The recent outbreak of the Covid-19 crisis may have a significant impact on the overall income tax situation of individuals, following a disruption in their working pattern. Measures taken by the different governments often oblige employees to work from home, which will impact the application of any tax treaty.
As the measures taken by the Belgian government are evolving rapidly, we hereby provide you with an overview of the measures already adopted. We will then also reflect on the question of what the future will bring.
Measures taken by the Belgian Government
Measures with respect to taxability of income
Some (limited) tax measures have been implemented by the Belgian government already:
|
Which countries involved?
|
What?
|
|
France
|
Belgium-France double tax treaty tolerance rule for cross-border workers
Due to force majeure, the days of home working by employees in France during the Corona period will not be included in the calculation of the 30-day border (for working days outside the Belgian border region).
|
|
Luxembourg
|
Belgium-Luxembourg double tax treaty tolerance rule for cross-border workers
Due to force majeure, the days of home working by employees in Belgium during the Corona period will not be included in the calculation of the 24-day border (for working days outside the Luxembourg border region).
|
|
The Netherlands, Germany, France and Luxembourg
|
Double tax treaties
The home working days of cross-border workers from the 11th March until the 31st May 2020 (until 30 June for France; may be extended) can be regarded as days worked in the country where the employee would have worked under normal conditions (i.e. in absence of COVID-19 measures). As a result, the country of employment can continue to levy tax on income.
The home working days of cross-border workers from March 11 until May 31, 2020 (Netherlands and Germany) / until June 30 (France and Luxembourg) (extensions possible) can be regarded as days worked in the country of where the employee would have worked under normal conditions (i.e. in absence of COVID-19 measures). As a result, the country of employment could continue to levy tax on income.
Remark: these agreements do not apply to employees falling under the tolerance rule for cross-border workers as described above.
|
Measures with respect to social security
The Belgian government has also taken measures regarding social security in the context of cross-border employment and the determination of the applicable social security legislation.
The EU Regulation 883/2004 on the coordination of social security systems and the EU Regulation 987/2009 laying down the procedure for implementing Regulation (EC) No 883/2004 stipulate that, if an employee carries out activities in two or more Member States, this employee is subject to the social security legislation of the Member State of residence if the employee performs at least 25% of his/her working time or if the employee receives at least 25% of his/her remuneration for his/her activity in the Member State of residence (the so-called “substantial part of the activity”).
The increased level of home working resulting from the Covid-19 security measure taken by the Belgian government could result in changing the cross-border work pattern (e.g. a substantial part of the activity is suddenly carried out in the Member State of Residence where this was not the situation before), which may lead to a possible re-evaluation of the applicable social security legislation for this (limited) period.
In order to avoid such situation, the Belgian government has decided that periods of home working performed in the Member state of residence by cross-border workers due to the coronavirus will not be taken into account to determine the applicable social security legislation. This measure applies from 13 March onwards and as long as the emergency measures adopted by the government remain in place.
Belgium's decision is also supported by a number of other Member States such as the Netherlands, France, Germany, Luxembourg and Denmark.
What will the future bring?
Impact on Double Tax Treaties
Unless further measures are adopted, the tax treaty rules remain applicable. It will thus be necessary to critically review the applicable tax treaties and the so-called 183-days rule in order to determine taxability in the ‘home’-state or the ‘work’-state.
This means that there will be an impact in the following situations:
|
What?
|
Impact?
|
|
Full taxation abroad
|
A Belgian employee sent abroad by a Belgian employer (i.e. secondment) will be taxed abroad. If (due to Covid-19) he/she is now working from home, this may result in the employee being less or even no longer taxable abroad.
|
|
Split taxation
|
An employee working in two (or more) countries, might also be taxed in two (or more) countries, which often results in a reduction of the overall tax burden.
If (due to Covid-19) he/she is now working from home, the part of the wages that is taxed in both countries will be affected. This will have a (possibly negative) impact on the overall tax burden.
|
|
Special expatriate tax regime
|
A) Situation whereby the expat is forced to work at home in Belgium
Due to the Covid-19 crisis, the number of foreign business trips in 2020 will decrease resulting in a decrease of the so-called travel exclusion. As a result, the Belgian tax burden will increase.
B) Situation whereby the expat is forced to work from home in his ‘residence’ state (i.e. outside of Belgium)
Home working abroad is in principle not accepted for travel exclusion purposes as it is not performed abroad for the purposes of the employer’s economic activity.
Employees qualifying as fiscal resident in their home country could theoretically invoke the applicable Double Tax Treaty to exempt those home working days in Belgium, as those days are taxable in the ‘residence ‘state.
The situation remains uncertain for employees not qualifying as fiscal resident in their home country. As they cannot invoke a Double Tax Treaty to exempt these home working days in Belgium, they will theoretically be taxed in Belgium on these days.
A decision in this delicate matter is expected from the Belgian tax authorities. We will closely follow-up and investigate possible options to adequately respond to this issue.
|
The Organisation for Economic Co-operation and Development (OECD) has issued guidance on these issues based on a careful analysis of the international tax treaty rules, on 3 April 2020. [1]
The OECD has also announced that it is urgent ‘working on other concerns raised by businesses, taxpayers and tax administrations due to the Covid-19 crisis, on the taxation of cross-border workers teleworking in their home country and individuals affected by countries’ domestic residence rules triggered by the impacts of travel and quarantine restrictions’.
Conclusion/recommendation
Covid-19 has altered the way we work which might have an important tax and legal impact.
Some measures have already been adopted by the Belgian authorities following the increasing level of home working, but not all questions have been clarified yet.
As this situation could substantially affect the net salary of their workforce and/or the employer costs, HR managers should closely keep track of their workforce in order to anticipate the consequences and undertake the appropriate Tax & Legal actions.
[1] https://read.oecd-ilibrary.org/view/?ref=127_127237-vsdagpp2t3&title=OECD-Secretariat-analysis-of-tax-treaties-and-the-impact-of-the-COVID-19-Crisis
