Teleworking has increased significantly in Switzerland since the COVID-19 pandemic. Together with digitalization, it will have a lasting impact on the modern working world. In a cross-border context, the increase in teleworking also has an impact on tax law.
Double taxation agreements generally stipulate that income from employment is taxed in the country in which it is physically exercised. Teleworking would therefore shift the right of taxation from the state in which the employer has its registered office to the state in which the employees have their place of residence.
Keeping tax revenues in Switzerland
In order to ensure that Switzerland loses as little tax revenue as possible, the draft law on the taxation of teleworking in the area of withholding tax for employees who are not resident in Switzerland for tax purposes creates an internal tax basis for teleworking performed in a neighboring country for a Swiss employer.
The bill is closely linked to the developments in international treaties regarding the allocation of taxation rights to Switzerland within the framework of double taxation and cross-border commuter agreements. Specifically, the agreements concluded with France and Italy (supplementary agreement to the double taxation agreement with France and protocol to amend the cross-border commuter agreement with Italy) mean that telework performed in these countries can continue to be taxed by Switzerland for a Swiss employer to a certain extent, even if the work is not physically performed in Switzerland (France: up to 40 percent of working time per year / Italy up to 25 percent of working time). The proposed new tax base ensures the implementation of these new regulations in Switzerland.
Switzerland has significantly more cross-border commuters from abroad than Swiss workers who are employed in neighboring countries. In total, there are around 400,000 cross-border commuters in Switzerland, most of whom live in France (220,000) and Italy (90,000).
