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News

Tax treatment of cross-border workers in the context of the Covid-19 pandemic

Abstract

While the Belgian authorities have acknowledged that national measures aimed at controlling the Covid-19 pandemic raise significant uncertainty with respect to the tax treatment of cross-border workers, they have not adopted a general position on the issue. It follows that the criterion of physical presence for allocating the power of taxation between States, provided for in double taxation treaties, is, in principle, strictly applied.

Belgium has however concluded agreements on this subject with four States which constitute important economic partners: Germany, France, Luxembourg and the Netherlands.

These agreements stipulate that, provided that a series of comparable conditions are met, the remuneration paid to employees who have been working from home since 11 March (14 March in the case of France) as a result of the confinement may - but must not - be taxed in the State in which they normally work rather than in the State of residence. These agreements therefore allow taxpayers to be subject to taxation in their usual countries of activity even if they have not physically worked in those countries for reasons of force majeure (due to the pandemic).

Only cross-border workers who do not usually work at home and who did so from 11 March onwards (14 March in the case of France) solely because of national measures against the pandemic are entitled to invoke this fiction (working days at home are thus not automatically excluded from the taxing power of the State of residence). The worker may be asked to demonstrate force majeure (with a certificate from the employer indicating the days of work at home linked to the sole fact of the measures taken to combat the pandemic, for example) as well as the effective taxation of the remuneration related to working at home by the State where the activity would have been carried out in the absence of the national measures.

The Belgian authorities have issued a circular on 17 June 2020 (2020/C/81), which constitutes valuable information for Belgian residents who wish to benefit from this fiction. For instance, the Belgian tax authorities indicate the type of information that must appear on the certificate issued by the employer: identity of the employee, nature of his or her professional status, statement of days worked at home during the confinement, etc.

Please note that we have prepared a format for the certificate that complies with the conditions laid out in the circular and that we would be pleased to assist you in this regard.

 

Our analysis

I. General considerations

Although having recognised that the various national measures taken in response to the coronavirus pandemic give rise to considerable uncertainty as regards the tax situation of cross-border workers, Belgium has not adopted a general position on the matter. It follows that the criterion of physical presence for allocating the power of taxation between States, provided for in double taxation treaties, is, in principle, strictly applied.

Belgium has however concluded agreements on this subject with four States which constitute important economic partners.

II. Comparable conditions found in the various bilateral agreements concluded by Belgium on the tax status of cross-border workers during the period of lockdown

These agreements foresee the following general provision to regulate the situation of cross-border workers for the duration of the pandemic:

Henceforth, working days during which the cross-border worker carries out his work at home in his State of residence solely because of measures taken by the governments involved to combat the pandemic may - but must not - be considered as having been performed in the other State.

The employee may only resort to this fiction if the following cumulative conditions are met:

a.He is a cross-border worker (i.e. a worker residing in one Contracting State and working, at least partially, in the other Contracting State). It follows that this fiction is not applicable to a worker who ordinarily works in his State of residence and who, as a result of the measures taken to combat the pandemic, has decided to leave his State of residence to establish himself in the other State and has thus become a cross-border worker;

b. He does not generally carry out his employment at home. It follows from this condition that situations of temporary detachment in Belgium, Germany, France, Luxembourg or the Netherlands are not covered by these agreements. Thus, is taxable in Belgium, place of residence and activity, the remuneration of the worker who:

  • resides in Belgium in the service of a Belgian employer; and
  • has been detached for a period of 5 months to Germany (or France or Luxembourg or the Netherlands); and
  • ended his assignment working from home because of the pandemic measures.

 

c. The working days which have been carried out at home were only done at home because of national pandemic measures. Working days at home are thus not automatically excluded. Consequently, telework days that were already scheduled prior to the implementation of the special measures, either in the employment contract or in agreement with the employer, are not covered by this fiction;

d. The fiction must be applied in a consistent manner. Consequently, a cross-border worker who resides in Belgium cannot require that Belgium exempt the part of his remuneration relating to his work at home on the basis of that agreement and, at the same time, require that the other State exempt that remuneration because it derives from work carried out on Belgian territory;

e. The worker is required to keep the necessary information, and this may be done on the basis of a written certificate from the employer indicating which part of the days of work at home is due exclusively to the Covid-19 measures;

f. The employee accepts that the part of his remuneration related to his work at home is effectively taxed in the other State.

