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The amicable agreement concluded between Switzerland and France during the COVID-19 pandemic is currently only in force until 30 June 2022. For the duration of the agreement, there have been no income or social security tax repercussions for French cross-border employees working from home, and all employee activity has been treated as if it were carried out in Geneva, with full Swiss income tax withholding at source.
It is unlikely that the agreement will be extended again, and Switzerland and France will revert to pre-COVID-19 tax rules after June. For Swiss employers this creates a myriad of tax, legal, and employee talent issues.
For most companies, traditional teleworking would better suit the needs of their business and their employees. Teleworking for French cross boarder workers, however, presents challenges from both sides.
Curtailing all teleworking for French cross boarder workers as of 1 July 2022 would appear to be the simple solution. This "no risk" policy may, however, impact the company's ability to attract and retain talent in an already competitive market. It also raises the issue if restricting teleworking only for a specific group of employees, which could be perceived as discrimination from a legal standpoint if allowed for their Swiss counterparts. It is yet to be seen how this evolves from a labour law perspective.
Swiss companies are now urgently considering what other options are possible given the constraints of pre-COVID-19 tax rules.
Compressing work hours or working the total contractual hours per week in 4 rather than 5 days or 9 out of 10 days every 2 weeks in Geneva could be a solution for French border workers. The additional day per week or fortnight would then be spent in France as a non-workday. Further considerations will need to be given around the legal implications of daily legal work hour limits as well as how this new work model would be implemented and tracked.
Some companies are also exploring the possibility of having a satellite office in the canton of Geneva which is closer to the French border for their cross-border workers, so their daily commute into Switzerland post June is easier.
For social security purposes the "multi-state worker" rule stipulates that if duties performed in the country of residence (i.e. France) represent less than 25% of working time or remuneration, then the employee will remain in the Swiss social security system - this translates as no more than 1 out of 5 workdays in France.
This same guideline cannot be applied for income tax purposes as the employee would be liable for French income tax from the very first French workday, regardless of the total number of days worked in France. Furthermore, under French law, the Swiss company would have to appoint a withholding tax agent in France to remit the French income tax due on French workdays for their employees.
Not only would this process be cumbersome and problematic to manage, but it is also currently incompatible and potentially punishable under article 271 of the Swiss criminal code unless approval has been expressly granted in Switzerland by the Federal department of Finances. In effect, it is illegal for any person including a company to carry out any act that is the responsibility of a public authority such as collecting tax for a foreign sovereignty unless agreed to by the Swiss authorities.
Potentially this criminal offence could also extend to employers providing information on the number of workdays to the tax authorities via information requests, however it is difficult to confirm without additional clarity from the tax authorities. Faced with this legal contradiction, employers are advised to remain extremely cautious and well informed of the consequences of teleworking for cross-border workers.
Whilst discussions are ongoing between France and Switzerland, time is not on their side and we will soon come to the end of the current arrangements with uncertainty still looming.
Given the ramifications of article 271, Swiss employers will need to tread carefully with their policies around French cross-border workers and also consider how this could affect other cantons beside Geneva. Both countries will need to find a pragmatic solution in the long run that addresses the complex tax and legal issues facing Swiss companies and French cross-border workers in the post-COVID-19 world. The border authorities are asking the tax authorities in Berne and Paris to find a permanent agreement that would apply to the canton of Geneva and beyond. It also appears that Paris is waiting for guidance and recommendations from the OECD to determine their final position.
In the meanwhile, given the short timing to introduce new tax and legal initiatives, Swiss companies need to review their current cross-border policies and communicate the parameters which they must navigate in order to remain compliant until further notice of change.
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