The mutual agreement concluded on April 3, 2020 between the Federal Republic of Germany and the Grand Duchy of Luxembourg on the taxation of cross-border commuters in the wake of the Corona pandemic has now been replaced by an extended agreement that came into force on October 18, 2020. It now extends the previously agreed arrangements to public sector employees. In addition, the validity of the agreement was extended until December 31, 2020.
The corona pandemic has turned all our lives upside down and led to numerous restrictions. Hygiene concepts were introduced that forced employees to work from their home offices. Travel restrictions came into force, with the result that people who had actually been working abroad now had to work unexpectedly from their home country – often even from their home office. What results from this are not only personal restrictions in the freedom of movement, but also possibly immense tax consequences.
Two groups of cases are particularly affected – the classic border commuters, but also employees who are “normally” assigned to the neighboring country. Under normal circumstances, both groups work in Luxembourg every working day. The classic border commuter “commutes” every day from Germany to the neighboring country in order to pursue his or her activities. The classic expatriate, on the other hand, lives in Luxembourg in order to work there. Both groups are normally taxed in Luxembourg on their income from employment, because they only work there.
Due to the Corona pandemic and the associated travel restrictions or as a result of internal company hygiene concepts, the affected employees can no longer carry out their work at their office workstation in Luxembourg, but are forced to work from their home office in Germany. In many cases, the consequence would be that the right of taxation in terms of the double taxation agreement Germany/Luxembourg would now revert to Germany. Among other things, this would in turn mean that posted employees would suddenly be subject to wage tax withholding again in Germany.
In order to prevent the affected groups of employees from being placed in a worse tax position “through no fault of their own” and to mitigate the consequences of the corona pandemic in this respect, a mutual agreement has been concluded between the Federal Republic of Germany and the Grand Duchy of Luxembourg (and by analogy also with other countries such as Austria or Switzerland), which interprets the existing rules of the double taxation agreement to the special requirements of the corona pandemic.
According to this, working days for which wages were received and on which employees had to carry out their work from their home office due to measures to combat the corona pandemic are to be considered as if the employee had carried out his work in the country in which he would have carried it out even without the corona pandemic. In short: If an employee had to work from his home office in Germany due to corona, although he would have actually spent these working days in Luxembourg, the days are still to be considered as having been spent in Luxembourg.
Through this so-called fiction of fact, the relapse of the right of taxation to Germany is avoided and the employee continues to be placed in the same position as if he were carrying out his work as originally intended.
What is new is that this agreement no longer only refers to the regulations of the double taxation agreement for income from employment of “normal” employees. Rather, it now also includes public sector employees for whom the double taxation agreement contains other regulations.
Furthermore, as already indicated at the beginning, the validity of the mutual agreement was extended until December 31, 2020. Thereafter, it will continue to be extended by one month at a time unless it is terminated by the competent authority of one of the contracting states at least one week before the beginning of the following calendar month.
Employees who wish to make use of the notification agreement must keep records of the days spent in the home office due to the corona pandemic. This can be done, for example, by means of a corresponding employer certificate. Furthermore, corona-related home office days are only subject to the “fiction of fact” if taxation of these days in the foreign state is ensured and can be proven in case of doubt.
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