30. Jul 20

International Tax Law – Implications of COVID-19 for Double Taxation Agreements

Double taxation agreements play a pivotal role in international tax law. A number of bilateral agreements have had to be temporarily amended due to the crisis surrounding the coronavirus.

The crisis has seen a shift away from traditional work environments to home offices. Such a move does not have tax implications as long as the home and the workplace are located in the same country. However, cross-border commuters living in one country and working in another may find themselves in a different situation. By performing their work from home – whether for reasons of safety or because they do not want to have to cross the border day in and day out – they are working from not only a home office but also a different country. This can give rise to changes in the tax base. We at the commercial law firm MTR Rechtsanwälte note that this may occur, for instance, if the worker spends more than a certain number of days working outside the country in which they normally perform their work.

In cases where a citizen works in one country and lives in another, the countries in question typically have a double taxation agreement in place that determines which country is entitled to levy tax. Home office work is regulated differently in these bilateral agreements and a change in the tax base is possible under the current circumstances. While home office arrangements do not render amendments, for example, to the double taxation agreement with France necessary, other agreements need to be amended in response to the situation.

Germany’s Federal Ministry of Finance therefore recently concluded special arrangements for a limited period of time with the Netherlands, Austria, and Luxembourg. These ensure that workers who ordinarily work across borders do not incur additional tax burdens due to the increased home office workload.

The special arrangements apply to workdays spent in a home office environment as a consequence of the coronavirus pandemic. They do not apply to workdays where the plan was already to work from home or in a third country. The arrangements are in place for a limited period of time and will be suspended once the restrictions imposed in response to the coronavirus pandemic are eased.

The implications from a tax perspective of aspects pertaining to permanent establishments or the location of the effective center of management equally need to be considered at this time.

Experienced lawyers can advise private individuals and companies on all matters relating to international tax law.

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