Final sprint before the new year or more uncertainty regarding the application of the new cross-border commuter agreement for companies in the cantons of Graubünden, Ticino and Valais?
On 10 November 2023, the FDF (Federal Department of Finance) announced that there will be a permanent tax regulation for teleworking. The published declaration of intent sets out the key points, the content of which will be negotiated in detail over the coming weeks.
Link to the declaration of intent (Italian): https://www.newsd.admin.ch/newsd/message/attachments/84015.pdf
A transitional agreement setting out the new provisions is to be signed by 30 November 2023. It should be possible to apply this transitional agreement from 1 January 2024.
The teleworking solution is to be definitively anchored in the area of taxes by means of an additional protocol to the cross-border commuter agreement (17 July 2023).
The additional protocol is to be negotiated at a technical level by the end of November 2023. This is to be signed and published by the two countries by 31 May 2024. This additional agreement must be ratified by both states by 31 December 2025 at the latest.
The procedure is comparable to the teleworking agreements between France and Switzerland.
For details on the new cross-border commuter agreement with Italy, please refer to the blog from 20 July 2023: https://www.zulaufgmbh.ch/en/the-new-cross-border-commuter-agreement-between-switzerland-and-italy-has-entered-into-force-on-17-7-2023/
The new cross-border commuter agreement also regulates cross-border commuters resident in Switzerland who commute daily to their employer in Italy.
The following comments focus on the effects on companies in the cantons of Graubünden, Ticino and Valais.
The letter of intent contains information on the teleworking solution from 1 January 2024 and for the period from 1 February 2023 to 31 December 2023.
What is planned with effect from 1 January 2024?
“The cross-border commuter may carry out a maximum of 25 per cent of his employment in teleworking mode without this leading to a change in the status of the cross-border commuter under the Cross-Border Commuter Agreement 2020.”
Specifically, the following provision in the new cross-border commuter agreement is to be amended:
“2 With regard to Article 2(b)(iii), it is agreed that a frontier worker who fulfils the conditions set out in Article 2(b)(i) and (ii) is in principle permitted not to return to his or her main tax domicile in the country of residence for professional reasons for a maximum of 45 days per calendar year, unless the competent authorities decide otherwise. Holiday and sick days are not covered by this limit.”
The article states that a genuine cross-border commuter from Italy must in principle cross the border into Switzerland every working day. However, a maximum of 45 non-return days for professional reasons will be tolerated without loss of cross-border commuter status. The reasons for this are business trips abroad or other work-related reasons for being unable to return to the place of residence in Italy.
For which cross-border commuters should this be specifically applicable?
“This option applies to all cross-border workers within the meaning of Article 2(b) of the 2020 Border Agreement, including those benefiting from the transitional regime under Article 9 of the Agreement;”
- A cross-border commuter is resident for tax purposes in a municipality (Italy) whose territory lies wholly or partly within a 20 km zone on the border with the other contracting state (Switzerland).
- The cross-border commuter works in an employed position for an employer (company headquarters, business premises or permanent establishment) in the canton of Ticino, Graubünden or Valais and generally returns to his place of residence in Italy every day.
- All cross-border commuters are included (under the old and new agreement).
For which employees does it not apply? (the type of work permit is not decisive)
- Employees with an employer in the canton of Ticino, Graubünden or Valais who do not live in a municipality in the 20 km zone in Italy.
- Cross-border commuters under the Agreement who exceed their status due to exceeding the 45 work-related non-return days and/or the 25% teleworking limit and become “non-genuine” cross-border commuters in the calendar year in question.
What must be taken into account in the payroll for genuine cross-border commuters?
If the conditions set out above are met, Switzerland can also tax teleworking carried out in Italy up to a maximum limit of 25%.
For all others, the DTA (double tax agreement) must be applied. The days worked abroad cannot be taxed by Switzerland. Italy has the right of taxation.
What is not clear about this publication?
- Should the 25% teleworking be counted excluding the 45 non-return days for work-related reasons or not?
- What is the exact definition of a work-related non-return day? For example, is it also a day spent travelling to a third country, even if the employee returns to their place of residence in the evening?
- What is the exact definition of teleworking in the agreement? Is it work that is normally performed at the place of work in Switzerland and is now performed from any location in Italy? Can it also be telework outside the normal place of residence in Italy or must the telework also be within the 20 km border zone in Italy?
- Which municipalities in Italy belong to the 20km border zone? The list of municipalities belonging to the cross-border communes in Italy has not yet been published, but according to information from the authorities, it should be published by the end of 2023.
- Does teleworking of max. 25% exclude activities for other employers in Switzerland or in another country including Italy?
- Can customers in Italy be visited by the cross-border worker from Italy in addition to the 25% teleworking or are there restrictions?
- Do these teleworking days have an impact on the data to be transmitted in the agreement? Will the planned reporting for Italy with effect from 1 January 2024 be adjusted and if so, how specifically?
Before the unclear points are answered, it is not advisable to rush into an agreement with cross-border workers from Italy.
In any case, it is recommended that a written agreement be made with each individual employee, setting out the conditions under which teleworking will be granted and up to what percentage. In addition, other aspects such as social security provisions, possible mandatory regulations on teleworking in Italy, possible permanent establishment risks, etc. must be taken into account. Consideration must also be given to how the 25% or <25% in the area of social security can be clearly defined and monitored. To date, Italy has not signed the framework agreement on teleworking within the scope of the Agreement on the Free Movement of Persons.
