E-Magazine_CONVINUS Global Mobility SUMMIT 2022

PROCEDURE FOR

PROCEDURE FOR DETERMINING THE TAXATION OF SHORT-TERM EXPATRIATES Author: Friederike V. Ruch In recent years, the number of short-term assignments has increased significantly. Consequently, it is important to also deal with the taxation of short-term assignments. However, since short-term assignments can be found in many different forms in practice, it is also not surprising that the tax situation of these assignments is complex. It is therefore necessary to have a good overview to be able to determine possible tax consequences and tax risks. For each short-term assignment, one must therefore ask oneself the following questions: 1. Does the employee remain liable to pay tax in the country of residence or does he/she become liable to pay tax in the country of assignment? 2. If a tax liability arises in the country of assignment, how must taxes be paid in the country of assignment? 3. Is there a permanent establishment risk for the company with the assignment of the employee? 4. Does taxation in the country of assignment result in double taxation or can double taxation be avoided? 5. Must a tax equalisation / tax protection concept be applied to absorb the additional tax costs for the employee? It is understandable that one also asks the question, why does the company have to deal with the taxation of employees during a foreign assignment at all? After all, the employee basically receives a gross salary and then has to take care of paying the taxes himself. But if the employee is sent abroad on behalf of the employer, then the employer should get involved and not leave it up to the employee. Taxation in the country of assignment or residence In the occasion of each foreign assignment of an employee, it is therefore necessary to check to what extent there are tax consequences in the country of assignment. The decisive factor in the examination is whether a double taxation agreement can be applied to the facts of the case. If no double taxation agreement is applicable, this generally leads to double taxation from the first day of acquisition, regardless of the duration of the assignment. If a double taxation agreement exists, it may be possible to avoid tax liability in the country of assignment and the salary remains taxable in the employee's country of residence. 18 convinus.com

PROCEDURE FOR DETERMINING THE TAXATION OF SHORT-TERM EXPATRIATES 183-day rule However, if a double taxation treaty applies, this automatically leads to a review of the so-called "183-day rule". The "183-day rule" basically states that a taxpayer remains liable to tax in the country of residence if he stays in the country of assignment for less than 183 days, and no salary costs are paid to him from the country of assignment, and no salary costs are borne by a permanent establishment in the country of assignment. If all three conditions are met, the tax liability for the employment remains in the country of residence. For such an assessment to be made as to whether an employee becomes liable to tax in the country of assignment during the assignment, several factors are important for this reason. For short-term assignments of up to 6 months, the following factors need to be considered: Country of residence Country of deployment Duration of assignment Where will the salary be paid? Where are the costs of the assignment borne? Tasks and type of work in the country of assignment If the assignment lasts longer than 6 months, the following factors are added: Marital status If married: does the family go along If the residence in the country of origin is given up If regular return trips to the country of origin take place Duration of stay in the country of origin during the assignment For assignments of up to 6 months, the following decision tree is intended to assist in determining in which country the employee becomes liable to pay tax during an assignment abroad, provided there is a double taxation agreement between the two countries. 19 convinus.com