Currently, the COVID-19 health crisis seems to be under control within Europe, with some local lock-down measures being put in place and barring a potential second wave. So, if things continue to evolve in a positive manner during summer, it looks like employees might gradually be able to return to their regular (pre-corona) cross-border working pattern, provided that social distancing can be guaranteed.
However, it remains to be seen how the various ‘force majeure’ measures, taken by Belgium and its neighbouring countries to mitigate the negative impact of the COVID-19 pandemic on situations of cross-border employment will be applied in practice. In this regard, the Belgian tax authorities have issued a FAQ on 17 June, 2020.
Force majeure tolerance with (almost) all neighbouring countries
In our previous newsflashes we have analysed the agreements concluded between Belgium and its neighbouring countries (i.e. the Netherlands, France, Luxembourg and Germany). These agreements implement a mutual “force majeure tolerance” for cross border employees in relation to COVID-19 (travel) restrictions. A fiction is created in relation to the employment income linked to the “home working days” solely due to the measures taken by the governments of the respective countries to combat the COVID-19 pandemic. If certain conditions are met, these home working days are deemed to be spent by the employee in the state where the cross-border worker would have exercised the employment in case no such measures had been taken.
Initially the tolerance applied retroactively as from 11 March until 30 June 2020 (for the agreements concluded with Luxembourg and France) or 31 May 2020 (for the agreements concluded with Germany and the Netherlands), but following recent announcements, all agreements were extended until 31 august 2020.
Unfortunately, no similar tolerances exist between Belgium and other countries (UK, USA, Sweden, Latvia, Italy, Spain, …). Consequently, in those cases, the normal tax treaty rules continue to apply (meaning that the income in relation to home working days will be taxed in the country of residence and thus no longer abroad).
FAQ of 17 June 2020: clarification?
In the recent FAQ with regard to the COVID-19 crisis and cross border employment we find examples of specific cases, confirming the provisions in the abovementioned agreements. More clarity is provided with respect to certain aspects of these agreements.
In the FAQ, it is highlighted that the tolerance is not applicable on the professional income of self-employed persons. The ‘force majeure tolerance’ is thus only applicable to (cross-border) employees. Furthermore, it is clarified that the tolerance is only applicable between Belgium and 4 other countries: France, Germany, Luxembourg and the Netherlands. A similar tolerance for other (European) countries is currently not expected.
The FAQ also lists the information which must be mentioned on the employer statement required in application of the COVID-19 tolerance. It concerns all necessary information for the full identification of the employee (first name, family name, address, date of birth), the nature of the function, overview of the home working days solely because of the government health measures and for which he/she has received income, overview of any days of sickness, holidays and/or recuperation days, (if applicable) an overview of the home working days as foreseen in the employment contract, sworn statement that the attestation is “true and sincere”, date and signature of the employer and signature of the employee.
Finally, it is also important in order to be able to benefit from the tolerance that the employee has proof of the actual tax on the remuneration for home working days in the state where the activity would have been carried out without measures to combat COVID-19.
The FAQ explicitly excludes the employees who are residing in Belgium and for whom the application of the ‘special expatriate tax regime’ in Belgium is granted. To the extent these employees are no longer resident of another country which whom Belgium has concluded a tax treaty, they cannot invoke any double tax treaty. Consequently the exceptions to the treaty foreseen for Covid measures a fortiori do not apply to these employees and the normal rules continue to apply.
In this regard, it might be worthwhile considering for employers to review the Belgian payroll of their foreign expatriates who are not able to invoke a double tax treaty in order to anticipate a correction of the Belgian income tax liability due to the negative impact of the reduced foreign travel exclusion percentage.
… or new uncertainties?
The aim of the FAQ was to clarify several aspects. However, at this stage, not everything is clear yet. For certain cases the specific wordings used in the FAQ seem not to fully align with the official agreements. In these cases the FAQ needs to be read together with the official agreements.