It is regrettable that these agreements only partially remove the uncertainties regarding the tax treatment of cross-border workers as a result of the anti-corona measures. Thus, these agreements do not regulate the situation of new cross-border workers or of cross-border workers who normally carry out part of their work at home and can no longer do so because of the measures to combat the pandemic.

More generally, the fact that Belgium has only concluded an agreement with these four countries means the following for a worker who resides in Belgium and usually works in a country other than these four countries: His remuneration linked to working at home is taxable in Belgium, his place of residence and work.

It should also be noted that a Belgian resident worker who benefits from the special status of "foreign executive" is considered as a non-resident for tax purposes, so that he does not benefit from the double taxation treaties concluded by Belgium, nor a fortiori from the Covid- agreements. His remuneration for working at home is therefore taxable in Belgium, his place of activity.

Lastly, the COVID-19 agreements cover only the income of employees, to the exclusion of income from independent workers and the income that directors (or managers) receive from their companies by virtue of their office or in another capacity.

The Belgian authorities have issued a circular on 17 June 2020, which constitutes valuable information for Belgian residents who wish to benefit from this fiction. The circular mentions that the worker must keep at the disposal of the Belgian administration:

  • Proof of the effective taxation of remuneration linked to work at home by the State where the activity would have been carried out in the absence of the measures to combat COVID-19;
  • An individualised certificate from the employer indicating the days of work at home linked to the sole fact of the measures taken to combat the pandemic. It is worth noting that requiring a certificate hardly seems to be reconcilable with the agreements concluded between Belgium and the Netherlands and Luxembourg, in which it is explicitly stated that the certificate is only one of several means of retaining the necessary information, so that it is not compulsory to hold a certificate for the purpose of satisfying this condition.

The Belgian tax authorities also indicate the type of information that must be stated on the certificate issued by the employer:

  • The information necessary for the complete identification of the employee (surname, first name, address and date of birth);
  • The nature of the position held by the employee;
  • A record of the days worked at home solely as a result of the measures to combat the pandemic;
  • If applicable, the record of days of work at home provided for in the employment contract;
  • The record of any days of illness, leave and/or recovery;
  • A sworn declaration that the certificate drawn up is true and genuine;
  • The date and signature of the employer, as well as the countersignature of the employee.

Please note that we have prepared a format for the attestation that corresponds to the above-mentioned condition of the agreement and would be pleased to assist you in this regard.

III. Particular features of the various bilateral agreements concluded by Belgium

 

1. Agreement of 30 April 2020 between Belgium and the Netherlands

This agreement grants the fiction favoring cross-border workers under the same conditions as those mentioned in section II.

It was foreseen that the agreement would apply for the period from 11 March to 31 May 2020 with the possibility of extending the agreement each month by mutual agreement. The Belgian and Dutch authorities have decided to extend the application of the agreement until 31 August 2020.

2. Agreement of 6 May 2020 between Belgium and Germany

This agreement differs from the general requirements mentioned in section II in only one respect. In this case, the necessary information must be kept by the cross-border worker by means of a certificate from his employer indicating the number of days worked at his home solely on the basis of government health instructions. The certificate does not therefore constitute one option among others, but the only means of fulfilling the condition of retaining the required information.

The agreement initially applied for the period from 11 March 2020 to 31 May 2020, with the possibility of extending it each month thereafter by mutual agreement. The Belgian and German authorities have decided to extend the application of the agreement until 31 August 2020.

3. Agreements between Belgium and France

Belgium has concluded two agreements with France on the tax treatment of cross-border workers in the wake of the Covid-19 crisis.

3.1 Agreement of 13 March 2020 on French residents subject to the special regime for frontier workers

The special regime for frontier workers expressly provides that a case of force majeure constitutes a situation for which no day of exit from the frontier zone will be accounted for under the 30-day rule.

The Belgian and French authorities have agreed that the current coronavirus situation constitutes such a case of force majeure.

It has therefore been decided that, as from 14 March 2020 and until 31 August 2020, the presence of a French resident frontier worker at his residence in France will be automatically excluded from the calculation of the 30-day threshold.

3.2 Agreement of 15 May 2020 between Belgium and France

This agreement differs from the general requirements mentioned in section II in only one respect. In this case, the necessary information must be kept by the cross-border worker by means of a certificate from his employer indicating the number of days worked at his home solely on the basis of government health instructions. The certificate does not therefore constitute one option among others, but the only means of fulfilling the condition of retaining the required information (similar to what is provided for in the Belgian-German agreement).

