International travel restrictions and COVID-19 lock down measures, imposed by governments during the coronacrisis in order to “flatten the curve”, are pushing cross-border workers into a continuous home working scenario for many weeks now. Working days abroad are no longer an option. As stated by the OECD guidance, exceptional circumstances call for an exceptional level of coordination between countries in order to mitigate the unforeseen and unprecedented tax implications and administrative and financial burdens for both employers and employees, triggered by teleworking, due to the COVID-19 measures.
From specific “force majeure” to more a general tolerance between countries
Although, specific international agreements for well determined situations (certain cross-border workers) were reached between Belgium and Luxembourg and between Belgium and France, a general “force majeure” approach was initially not foreseen. Then, little by little, in the course of April 2020 it became clear that a more general tolerance between Belgium and its neighbouring countries was put on the drawing table. We are now pleased to announce that Belgium has officially taken a further step forward. On 30 April 2020, Belgium and the Netherlands have reached an agreement regarding a “force majeure” tolerance for cross border workers in the context of the COVID-19 pandemic. This mutual agreement is very similar to the agreement which was previously concluded between the Netherlands and Germany.
Agreement between Belgium with the Netherlands: general force majeure approach
Today the Belgian tax authorities have published the text of the mutual agreement concluded with the Netherlands. The tolerance applies retroactively as from March, 11 2020 until May 31, 2020 but it can be extended if the competent authorities of both countries timely decide to do so.
1. Home working days: “fiction” available to individual taxpayers
For the application of article 15 of the Belgian-Dutch double tax treaty, working days for which remuneration is received and during which employees work(ed) from home (in their country of residence: Belgium or the Netherlands), solely because of the measures taken by the Dutch or Belgian government to combat the COVID-19 pandemic, may be deemed to have been spent in the country where the employee would have worked under normal conditions (i.e. in absence of COVID-19 measures). This fiction can however not be applied in relation to working days during which the cross-border worker, regardless of the COVID-19 measures, would have worked from home or in a third state. Also, this fiction is not applicable for cross-border workers who, based on their employment agreement, generally exercise their employment from home.
Cross-border workers who want to make use of the fiction (assimilating certain home working days with foreign working days), must apply the fiction consistently in both countries and must keep available all necessary documents (for example, a written confirmation from the employer which explains which part of the working days became home-working solely because of the measures related to the COVID-19 pandemic). The fiction can only be applied to the extent that the remuneration received for home working days is actually taxed by the state in which the employee would have been working under normal employment circumstances (i.e. in absence of COVID-19 measures). Consequently, the income will need to be taken into account for the determination of the taxable base.
It is not stated in the agreement whether the taxpayer’s choice to apply the “fiction” can only happen upon filing of the respective Dutch and Belgian individual income tax returns (in which case cash flow problems could arise in the hands of the individuals). Consequently, it is anticipated that the fiction can already be applied in the payrolls which are currently being operated for cross-border workers. This would allow situations of salary split and split taxation, that existed prior to the COVID-19 measures, to continue in the same way as before (but now while working at home during) the period of this international tolerance.
2. Staying home: days of inactivity while still receiving salary
What if employees stay at home without working (days of inactivity) but still receive their salary? In such case, it is determined that, for the application of article 15 of the Belgian-Dutch double tax treaty, the same working pattern (the ratio of days worked in the work state / total days worked) will be applied as if “the employee would have worked”, provided that:
- It concerns days that under normal circumstances would have been working days;
- Due to the COVID-19 measures, the employee stays at home without working;
- The employee continues to receive his salary from the employer
So, there is no choice here. The regular working pattern is automatically applicable for these “stay-at-home-days of inactivity”.
3. Dutch tax residents staying at home without working, while receiving a temporary unemployment allowance from the Belgian authorities (RVA/ONEM)
Finally, in the agreement, the situation of Dutch cross-border workers who receive temporary unemployment benefits from the Belgian authorities is also discussed. In principle, these benefits, if the employment relationship is maintained, fall in scope of article 18, paragraph 6 of the double tax treaty. As a result, these Belgian “unemployment benefits” may be taxed in the state where the benefits are received in respect of the actual performance of the employment. Consequently, as the normal working pattern (which was applicable prior the coronacrisis) is therefore thus important.
We will further follow-up on the developments between Belgium and it other neighbouring countries in this respect.