CONVINUS Global Mobility Alert - Week 22.2025

BEST PRACTICEProcedure

BEST PRACTICEProcedure for Tax EqualisationFRIEDERIKE V. RUCH, CONVINUSTax equalisation is generally a key component of global mobility programmes to ensure thatseconded employees are neither advantaged nor disadvantaged from a tax perspective comparedto a similar role in their home country.The objective is to ensure the employee’s tax burden remains equivalent to what it would be if theyworked and were taxed solely in their home country. Tax equalisation becomes relevant wheneveremployees become subject to tax in the host country.How can this be achieved in a company?1. Defining the Hypothetical Home Country Tax (“Hypotax”)The first step is to calculate how much tax the employee would hypothetically pay if working onlyin the home country.Typically, this is based on pre-assignment employment income, marital status, number of children,and standard deductions. The calculated 'hypotax' is then withheld monthly from the salary.In Switzerland, the question arises whether this should be done via the withholding tax method orthrough actual tax calculation. Each company is free to define which types of income and assets areincluded in the hypothetical tax calculation.2. Determining the Actual Tax Burden in the Host CountryIn the second step, the actual tax liability in the host country is calculated, taking into account allapplicable deductions. Often, the actual tax burden is only known once the tax return has been filedand fully assessed in the host country. This highlights one of the key challenges: timing. Tax returnsare typically filed in the following year, and it may take 1–2 years before the final tax liability isknown. If only employment income is considered in the hypotax calculation, then only the effectivetax burden on this income will be used for comparison.Another frequent discussion point is whether employee share schemes should be included in theequalisation.6convinus.com

BEST PRACTICEIf the entire income and assets are used in the hypothetical calculation, then the full tax liability onincome and assets in the host country should also be considered.3. Tax Comparison & EqualisationFollowing the principle that employees should be tax neutral, the employer covers any difference.In practice, there are two common approaches:Tax Equalisation: The host country tax is higher than the hypotax: The employer pays thedifference.Tax Protection: The host country tax is lower than the hypotax: The employee benefits from thelower tax.Which option a company adopts is its own decision. The tax equalisation option is often used forcompanies based in low-tax countries (Switzerland) and the tax protection option for companiesbased in high-tax countries (e.g. Germany, Austria). An important aspect to keep in mind: the taxdifference paid by the employer is considered a taxable benefit and is subject to social securitycontributions. Typically, the employer also covers the social security costs arising from it.4. Tax Filing & ComplianceIt is essential that tax returns are completed accurately and assessed correctly. Since employeesare often not familiar with local tax rules, it is advisable for companies to provide a local tax adviserand cover the associated costs. This also helps prevent excessive tax liabilities due to misseddeductions or incorrect reporting.5. Final Tax ReconciliationAt the end of the calendar year or upon completion of the assignment, a final reconciliation of thehypothetical and actual tax is carried out.Thereafter a simplified example for the option - Tax Equalisation:7convinus.com