Update on the DTA Austria-Germany: new provision on cross-border workers and implementation of the MLI

The provision on cross-border workers has been adapted by the protocol of amendment to the DTA between Austria and Germany to enhance the tax framework for mobility of work close to border. Additionally, several provisions have been adjusted to the new OECD standards.

New provision on cross-border workers

The provision on cross-border workers is a special provision of the DTA ensuring that the state of residence is granted the right to tax. Daily commuting to the place of work within a border area of 30 km linear distance was the decisive factor. Since mobile working from home has been established as the “new normal”, the previous provision on cross-border workers has become outdated.

• The protocol of amendment already qualifies persons as cross-border workers if they work in the border area and their place of residence is also located there. Daily commuting across the border is no longer required. Thereby, cross-border workers may work from home for an unlimited time period. Working days spent in the home office will soon no longer be classified as harmful non-return days within the meaning of the tolerance regulation.
• The tolerance regulation still applies. It regulates that an activity performed outside of the border area for up to 45 working days within the calendar year is not harmful to the cross-border worker status. In any case the maximum threshold of 20% of the actual working days spent outside the border area must not be exceeded.
• Determining the border area is simplified by slightly expanding the area geographically: The term “close to the border” now also includes municipalities whose territory lies wholly or in part in an area of 30 km each on both sides of the border.
• The provision on cross-border workers in future will also apply to employees in the public sector.
• These significant amendments are applicable as of 1 January 2024, irrespective of a later conclusion of the legislative process.

In practice

In practice the new provision on cross-border workers provides significant relief, since days spent working from home in future are no longer considered as harmful. On one hand this offers the opportunity for enterprises to rethink their home office policy in view of the relief on cross-border workers and to meet the increased demand for remote working models. On the other hand, more days are available for activities performed outside of the border area (within the limit of 45 days and/or 20% respectively).

BEPS provisions from the multilateral instrument (MLI)

• The preamble of the DTA now clarifies that the DTA is not to be used to create arrangements leading to double non-taxation.
• In addition to limiting the exemption method in case of double non-taxation, a switch-over clause is incorporated directly in the DTA in order to avoid abusive arrangements.
• Pursuant to the exceptions stated in Article 5 para. 4 DTA Austria-Germany certain activities do not establish a permanent establishment (PE). It is clarified that the listed activities must by their nature constitute preparatory or auxiliary activities in order for the exception to apply.
• A new clause is implemented to prevent treaty-shopping via PEs situated in third jurisdictions with low taxation (see Article 10 MLI).
• If the protocol of amendment is ratified in both contracting states still this year, these amendments are to be applied as of 1 January 2024.