EU Commission considers Long Term Solutions for Working from Home
Since Covid 19 has shown that working from home can work, many employees are now using offering the possibility of teleworking . Cross-border teleworkers may be at a disadvantage as regards tax and social security vis-à-vis those working in their country of residence.
Bilateral arrangements that introduced exemptions relating to taxation and social security for cross-border workers were due to expire on 30 June 2022.
A Member of the European Parliament, Mr Pascal Arimont, asked the Commission whether it was aware of the problem and whether it was conducting negotiations and discussions at OECD level with a view to finding a long-term and sustainable solution for cross-border teleworkers.
On 11 August 2022, the Commissioner for Economy, Mr Paolo Gentiloni, informed the European Parliament that the European Commission is working with Member States and stakeholders to find long-term solutions for tax and social security repercussions of cross-border teleworking in the European Union.
As for social security, during the COVID-19 pandemic, the guidance of the Administrative Commission for the coordination of social security systems allowed the "freeze" of the applicable rules until the end of June 2022. A new guidance note, that is applicable from 1 July 2022, sets out a common interpretation of the EU social security provisions relevant to teleworking.
It also establishes that national institutions must assess the workers' situations according to such interpretation until 31 December 2022. Changes to the legislation applicable to cross-border workers are not expected during that period.
Taxation is an issue for which the European Commission has no authority. Mr Gentiloni further confirmed that the Commission is in contact with the OECD for possible coordination of the framework applicable to taxation of cross-border teleworkers within the European Union and between OECD member countries, which currently are not congruent.
As for taxation, we see problems with the taxation of remuneration (article 15 of the OECD Model Tax Treaty) between the State of Residence and the Work State. For the employer, there is the issue that the employee working in another country becomes a permanent establishment of the employer in that country, so that the employer may become liable to corporate tax there.
See the report to the European Parliament : Taxation of cross-border teleworkers and their employers.
In the UK
In the UK, the Office of Tax Simplification (OTS) has announced that it will review the tax implications of hybrid and distance working with a goal of publishing a report on this in 2023. The OTS is a government office providing independent advice to the government on simplifying the UK tax system.
This follows the impact of the COVID-19 pandemic on the increasing numbers of employees working from home. While most remained in their own country, some began working remotely from abroad, often on an informal basis. As the impact of the pandemic lessens, many employees have returned to their workplace, but some have continued as before or have moved to a hybrid arrangement; perhaps sometimes carrying out duties at their employer's workplace, but remotely at other times.
In the past, an employee working abroad would most likely have been formally seconded to a new country by their employer. Now, the employee may have simply chosen to relocate there for a certain time.
Such arrangements may have unexpected tax and social security implications, including tax residence and cross-border taxation, as well as employment rights and other issues.
The OTS scoping document states that its review will consider the tax impacts of:
- working across international borders, including multiple countries
- allocation of primary taxing rights, and need for double tax relief
- taxation and social security where there are more than two countries involved
- accommodation, travel, and other expenses including consideration of who will be paying for these and the relevant tax treatment. This will include considering whether permanent workplace rules are clear for these new working practices
- short term business visitor rules, overseas workday relief rules and PAYE withholding considerations such as modified payroll
- pension contributions and share schemes
- the creation of permanent establishments for corporate tax
- where relevant, the above as they apply to remote working within the UK.
This is not a government initiative; the OTS decided to examine this topic independently. It is expected that the OTS will issue a formal call in September seeking views from businesses as well as workers, to obtain a better understanding of the scale of remote or hybrid activity. The survey will look principally at those working mainly in one country but spending a certain time in another, rather than formal secondments or permanent relocations abroad. A final report could be published in the spring of 2023.