The lockdown applicable in France since 17 March 2020 and in many European countries has changed the daily life of millions of people. Employees living in France but working in a neighbour state (“cross-border workers”, in French travailleur frontalier) are particularly affected as many of them must stay at home and often telework from their “home office”.
The situation quickly raised concerns about how specific taxation rules applicable to cross-border workers could be impacted. The French tax authorities gave a reassuring answer in a statement issued on 19 March 2020, indicating that an agreement has been reached with Belgium, Germany, Luxembourg and Switzerland to avoid that travel restrictions resulting from the Covid-19 outbreak change the place where French cross-border workers are taxed.
The situation of cross-border workers living in France should thus remain unchanged from a tax perspective. Below are developments on the above-mentioned agreement and other international initiatives regarding cross-border workers.
The agreement between France, Belgium, Germany, Luxembourg and Switzerland
Under applicable bilateral tax treaties, French-resident employees working in Belgium, Germany or Switzerland are taxable in France only, provided that they do not work out of the border area of the other state for more than a limited number of days each year (30 days for Belgium and 45 days for Germany and Switzerland). If this limit is exceeded, employees may lose their cross-border worker status and become taxable in the state where they work.
The statement published by the French tax authorities on 19 March 2020 indicated that working days spent at home from 14 March 2020 and until further notice will not be taken into account for the calculation of the usual 30-day or 45-day limit respectively applicable with Belgium or Switzerland. The same applies with respect to Germany, as the French-German agreement of 16 February 2006 already allows home office (it stipulates that employment performed in the border area of the residence state is deemed to be performed in the border area of the other state).
Under the France-Luxembourg tax treaty signed in 2018 and applicable from 1 January 2020, French-resident employees working in Luxembourg are generally taxable in this state but may be taxed in France if they work there more than 29 days per year. Following the statement published on 19 March 2020, both states consider that the Covid-19 outbreak is a situation of force majeure and agreed to disregard days spent in France from 14 March 2020 for the calculation of the 29-day limit.
The situation of French employees working in Italy or Spain
French-resident employees working in Italy or Spain may also benefit from a specific status allowing them to be taxable in France only. As a principle, the cross-border worker tax status implies that the employee returns home in France every day. Bilateral treaties do not indicate if, and to what extent, cross-border workers may perform their activities out of the border area of the other state.
The statement issued by the French tax authorities does not provide any indications regarding these cross-border workers. Given the exceptional character of the current situation, it can reasonably be expected that both French and Italian/Spanish tax authorities will accept that working days spent at home during the lockdown should be disregarded for tax purposes. French-resident cross-border workers should thus remain taxable in France only.
OECD and German initiatives
It is worth noting that the OECD Secretariat published on 3 April 2020 a first analysis of the impact of the Covid-19 crisis on the application of tax treaties. As regards the issue of cross-border workers, the analysis interestingly notes that “exceptional circumstances call for an exceptional level of coordination between countries to mitigate the compliance and administrative costs for employees and employers associated with involuntary and temporary change of the place where employment is performed.” In that respect, the statement published by the French tax authorities at the very beginning of the lockdown (and before the OECD issued its analysis) is welcome.
Some states have gone even further and have already concluded bilateral agreements regarding the taxation of remunerations paid to cross-border workers during the lockdown period. Germany in particular signed three agreements on 3, 6 and 15 April 2020 with respectively Luxembourg, the Netherlands and Austria in order to clarify how working days spent at home must be dealt with from a tax perspective. The agreements also clarify how the payment of reduced hours compensation benefit should be characterized for the application of tax treaties. Time will tell whether such agreements also prove necessary for French-resident cross-border workers.
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