What does a lockdown mean for taxes and social security contributions?
The Coronavirus is heavily affecting people’s lives. In many countries freedom of movement has been severely limited. One word that has been recently added to current vocabulary is ‘lockdown’, it being the protocol that a lot of countries have implemented in order to stop or at least slow down the infection rates.
This has created a situation where working hours and places of work have been changed for a lot of people. Working from home has become the temporary standard.
Physical presence of employees has a big effect on where employees are taxed and where they pay their social security contributions. This means that if employees no longer work at the office but at home, this can theoretically influence their taxes and social security contributions.
From a Dutch perspective the following applies:
Temporary measures for social security contributions
The Dutch Social Security Bank (SVB) has published an announcement that for now the changes in working locations, such as working from home, will not influence the social security contributions. This is however different in two cases:
- If an individual had no employer, but starts working for an employer in another member state; or
- if an employee did have a job, but changes to a new employer in another member state.
In these cases, the employee will be insured in the member state in which he or she would normally work for the new employer (in the situation where the employee would not be obliged to work at home because of the corona virus).
We refer to the website of the SVB.nl (text in Dutch). This is a very welcome statement, as employers and employees currently have enough on their minds and should not become worried about the unexpected changes in social security contributions on top of that.
Physical presence and taxing rights
Physical presence is a decisive factor in the determination of the allocation of taxing rights. It is therefore of key importance that employees keep track of their location in a travel calendar, which can serve as proof and basis for calculations later on.
How the Dutch tax authorities will approach the matter of physical presence (which can affect both the taxing right as such and the Dutch taxable income) remains to be seen. Contrary to social security contributions, which tend to be due in only one jurisdiction, taxability can occur in multiple states anyway, so it remains to be seen whether or not the same leniency will be applied for tax purposes.
The question is: will the actual physical presence (which will be influenced by the Corona-crisis) or the planned place of physical presence prevail? While the former, at first sight, seems to make the most sense, the following needs to be taken into account.
In case of sickness, the actual physical presence does not always prevail.
Physical presence will affect the allocation in two ways:
- Is the 183 days of presence met or not?
- How much income can be allocated to the days worked in that particular state?
For the 183-day rule, a sickness day spent in a jurisdiction will count as physical presence in that jurisdiction, unless the sickness has prevented the individual from leaving.
For the second point, the general approach is that a sickness day counts as a day of physical presence in accordance with its original purpose. If, without the sickness, an employee would have worked a day in Germany, but because of the sickness he spent it at home in the Netherlands, the income related to it will generally be taxable in Germany.
A reasonable way of dealing with the current situation would therefore be the following: most people will not be sick while working from home so the rules regarding sickness as mentioned above do not apply. On the other hand, the current situation does lead to involuntary presence at a location, with the cause being a sickness. There is a lot to be said in favor of dealing with a lockdown or strict request or recent policy to work from home in a similar fashion as sickness: days spent working from home need to be treated in accordance with their original planning. This means that no unexpected administrative burdens are imposed and original payroll processing can take place in accordance with the original contracts.