Switzerland: Another Practical Question About Cross-border Employment: Cross-Border Commuters, International Weekly Residents, Or Executives In The German-Swiss Relationship - Which Regulations Apply?

Only in the double taxation agreement (DTA) between Switzerland and Germany is there a regulation for the taxation of earned income concerning the taxation of executive employees as well as a regulation regarding cross-border commuters.

In some constellations, an employee can be both a cross-border commuter and an executive employee. In these situations, it is particularly important to assess the details precisely and draw the right conclusions. According to the DTA between Switzerland and Germany, the regulations for cross-border commuters take precedence over the regulations for executive employees.

What are the rules for executive employees?

The taxation clause Article 15 paragraph 4 in the DTA Switzerland - Germany reads:

"Subject to the provisions of Article 15a (separate note: taxation rule for frontier workers), an individual who is a resident of a Contracting State but acts as an officer, director, manager or authorised signatory of a corporation resident in the other Contracting State may be taxed in that other State on the income derived from that activity, unless his activity is so limited as to include only functions outside that other State. If that other Contracting State does not tax such income, it may be taxed in the State in which the individual is resident."

Until the consultation agreement was issued in April 2023, the tax and financial authorities of both countries required the individual to be entered into the commercial register.

According to the consultation agreement, which will apply until 31 December 2025, the group of senior executives is to be expanded to include the following extended group of persons

• Persons who are only entered in the commercial register with individual or collective signatures but without a designation of their function,
• Persons who are not entered in the commercial register but who, from a civil law perspective, hold a position within the corporation with management and representation authorisation, which must at least correspond to a power of attorney.

In social security law, we make no distinction in the cross-border area if the cross-border commuter is categorised as a managerial employee.

Situation

Catherine Wagner lives with her husband and son in Constance (Germany).

She is a French national and works at the headquarters of Swiss Medical Solutions AG in Basel (Switzerland). Swiss Medical Solutions AG is part of a large international group of companies. Her role is that of CFO and she receives an annual base salary of CHF 360,000 and an annual bonus of between CHF 100,000 and CHF 360,000. Her role also requires her to travel regularly to the various company locations.

She spends around 20% of her time travelling.

As soon as her son starts school, she would like to work from home at least one day a week. She is also considering moving from Konstanz (DE) to Stuttgart (DE), where her family lives when her son starts school.

So far, this has not been authorised by HR. The HR department has told her that the risks are too great for the company.

What is the assessment of this issue?

Permit

In terms of authorisation law, Swiss Medical Solutions AG must obtain a cross-border commuter permit as it lives in Germany and works in Switzerland.

If it now wishes to work one day a week in a home office in Germany, this is perfectly possible and does not change the assessment under authorisation law. Even a possible move to Stuttgart would not change anything in this context.

Health insurance

Based on the cross-border commuter permit and residence in Germany, she can choose whether to take out health insurance in Switzerland or Germany. She must make this decision within three months of taking up cross-border employment.

Social security

Due to her employment in Switzerland, she is subject to social security contributions in Switzerland. For her to remain subject to social security contributions in Switzerland, she may not work more than 24.9% in Germany. The reason for this is that the new teleworking regulation (maximum 49.9% home office activity) does not apply, as she is regularly travelling. If this regular travelling activity were to cease, the teleworking regulation could be applied.

From a social security perspective, a possible move to Stuttgart would also not change the assessment of the situation.

Tax

Due to her function, she is considered an "executive employee" from a tax perspective. However, as she commutes every day, she is also regarded as a "cross-border commuter".

According to the DTA between Switzerland and Germany, the cross-border commuter rule takes precedence over the executive employee rule and therefore applies. As a result, Swiss Medical Solutions AG only has to pay tax on 4.5% of its gross income in Switzerland. Effective taxation takes place in Germany.

By moving to Stuttgart, she would no longer be considered a cross-border commuter for tax purposes, meaning that her entire earned income would then be subject to Swiss taxation. The "normal" Basel withholding tax rate would apply.

The position in the company harbours a very high permanent establishment risk in Germany for the Swiss company. It is therefore understandable that the HR department is opposed to this. However, it may be possible to find a solution by taking a closer look at the situation so that 1 day in the home office can be granted and the permanent establishment risk can be minimised as far as possible.

Conclusion

As can easily be seen from this practical example, it is very important to analyse the details in each case and to assess each area of law separately. This is because a different conclusion can be reached depending on which "legal lens" is used to judge a situation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.