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Law360 (April 9, 2020, 1:03 PM EDT ) Germany and the Netherlands have clarified their tax treaty to ensure that cross-border employees unable to cross the border due to COVID-19 travel restrictions would be taxed as if those measures weren't in place.
Regulators turn back nonessential traffic near a sign in Dutch that reads "turn around, closed parking lot, stay away, #corona" on a road leading to the beach resort of Zandvoort, Netherlands. (AP)
"Working days for which wages are paid, and which are carried out in a home office only because of measures agreed to by the Dutch or German government to fight the COVID-19 pandemic, count in the country in which the cross-border worker would have carried out the task without the measures to combat COVID-19," said the text.
The document was clear, however, that this adjustment to the treaty wouldn't apply to those who would normally work from home or those working at home for reasons not related to COVID-19 containment measures.
The German Finance Ministry said that it was in negotiations with other neighboring countries on similar agreements and has recently signed one with Luxembourg. Germany shares a border with nine other countries.
The tax treatment of cross-border commuters is one of the challenges that tax authorities have faced since countries across the world have thrown up barriers where none had existed, in some cases for decades, as a means to stop the coronavirus that causes COVID-19 from spreading.
The virus is also raising issues about whether a company would have a taxable presence, via employees working from a home office, in a country or jurisdiction where it wouldn't normally. The Organization for Economic Cooperation and Development recently issued guidance that said the extraordinary measures to combat the pandemic shouldn't create a taxable permanent establishment for an employer.
"The exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 crisis, such as working from home, should not create new PEs for the employer," according to the OECD.
Some U.S. states have also said recently that they won't claim a taxable presence due to employees who are working from home as a result of the COVID-19 crisis.
--Additional reporting by Natalie Olivo and Maria Koklanaris. Editing by Vincent Sherry.
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