CONVINUS Global Mobility Alert - Week 36.2024

BEST PRACTICE Case study

BEST PRACTICE Case study Peter Meister is a German citizen and is employed by Finance Management AG in Frankfurt am Main (Germany). He also resides in Frankfurt am Main. In recent years, Finance Management AG has realised that the demand for its services in Switzerland has steadily increased to a high degree. For this reason, Finance Management Schweiz AG was founded in Zurich last year. The company is in the process of being established and still requires the support of employees in and from Germany. Mr Meister is one of the employees who comes to Switzerland every month for around 5 to 8 days to support the Swiss office in Zurich. For this reason, a 120-day permit was obtained for Mr Meister so that he can travel flexibly to Switzerland every month. He will continue to receive his salary from Germany and will also remain insured under the German social security system. For the assignments in Switzerland, he is paid the costs of accommodation in a hotel, travelling expenses by plane or train, and a daily allowance of CHF 55 for meals. His salary corresponds to the Swiss salary level so that Finance Management AG (in accordance with Swiss law) does not have to compensate for any additional salary difference. Finance Management AG has decided not to charge the costs for 2023 and 2024, as the Swiss company is still being established. Only from 2025 onwards will the costs for such employee assignments be passed on internally to the Swiss company. When he is in Switzerland, Mr Meister is assigned to existing projects and the Swiss project manager allocates him accordingly. He also has a fixed workstation in the office in Switzerland from which he works. What is the tax situation in this constellation? Finance Management AG in Frankfurt am Main deducted wage tax for Mr Meister, regardless of whether he worked in Switzerland or Germany. 6 convinus.com

BEST PRACTICE The company came to this conclusion because the employee retains his place of residence in Germany and stays in Switzerland for less than 183 days per calendar year, he receives his salary from Germany from Finance Management AG and no costs are passed on to Finance Management Schweiz AG. Based on the criteria fulfilled above, the company assesses that there is no tax liability in Switzerland. These are also basically the three conditions of Art. 15 para. 2 of the double taxation agreement between Switzerland and Germany, which must be fulfilled. IMPORTANT: However, there is the practical regulation on the de facto employer in the Canton of Zurich and additional points to consider. It should be noted that even if all three conditions of Art. 15 para. 2 of the DTA are met, a tax liability may still arise for the foreign employee if the work performed by the employee is an integral part of the Swiss company's business activities, or the Swiss company bears the responsibility and risk for the employee's performance, or the employee is subordinate to the Swiss company with regard to the authority to issue instructions, or the employee is integrated into the Swiss company or the Swiss company organisation. The individual case is considered in each case, which is why each individual case must be examined separately. In our example of Mr Meister, he reports to the Swiss project manager and has a permanent job at the Swiss company in Zurich. This would lead to the conclusion that Finance Management Schweiz AG is Mr Meister's de facto employer. As a result, Finance Management Schweiz AG would have to take Mr Meister's Swiss working days into account as part of the withholding tax procedure in Switzerland. Accordingly, German wage tax would not have to be deducted on these days, as Switzerland would have the right of taxation on these days. In principle, the withholding tax paid in Switzerland would also represent Mr Meister's definitive tax burden in Switzerland. 7 convinus.com