agreement on the DTT CH-Germany, which was signed on 6 April 2023. This agreement is limited in time until 31.12.2025, but can be extended by the competent authorities.
It is all about the definition of senior executives. Germany in particular had held to formal criteria that senior executives were only accepted as such if the procuration was also evident in the commercial register. This could lead to double taxation if the formal criteria were not met.
In the newly concluded agreement, entries in the Swiss commercial register are now also accepted if an individual signature or collective signature is entered without indicating the function.
In addition, key parameters have been defined for which senior executives rules can also be applied without an entry in the commercial register. Details can be read directly in the consultation agreement: (available in German)
How should this agreement be assessed for HR/Payroll?
If a person resident in Germany is employed by a Swiss company in a managerial position, it is always necessary to clarify first whether the person is a genuine cross-border commuter.
Only if this is not the case, a special regulation applies which deviates from the place of work principle and the engineer clause and takes precedence over these regulations.
Senior executives – irrespective of the duration of their stay – are liable for tax on the income from their executive activity in the Contracting State in which the company is resident. Accordingly, executive employees exercise their personal activity at the place of the company’s registered office without having to be personally present there. The company in Switzerland will therefore as a rule consider the full withholding taxes on the entire remuneration without deducting the days worked abroad.
It must be checked to what extent the full withholding taxes were not already accounted for in the past. Apparently, the agreement is applied to all open cases.
If a new situation arises, the companies concerned are well advised to take the full withholding taxes into account.
In addition to individual advice, I can also provide seminars (in German) or individually adapted in English.
Link to the seminars in German: https://www.zulaufgmbh.ch/veranstaltungen-workshops/
Link to the webpage in English: https://www.zulaufgmbh.ch/en/events-and-workshops/
