Live in one country, work in another country. This has become normal for many workers in border areas. But employees who work across borders have to deal with many regulations. Not only the legal situation in your own country needs to be understood, the regulations of the other country and relevant double taxation agreements must also be observed. There can be some pitfalls, such as the ruling of the Munich Finance Court of March 15, 2024 (8 K 883/23) shows. The case involved an employee living in Switzerland who worked in Germany until he was terminated and wanted to take advantage of the cross-border worker regulation.
Cross-border commuter regulation in the double taxation agreement with Switzerland
Employees who live in Germany and work in Switzerland or vice versa and regularly return to their place of residence are considered cross-border commuters within the meaning of the Germany-Switzerland double taxation agreement (DTA). It doesn’t matter how far away your place of residence and place of work are from each other. What is important here, however, is regular return to your home residence. Cross-border commuter status no longer applies if the cross-border commuter does not return to his place of residence for professional reasons for more than 60 days in a calendar year.
If you have cross-border commuter status, the remuneration remains taxable in your home country. In the country of activity, a withholding tax of only 4.5 percent of the gross amount of the remuneration is levied. Residence in the home country must be proven by an official certificate.
Release during the year with continued payment of salary
The taxpayer in the dispute was resident in Switzerland and worked as an executive in Germany. In May of the year in dispute, the employment relationship was terminated with a termination agreement with effect from the end of the year. The employee was released from work with continued payment of his salary. The employer issued a non-competition clause during the leave period. Furthermore, the payment of severance pay for the loss of the job and a bonus were agreed for the following year. The employer in Germany withheld wage tax in full from the remuneration.
Cross-border commuter status depends on non-return days
The taxpayer, who was assessed as a limited taxpayer by the German tax office due to rental income, applied for reimbursement of the wage tax withheld, with the exception of the 4.5 percent withholding tax, which is due to Germany due to the assumed cross-border commuter status. The application was accompanied by a list of the working days spent in Germany from January to May of the year in dispute. In it, the taxpayer stated 35 days of non-return to Switzerland.
The tax office rejected the refund request. For cross-border commuter status, only the active employment relationship up to the exemption in May of the year in dispute is relevant, since from the exemption the taxpayer actually neither went to his place of work in Germany nor was he able to regularly return to his place of residence from there. The 60-day limit provided for in the DBA should therefore be shortened.
Reimbursement of withheld payroll taxes
The tax judges first examined whether a reimbursement of wage taxes would still have been possible under procedural law. In principle, for those with limited tax liability, the income tax is paid with the income tax withheld. Since an application assessment for Swiss citizens was not possible in the year in dispute, the taxpayer applied for a refund based on a so-called unlawful payment. The tax judges rejected this. The tax debtor for the wage tax is the employee on whose account the tax is withheld by the employer. Accordingly, there is a legal basis.
A notice: According to the Income Tax Act, an assessment upon application for income from employment for persons subject to limited tax liability is only possible if they are citizens of a member state of the European Union or the EEA and they have their domicile or habitual abode in the territory of one of these states. The ECJ ruled on the exclusion of the application assessment for EU/EEA citizens who live in Switzerland in a ruling dated May 30, 2024 (C – 627/22) but declared to be contrary to European law. The Federal Ministry of Finance has reacted to the judgment and is waiting for a legal regulation to be issued the letter dated August 5th, 2024 enacted. This stipulates that an application assessment is possible for EU/EEA nationals even if they are resident in Switzerland.
According to the tax judge, however, this question is not relevant to the decision, because even if a claim for reimbursement is generally affirmed, this is not justified here. In the case of the dispute, the judges were of the opinion that the wage tax deduction was carried out in a substantive and legal manner. Germany had the right to tax.
Calculation of non-return days
The taxpayer is subject to limited tax liability on his salary in Germany due to the exercise of the activity. The income tax deduction was also not according to that Double taxation agreement between Germany and Switzerland excluded. Because he has passed the harmful days of non-return. According to Changelog for the DTA Germany-Switzerland, for an employee who is not employed in the other country for the entire calendar year, the days of non-return that are not detrimental to cross-border commuter status are to be calculated in such a way that five days are for a full month of employment and for each One day must be set aside for the full week of employment.
In relation to the dispute, the tax office correctly determined the number of relevant non-return days as 22 days for the period up to May of the year in dispute. Therefore, this limit is exceeded with 35 non-return days. This means that the taxpayer’s status as a cross-border commuter and Switzerland’s right to tax are ruled out.
During the course of the proceedings, the taxpayer stated that he had also worked from home in Switzerland, which would have led to a change in taxation law to Switzerland for those days. However, he was unable to provide any relevant evidence. The tax judges therefore left it with a right of taxation for Germany.
The last word has not yet been spoken
The tax court allowed the appeal because the taxation of payments in the exemption phase and the taxation of severance payments for the disputed period have not yet been finally clarified by the highest court. A comparable procedure is in another case under File number VI R 23/22 already pending at the BFH.
