14 April 2020
The corona crisis is currently forcing a large part of the population to work from home office. For cross-border commuters to Luxembourg, i.e. citizens who are residents in Germany and work in Luxembourg, this may lead to an unintentional change in the right of taxation. Germany and Luxembourg have now agreed on a solution to prevent the unintended tax consequences of the Corona crisis.
In the case of Luxembourg, the applicable double taxation treaty between between the Federal Republic of Germany and Luxembourg (“DTT”) provides that the wage is taxed where the work is carried out, i.e. usually in Luxembourg. There is also a de minimis rule for only short-term work outside Luxembourg. According to a mutual agreement (“Verständigungsvereinbarung”) between Germany and Luxembourg dated 26 May 2011, a tax exemption limit of 19 working days was introduced.
Exemption limit means that Germany should have no right of taxation for work carried out outside Luxembourg for up to 19 days (including) per year. However, if the de minimis limit is exceeded, Germany has the right of taxation from the 1st day, i.e. for all days of work outside Luxembourg. Hence, in case of home office beyond the above-mentioned de minimis limit, Germany would generally have the right of taxation for this period of time. Due to the restrictions caused by the Corona crisis, this would currently mean that mainly Germany has the right to tax the wages of cross-border commuters, as many cross-border commuters currently have to work from home.
In order to counteract this unintentional change in the right of taxation, Germany concluded a temporary mutual agreement with Luxembourg on 03 April 2020 (came into force on 04 April 2020). According to this agreement, working days which a German cross-border commuter would actually spend in Luxembourg and which he only spends in his home office in Germany due to the corona crisis should be treated as normal working days in Luxembourg (“Tatsachenfiktion”). However, working days which he would spend at home in his home office anyway (e.g. in accordance with employment contract regulations) do not fall under this fiction and are assessed for tax purposes in accordance with the mutual agreement from 2011.
The agreement applies to working days in the period from 11 March 2020 to 30 April 2020. It is automatically extended thereafter from the end of one calendar month to the end of the next calendar month unless terminated by the competent authority of one of the contracting states at least one week before the beginning of the following calendar month by written notice to the competent authority of the other contracting state.
We have compiled on our website comprehensive information and recommendations for action in response to the legal implications arising from the coronavirus pandemic: Coronavirus - legal issues