In order for Switzerland to be able to tax these teleworking days, the basis for taxing teleworking days that are not taxed abroad must be adapted. The consultation on the Federal Act on the Taxation of Mobile Working in International Relations has taken place.
What is planned for the period from 1 February 2023 to 31 December 2023 with regard to teleworking in the area of taxes?
An amicable agreement is to be reached and published by the end of November 2023 for a certain group of cross-border commuters. This should make it possible to work up to 40% of working hours in teleworking mode without losing cross-border commuter status for tax purposes.
If companies wish to continue to insure their employees in the Swiss social security system from 1 July 2023, they cannot grant 40% teleworking. This applies to the scope of application in accordance with the Agreement on the Free Movement of Persons CH-EU (Regulation 883/2004, Article 13). Even for this time frame, companies are well advised to check the implications for all legal areas. In addition, it must be checked for which cross-border commuters this agreement has an effect.
The following is intended to provide some background information in order to better understand the following statement in the publication dated 10 November 2023:
(unofficial translation from Italian)
“Finally, they confirmed the willingness expressed in the declaration of 20 April 2023 to conclude a mutually agreed transitional agreement for the period from 1 February 2023 to 30 June 2023. However, in view of the proven need to also make transitional arrangements for the period between 1 July 2023 and 31 December 2023 to ensure the necessary continuity, they decided to supplement the draft amicable agreement with further provisions allowing frontier workers under the 1974 Agreement to work up to 40% of their working time in teleworking mode at their place of residence in Italy without affecting their status as frontier workers, only for those frontier workers working in teleworking mode on 31 March 2022. This amicable agreement with the relevant addendum will be signed by the competent Swiss and Italian authorities by the end of this month. This declaration does not constitute an international agreement that may give rise to rights and obligations under international law. Nothing in this Declaration shall be construed or implemented as a legally binding obligation of the Parties.”
The special Covid provisions in the area of taxes between Switzerland and Italy have been repealed by mutual agreement since 1 February 2023.
On 20 April 2023, a statement was published that a draft on teleworking for cross-border commuters for the period from 1.2.2023 to 30.6.2023 is available, which will be signed and published as soon as Italy has removed Switzerland from the tax blacklist.
In Italy, the process could not be finalised quickly enough and the draft on teleworking was never officially published.
Under the 1974 agreement, companies therefore had to ask their cross-border commuters to come to their place of work in Switzerland every day from 1 February 2023 if they did not want to lose their advantageous tax status in Italy (no additional taxation in Italy on income as a cross-border commuter in Switzerland).
If cross-border commuters did not comply with these provisions, the employer had to switch to the normal status under the DTA (normal withholding tax rates A, B, C or H) and keep a calendar so that foreign working days could either be eliminated in the withholding tax procedure or corrected by means of an application for recalculation of the withholding tax by the cross-border commuter to the competent withholding tax office by 31 March of the following year.
Following various interventions, Italy had adopted a unilateral provision (IRPEF). This amendment to the law enabled cross-border commuters in border municipalities in Italy to work 40% of their working hours in teleworking in Italy until 31 December 2023 without losing the status of non-taxation in Italy. The deadline was originally set for 30 June 2023, but was then extended until the end of the year. However, the government decided to limit the validity of this regulation only to those cross-border commuters under the 1974 agreement who were already cross-border commuters on 31 March 2022 and were teleworking at that time.
One reason for this date could be that the Covid regulations with the request to work from home were still in force on 31 March 2022. Switzerland has lifted all restrictions with effect from 1 April 2022.
After Switzerland was removed from the blacklist, the new cross-border commuter agreement came into force on 17 July 2023. An important prerequisite for a long-term solution to teleworking was thus fulfilled. It can be assumed that various negotiations have been held between Switzerland and Italy in recent months.
In the declaration of 10 November 2023, it is now clear that the unilateral regulation of Italy is also to be adopted by Switzerland. Details of the provisions should be reviewed after publication at the end of November 2023.
Need for action for companies:
- Clarification of who was already in a teleworking situation on 31 March 2022 with cross-border commuter status under the 1974 agreement
- Clarification of who and how much teleworking has been carried out by this population in Italy since 1 February 2023 and whether the maximum 40% has been complied with
- Clarification of how these cross-border commuters have been accounted for in the payroll since 1 February 2023 (genuine cross-border commuter?).
- Depending on the circumstances, retroactive adjustment of withholding tax calculations in the December 2023 payroll after publication of the declaration at the end of November 2023
- Correction of possible cross-border commuters in the payroll who do not fall under these provisions
- Review with regard to social security subordination consequences for the period from 1 July 2023 for cases of application in accordance with the Agreement on the Free Movement of Persons. For other cases, a retroactive partial subordination or splitting according to place of employment in Switzerland and Italy since 1 July 2022 would have to be examined.
Companies that require additional details on the new cross-border commuter agreements can either book a webinar in German:
Or a seminar in English could be organised on request of a company.
These topics will also be addressed at the seminar News for employers at the turn of 2023/2024 on 8 December 2023 from 9 a.m. to 10.30 a.m.