This agreement stipulates that the fiction is applicable from 14 March until at least 30 June 2020 and can be extended every month thereafter. The Belgian and French authorities have decided to extend the application of the agreement until 31 August 2020.

4. Agreement of 19 May 2020 between Belgium and Luxembourg

This agreement replaces the previous communication referred to in the last newsletter, which provided that the pandemic constitutes a case of force majeure, so that, from 14 March 2020, the days worked by a cross-border worker at home were automatically excluded from the calculation of the 24-day period.

Henceforth, the State of residence no longer automatically forfeits the right to impose working days at home. For the State of residence to lose its power of taxation, it is necessary to establish that the working days that were worked at home were done so solely as a result of national measures to combat the pandemic.

This agreement grants the fiction favoring cross-border workers under the same conditions as those mentioned in section II.  

This agreement stipulates that the fiction is applicable from 11 March until at least 30 June 2020 and can be extended every month thereafter. The Belgian and Luxembourg authorities have decided to extend the application of the agreement until 31 August 2020. An interesting peculiarity is that this agreement can be terminated unilaterally by each country.

It should be noted that the special regime of the 24-day rule (which is not transposable to other States) may be combined with this agreement. Thus, the remuneration of a Belgian resident who habitually works in Luxembourg and whose employment contract provides for teleworking at the rate of two days per month is taxed in the following way: 

  • The teleworking days provided for in the employment contract have no connection with the measures to combat COVID-19. Consequently, the remuneration received in respect of these two days per month is in principle taxable in Belgium. However, insofar as the number of these days does not exceed a total of 24 days during the year, the remuneration relating thereto is taxable in Luxembourg;
  • Remuneration received in respect of other teleworking days between 11 March 2020 and the last day of the period agreed in the agreement are taxable in Luxembourg provided that all the conditions mentioned above are met for the application of the fiction.

 

IV. The tax treatment of unemployment benefits paid under statutory social insurance following the Covid-19 measures

 

1. General rules for the interpretation of bilateral conventions

So far, Belgium has not provided for a general scheme in this area. It follows that, according to the methods of interpretation of the bilateral conventions, it is necessary to refer to the domestic law of the source State to determine whether these allowances are to be understood as employment remuneration for which the power of taxation belongs in principle to the source State (as is the case in Belgium, to name but one country). Should this not be the case under the domestic law of the source State, the allocation of taxing power between the State of residence and the source State is likely to be governed by the residual provision of the bilateral convention, which provides that the State of residence bears the exclusive power to tax income that is not dealt with in any other article of the convention.

2. Specific features of the bilateral convention between Belgium and the Netherlands

The bilateral convention concluded between Belgium and the Netherlands is an exception in this respect. It is indeed expressly provided therein that unemployment benefits paid under the social laws of a State to an individual who performs an employment in that State and who is a resident of the other State shall be taxable only in the Contracting State in which the remuneration, derived from the employment actually performed, is taxable.

In their abovementioned agreement of 30 April 2020, the Belgian and Dutch authorities confirmed that this stipulation also applies to unemployment benefit paid as a result of the measures to combat the Covid-19 pandemic. Since this is merely a confirmation of the existing interpretation of the bilateral convention, no fixed start or end date applies to this part of the agreement.

In the present case, residents of the Netherlands who work in Belgium are entitled to Belgian temporary unemployment benefits which are paid following the pandemic, under certain conditions. Such unemployment benefits are therefore taxable only in the State in which the remuneration, which is received when the employment is actually performed, is taxable. The usual work pattern (i.e. before the Covid-19 crisis) is therefore essential in this respect.

3. Specific features of the bilateral convention between Belgium and Germany

The bilateral agreement between Belgium and Germany also constitutes an exception in this respect. It expressly provides that pensions and all other allowances paid under the social legislation of a State (old-age pensions, widow's/widower's pensions, pensions to compensate for a reduction in income, sickness or invalidity allowances, unemployment benefits, etc.) are taxable only in that State.

As a result, residents of one of the two States who normally work in the other State and who receive temporary unemployment benefits there as a result of the measures to combat the pandemic are taxable only in the other State, even if they have in the meantime returned to their State of residence for the duration of the quarantine.

 

HR TAX & IM                             

Luc Lamy –  ll@taxconsult.be                                      Alexandre De Munck – adm@taxconsult.be