How should wages and company profits be taxed in a way that answers the needs of today's work environment? In an opinion adopted during its July plenary session, the European Economic and Social Committee takes up this challenge, while welcoming and encouraging the rise of teleworking. An updated and easy-to-follow set of rules should ensure that employees and employers in Europe do not face multiple taxation or unintended non-taxation because they are working from abroad.
The COVID-19 pandemic has changed the lives of workers and businesses. A Eurofound survey shows that 46% of EU employees want to continue to work from home every day or several times a week when the pandemic ends. Clearly, teleworking is becoming part of our working culture. Reducing commuting time is associated with greater flexibility, which allows for reduced stress and an improved work/life balance. In addition, more teleworking can contribute to the EU's objective of carbon neutrality: less traffic means fewer carbon emissions, and more people working from home means reduced emission costs of office buildings.
We are in a new world, where people want to work differently. The EESC fully supports more flexible work and cross-border teleworking situations, said rapporteur Krister Andersson.
But this new paradigm also poses serious challenges for international taxation systems and an efficient European single market. We ask the Member States and the European Commission to keep working together to find solutions.
Working from abroad is still difficult
Temporary tax measures taken by the Member States, as well as the guidance issued by the OECD at the height of the pandemic have allowed cross-border employees and employers to carry on with their business activities. However, an employee working from abroad could be faced with double taxation on their income. Depending on a country's tax treatment of foreign income, an employee could also be required to fill in two separate declarations, possibly at different times due to differences between tax filing deadlines between Member States. In terms of taxation of company profits, international teleworkers may run the risk of inadvertently creating a permanent establishment (PE) for the company in a country other than its own. The company would be forced to accurately divide its corporate income between the two locations, and thus be subject to different filing obligations and tax liabilities.
These risk factors, along with the administrative obligations related to the taxation of cross-border teleworkers, are a drag on the proper development of teleworking in the EU.
The Committee's recommendations
Taxation principles for cross-border teleworking should preferably be agreed at global level. However, considering the intra-EU mobility inherent in freedom of movement within the Single Market, there are also reasons to address the issue at EU level before a global solution is found. Different approaches are possible, but it is important that a high degree of coordination is achieved in the EU.
To ensure that companies of all sizes can offer teleworking opportunities, it is important that any administrative obligations related to taxation of cross-border teleworkers are eliminated or at least minimised.
Rules should be easy for both employees and employers. One option would be for Member States to agree only to tax the employee if the number of working days in the country exceeds 96 per calendar year.
Finally, the Committee encourages the European Commission to consider whether a one-stop-shop, as for VAT, could be a possibility. The idea is that an employer would report the number of days teleworkers worked in their countries of residence and in the country where the employer is located. With this information, tax authorities would be able to assess in which country income would be taxable, or what part of the income would be taxable in each country.
Krister Andersson pointed out that
This system would allow employees and employers to reduce tax disputes between Member States, and at the same time help ensure that taxes are levied correctly without requiring the individual to file in multiple countries.