The impact of homeworking on international employment
Due to the COVID-19 virus companies and their cross-border workers are impacted significantly by the closed borders and international travel restrictions. This leads to drastic changes in the working patterns of internationally mobile employees. The obligation of telework, as a result of the measures taken, could cause a shift of taxation. On April 3, the OECD issued its recommendations in this respect, encouraging to alleviate the unplanned tax implications. In this article you can find an overview of the results of the agreements concluded between Belgium and the other adjourning state.
In a normal situation article 15 of the OECD Model Tax Treaty states that the worldwide income of an employee is generally taxable in his country of residence. However, the taxation authority will be attributed to the work state when the activity is physically exercised in the work state and some additional conditions are met (183 days-rule, country where employer is located,…). Please note, that this is where the problem occurs. Due to the closed borders, cross-border workers cannot physically exercise their activity.
The OECD states in their recommendation that the temporary dislocation of the employees should not have any tax consequences. Keep in mind that in principle the double tax treaty rules are applicable and that the EOCD recommendation only can be adapted by way of an agreement between two countries.
The mutual agreement concluded between Belgium and its neighboring countries (Netherlands, France, Luxemburg and Germany) states that the COVID-19 pandemic should be considered as a case of force majeure. As a result, the working days for which wages are received and which are performed at home 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). This means that the split payroll as it was applicable before the outbreak of this virus, remains applicable even though the employee is not actually working on the same split percentage. However, this fiction does not apply to the working days which were in normal conditions either spent as home office days or in a third state (e.g. business trips to third countries).
These agreements are applicable until 31 December 2020.