Working from home – new rules for French cross-border commuters

Employment income tax allocation rules in detail, uncertainties and discrepancies with corporate income tax and social security rules

Allocation of taxing rights to employment income

French cross-border employees working, as example, for Geneva-based employers are subject to tax in Switzerland, respectively taxed at source in Geneva.

An exception to this applies in certain cantons (i.e., Bern, Basel-City, Basel-Land, Jura, Neuchâtel, Solothurn, Vaud and Valais) which signed a separate agreement with France on 11 April 1983 (1983 Agreement). Where French cross-border employees work for an employer resident in these cantons, the taxing rights to employment income are allocated to France.

Impact of teleworking from home on the allocation of taxing rights

Teleworking from home up to 40% of working time (i.e., two days per week, 96 days per annum based on 240 woriking days per year) has no effect on the allocation of taxing rights:

• For employees covered by the DTA-F, the teleworking days are taxable in Switzerland;
• For employees covered by the 1983 Agreement (VD, VS, NE, JU, BE, BS, BL and SO), the teleworking days are taxable in France.

Teleworking from home above 40% generates a split of the taxation rights as follows:

•  For employees covered by the DTA-F, all the days teleworked in France become taxable in France (as well as any business travel days). Working days at the office in Switzerland remain taxable in Switzerland (taxed at source).
• For employees covered by the 1983 Agreement (VD, VS, NE, JU, BE, BS, BL and SO), the Swiss working days  become taxable in Switzerland (taxed at source). All the days teleworked in France remain taxable in France (as well any business travel days). 

Social security

France has recently signed (with a review/analysis of the situation after six months) the new social security multilateral agreement allowing cross-border workers who telework up to 49.9% of their working time in their State of residence to remain subject to the social security legislation of their State of employment. An A1 form will have to be applied to validate the country of affiliation, and will be valid for a period of three years unless there is a change in the situation.

Rules applicable to permanent establishments remain unchanged

Notwithstanding the above, it should also be considered whether a permanent establishment would be created if the cross-border employees telework or work on temporary assignments in their country of residence up to the above threshold.

Indeed, the supplement to the DTA-F does not address how the rules applicable to the allocation of taxing rights in a cross-border teleworking context combine with the rules related to permanent establishments. If the supplement to the DTA-F allows cross-border workers to telework 40% of the time, it is unclear how the tax authorities will handle this situation when assessing whether there is a permanent establishment in their respective jurisdiction.

Employer tracking and reporting obligations

According to the provisions related to an automatic exchange of information, Swiss employers will be expected to report to the Swiss tax authorities (which will then exchange with the relevant French authorities) the relevant information pertaining to their employees (i.e., first and last names, calendar year, number of days of teleworking, total amount of gross salary paid) no later than 30 November following the year in which the salary was paid. The exact procedure for the automatic exchange of information will be clarified in a future memorandum of understanding.

As a result, employers will have to track the teleworking days of all French cross-border employees and ensure that an A1 is filed in order to validate Switzerland as the country of affiliation for social security purposes when employees use the teleworking option. Besides this, they will also need to consider the following if their cross-border employees exceed the 40% threshold:

• For employees covered by the DTA-F, reduce the Swiss tax base for the portion of days teleworked in France and worked in other countries;
• For employees covered by the 1983 Agreement, levy tax on the portion of days worked in Switzerland.

Action points and next steps

Swiss employers shall now start considering the following with respect to their French cross-border employees:

• Review their home office policies and employment contracts to adjust the permitted teleworking time according to the new rules. The interplay between the various tax rules - employment taxation, corporate income taxation and social security - needs to be considered too, as well as the roles and functions of their cross-border commuting employees within the organisation (risk of permanent establishment).
• Implement a tool tracking the location and nature (teleworking and business travel) of the working days of their cross-border employees.
• If the teleworking and working days abroad cannot be kept under the thresholds set, take the necessary action in the payroll in order to either reduce or apply the tax at source.
• Apply for an A1 form for each employee in case their activities are not performed solely in Switzerland in order to validate the country of affiliation to the social security system. Without this validated form issues may arise, most notably if an insured risk occurs.