working in Switzerland
September 20, 2011 | 20,00 EUR | answered by Oliver Burchardt
What is law and right?
The following incident.
The company Kell from Mannheim concludes a framework agreement with company I. in Switzerland.
Mr. Kell works as a freelance employee in Switzerland for company I. He only comes home on weekends, so he lives in Switzerland and has registered a business here.
Mr. Kell registers a company in Switzerland and works as a freelance employee for company S in Switzerland. He sends the time sheets from his work to Germany and issues an invoice. The invoice is paid to Mr. Kell and an invoice is sent to company I. in Switzerland.
Mr. Kell pays taxes on his income in Switzerland. The company Kell in Mannheim has properly recorded the income and expenses.
After a few years, a tax audit is conducted. The tax office in Mannheim concludes that the entire income should be taxed in Germany and not in Switzerland.
Subsequently, the tax advisor has re-evaluated all years and recorded the entire income as income in Germany, without separately stating the foreign income.
In most double taxation agreements, including with Switzerland, it is stipulated that income from work is taxed where the work is physically performed. An exception to this are so-called cross-border workers, who return to their country of residence almost daily. Anyone who cannot return to their place of residence for more than 60 days a year for work reasons is no longer one of the exceptions and is therefore not considered a cross-border worker. In these cases, the country where the work is carried out is taxed.
How can I defend myself against the new decisions and what is actually right?
Dear inquirer,
Thank you for your inquiry, which I would like to answer as part of an initial consultation.
Please note that the tax assessment is based on the information provided. Changing, adding, or omitting information can affect the assessment, possibly significantly.
1. Objection to the tax assessments
You can lodge an objection against the new tax assessments with the tax office that issued the assessments. Each tax assessment includes information on legal remedies, specifying where and within what deadline the objection must be lodged. In this case, the tax office in Mannheim would likely be responsible.
2. Cross-border commuters
The cross-border commuter regulation you mentioned does not apply in this case. Article 15a of the Double Taxation Agreement between Germany and Switzerland restricts the scope to wage income, which is not earned here. Instead, Mr. Kell is acting as an entrepreneur (whether income from commercial or self-employed activities is generated is irrelevant for this assessment).
3. Taxation rights for commercial or self-employed income
The taxation rights generally lie with the respective resident state, in this case Switzerland. However, they are allocated to the Federal Republic of Germany if the income is generated in a permanent establishment or fixed establishment. In your case, the tax office seems to have concluded that a permanent establishment or fixed establishment exists.
Unfortunately, I cannot provide a conclusive answer as to where the taxation rights lie. To do so, I would need to review the relevant assessments, underlying documents, and actual circumstances. Of particular importance is why the tax office affirms the existence of a permanent establishment in Germany.
I hope I have been able to assist you within the scope of your inquiry.
Best regards,
Oliver Burchardt
Tax advisor
