Update of compliance rules for French "frontaliers"

France, which has just embarked on its new legislative agenda, has published its draft 2023 Finance Law which may be of interest to Swiss employers.

The proposal to simplify the withholding tax procedure for certain non-French employers is expected to simplify compliance for the employers concerned. Where the conditions are met, foreign employers will no longer be subject to the withholding procedure. However, employees will be subject to a system of tax pre-payments, which will need to be carefully managed in the case of assignees, particularly those for whom the employer pays the income tax via a tax equalization’s policy.

The French government suggests modifying the withholding tax obligation from 1 January 2023 in the following cases:

• the employer is established outside of France in an EU member state or in a country or territory that has concluded an administrative assistance agreement with France to combat tax fraud and tax evasion as well as a mutual assistance agreement in matters of tax collection (excluding non-cooperative countries or territories), and
  
• the employee is not covered, for the periods for which the salary is paid, by the compulsory French social security system (e.g., by virtue of the EU social security regulations or a bilateral agreement).
  

However, there will still be compliance obligations.  The foreign employer will be required to report to the French authorities the amount of net taxable income paid to each eligible employee on an annual basis. Failure to comply with this obligation could result in a fine capped at EUR 50,000.

The new rule would apply to income received from 1 January 2023.

For Switzerland, meanwhile, the current lack of a mutual administrative assistance agreement in matters of tax collection with France poses a major problem and will mean that this concession will not be applicable to Swiss employers.

A mutual administrative assistance agreement in matters of tax collection with France is currently not on the agenda as it would concern many other areas of taxation, not only wage tax, and have ripple effects on Switzerland’s relationships with other bordering countries.

In conclusion, the reporting obligation for Swiss employers remains a very significant burden.

Once the amicable agreement expires on 31 December 2022, as the law stands, if a Swiss employer were to allow a cross-border frontier worker to work from home in France, for instance one day a week (for a full-time employee), then 20% of the employee’s remuneration would be taxable in France. However, how can this obligation be fulfilled if Swiss employers are legally constrained from withholding tax imposed by a foreign state?

That said, France and Switzerland have jointly recognized the importance of defining a new permanent taxation regulation in order to keep pace with the rapid uptick in teleworking. The Swiss federal authorities are therefore conferring with French officials to determine whether a more practical solution exists, announcing that a timeline has been set out for this purpose.

The "no-impact" policy in EU social security is extended until 30 June 2023. The no-impact policy prevents a change in the competent authority or social security deductions, irrespective of how much an employee’s working pattern has changed.

The EU Commission has formed an ad-hoc working party with a mandate to provide proposals on how remote workers/teleworkers could work from home more (current threshold is 25%) without triggering the application of social security in their country of residence.

This working party is expected to deliver results during this six month’s extension and probably around March 2023.

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