With the Covid-19 pandemic, teleworking has become the norm for many European workers. However, when teleworking involves cross-border workers, the question arises of taxation. To find solutions to this new situation, the European Economic and Social Committee (EESC) organised a high-level public hearing in Tallinn on Tuesday 4 July.
The EESC issued an opinion in 2022 recommending that the rules implemented during the pandemic should continue to apply. So if an employee teleworks up to 96 days a year, i.e. two days a week, there are no tax consequences (see EUROPE 13096/10).
“The rules applied during the pandemic have expired, but teleworking has been extended, so we need to find more permanent rules”, explained Krister Andersson, rapporteur for the EESC, interviewed by EUROPE on Tuesday.
Henrik Paulander, from the European Commission’s Directorate-General for Taxation and Customs Union (TAXUD), outlined the figures. According to a 2021 survey, 1.7 million people commute across borders every day. Although this figure is fairly low, the phenomenon is actually “very significant” in certain countries such as Luxembourg, where 44% of the workforce is cross-border commuters. Austria, Sweden and Switzerland, as well as certain regions, are also very concerned.
In 2019, before the pandemic, 41.7 million people were teleworking, including 450,000 cross-border workers. This relatively low figure was due to a lack of clarity about tax legislation and the reluctance, even refusal, of employers.
“There are a number of obstacles in the internal market, not only for workers, but also for employers”, explained Mr Paulander. He cited in particular: the administrative burden for both employers and tax authorities, and the risk of losing tax benefits. Differences between Member States due to the lack of harmonisation of personal taxation prevent the Commission from taking action.
For David Bradbury, Deputy Director of the OECD’s Centre for Tax Policy and Administration, cross-border teleworking and its taxation can have an impact on countries’ revenues depending on the rules. He mentioned the consequences for corporation tax, which could be transferred and thus change the tax revenues of countries. These account for around 10% of revenues.
He also mentioned the largest source of tax revenue, employee taxation, which accounts for 40% of income. This issue goes hand in hand with employees’ social security contributions.
“Especially as tax rules can also have an impact on the attractiveness of businesses. There can be significant productivity and social gains from flexible arrangements”, emphasised Mr Bradbury. This raises the question of tax competition between Member States and, therefore, within the Single Market.
Mr Bradburry listed several possible approaches: - a model tax convention; - a one-stop shop for reporting; - tax revenue sharing, bilaterally, regionally or multilaterally; - a ‘safe harbour’ mechanism; - a reallocation of taxation rights.
The recent agreement signed in February between France and Switzerland, which provides for 40% teleworking days, was cited at the hearing as an example. For several decades, Switzerland has been paying tax retrocessions to neighbouring French regions in order to share revenues and pay for public goods, such as schools and roads, that cross-border workers and their families use.
“We need clear rules for countries, companies and workers”, concluded Mr Andersson. The EESC is currently preparing a new report to provide solutions. (Original version in French by Anne Damiani)