On 27 April, the Swiss government announced that the Provisional Agreement of 11 June 2020 between Switzerland and Germany regarding the taxation of cross-border employees during the COVID-19 pandemic has been further extended until at least 30 June 2021. Additionally, the agreement states that working from home because of the pandemic does not automatically imply the creation of a permanent establishment.

Agreement extended to at least the end of June 2021

Governments and employers have either required or encouraged employees to work from home since the beginning of the pandemic. However a particular cause of concern for cross-border workers (employees living in neighbouring countries, but coming to work in Switzerland each day and returning home in the evening) is that their special cross-border tax status may be at risk. To alleviate this concern, Switzerland has concluded provisional amicable COVID cross-border tax agreements with neighbouring countries, including Germany.

The agreement with Germany was due to expire, but has now been extended to at least the end of June 2021. This is not the first time that this agreement has been extended, and a further extension is possible.

Extension to reduce risk of permanent establishment creation

The tax implications of working from home have been a matter of concern not only for cross-border employees but also for their employers. There is a risk that the German tax authorities might consider that working from home in Germany, in particular when this involves managing employees in Switzerland, could constitute a permanent establishment in Germany by the Swiss company. This would expose Swiss profits to German taxation. The provisional COVID agreement re-confirms however that working from home in general will not create a permanent establishment. This is because the conditions for a permanent establishment are not met — namely that the home office is temporary arrangement for the duration of the COVID pandemic and the employer lacks control over the employee’s office arrangements.

Deloitte's view:

This extension does not come as a surprise in light of the existing situation. Many Swiss employers of cross-border workers in Germany will also welcome the confirmation that their cross-border management employees can continue to work in an office at home without exposing the company to a permanent establishment risk.

If you would like to discuss more on this topic, please do reach out to our key contacts below.

Key contacts

David Wigersma - Partner, Global Employer Services

David has 20 years of experience in the area of international corporate and individual taxation planning. He specialises in addressing the complex compliance needs of a cross-border workforce with varied elements of compensation.

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Daniel Stutzmann - Partner, International Tax

Daniel is a Tax Partner with more than 16 years of experience as an international corporate tax specialist. Daniel has extensive experience in the area of cross-border structuring (like establishing tax efficient IP- and financing structures) as well as business reorganizations including large supply chain transformation projects. 

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