The Netherlands and Germany came to the agreement that the coronavirus (‘COVID-19’) pandemic is a “situation of force majeure” and that the measures taken in response to the pandemic can lead to substantial uncertainty with respect to the tax position of cross-border workers.
In this context, both countries have reached a mutual agreement (effective as from 11 March 2020) on the application of the article on employment income in the Dutch-German double tax treaty.
Based on this agreement, working days for which wages are received and during which the employment was exercised by the employee at home (home office-days) solely because of the measures to combat the COVID-19 crisis by the German or Dutch Government, may– upon election by the taxpayer – be deemed as days of work spent in the country where the cross-border worker would have exercised the employment under normal circumstances, without the COVID-19 measures. This fiction does not apply to working days that would have been spent either as home office-days or working days in a third state (e.g. business trips to third countries), independent of the COVID-19 measures.
Cross-border workers who decide to make use of this fiction are obliged to apply this fiction consistently in both countries and to keep appropriate records (written confirmation of the employer which part of the home office-days were solely due to the COVID-19 pandemic related measures). The fiction only applies to the extent that the respective wages for the days spent working at home are ‘actually taxed’ (i.e. included in the assessment basis used to calculate the tax) by the country in which the cross-border worker would have been working without the COVID-19 measures. As such, the impact of the COVID-19 measures on situations of salary split / split taxation is mitigated in a German-Dutch cross-border employment situation.
Where a resident of either Germany or the Netherlands, who normally works in the other State, spends a day that would normally be a working day, idle at home (i.e. without working) and the employee continues to receive salary from the employer, automatically (and thus not optionally) the same work pattern (ratio of days worked in the work-state / total working days) is applied as when the employee would have continued working.
The agreement between the Netherlands and Germany embodies the recent OECD recommendations of 3 April 2020 (see our newsflash of 6 April 2020).
Indeed, as already stated by the OECD Secretariat, exceptional circumstances call for an exceptional level of coordination between countries to mitigate the compliance and administrative costs for employees and employers associated with involuntary and temporary change of the place where employment is performed. That is exactly what the Netherlands and Germany have done, via their mutual agreement.
What about Belgium?
As mentioned in our newsflash of 17 March 2020 Belgium and Luxembourg have agreed that the current situation linked to the coronavirus constitutes a case of ‘force majeure’, for which no home working day in Belgium is to be counted under the 24-days rule (of allowed physical presence outside the territory of Luxembourg during working days). Moreover, the Belgian and French authorities have decided to apply a ‘force majeure’ approach to the situation of French frontier workers, who are forced to work in France (i.e. in particular home working) due to the corona crisis.
At this point and based on our contacts with the Belgian tax authorities, it is clear that for other double tax treaties or other provisions in the treaties (for example applicable to Belgian tax residents working in France, The Netherlands or Germany) the normal ‘tax treaty rules’ will remain applicable and no general tolerance is foreseen.
Taking into account the recent OECD guidance (which is a clear call for an exceptional coordination between countries) and the mutual agreement which was recently reached between the Netherlands and Germany, the following question is relevant now more than ever: will Belgium also change its mind and apply the ‘force majeure’ approach in a more general manner, notably to other treaty situations, such as for example salary split / split taxation? For example, will Belgium negotiate a specific agreement with its neighbouring countries?
We are still monitoring this closely and will check if Belgium will absorb and follow these OECD recommendations and whether it will apply any further tolerance (with other countries) in practice.
In case of any further questions, please do not hesitate to contact Sandrine Schaumont or Philip Maertens.