State Secretary Van Rij has informed the House in a letter kept informed about developments regarding the issue of cross-border workers.
Border workers
Cross-border workers are people who work (partly) in a country other than the one in which they live. The issue Van Rij writes about concerns hybrid working, which includes working from home – a practice that has become popular since the coronavirus crisis. The tax obstacles involved relate to the question of whether:
- a fixed establishment is established in the cross-border worker’s country of residence?
- whether part of the employee’s salary is subject to income tax in their country of residence?
In this blog, we will focus in particular on the second question.
Insurance and compulsory contributions
It may be that, in practice, a misunderstanding has arisen to the effect that problems only arise when a cross-border worker spends more than 50% of their working time in their country of residence. This is because a framework agreement has been concluded within the European Union regarding insurance and social security contribution obligations. Where this framework agreement is invoked, the obligation to pay contributions remains in the country where the worker is based, provided that the cross-border worker does not work more than 50% (at home) in their country of residence. How the framework agreement is invoked and to which Member States it applies is described on the website from the Social Insurance Bank (SVB).
However, this framework agreement applies solely to the determination of insurance and premium obligations, and not to taxation.
Tax treaty
In many cases, the answer to the question of which country is entitled to levy tax on an employee’s wages can be found in the tax treaty concluded between the Netherlands and the employee’s country of residence. The general rule for income from employment: taxed in the country where the employee lives (country of residence). Unless (exception) the employment is carried out in the country where the employer is based (working country); in that case, the remuneration received in respect of that work may be taxed in the country of employment. For employees who work both in the country where their employer is based and in the country where they live (for example, by working from home), this results in what is known as a ‘salary split’: part of the salary is taxed in the country of residence; part in the country of employment.
Solutions
That would, of course, (potentially) cause a great deal of hassle, which Van Rij considers undesirable. That is why attempts are being made to reach further agreements on this issue. Negotiations are underway with both Belgium and Germany regarding the introduction of a threshold scheme under which the country of residence’s right to tax would only take effect once the employee has worked from home in their country of residence for a number of days (the threshold) yet to be determined.
For Belgium, the budgetary impact of such a scheme is being assessed. To this end, the number of cross-border workers travelling in both directions is being investigated.
With regard to Germany, Van Rij reports that, in the short term, only a threshold scheme appears feasible, with a limited daily threshold. Any scheme that goes further would require consultation within a broader international context.