Working from home will disadvantage cross-border workers unless rules are changed

Unless the EU rules and tax treaties are amended, some cross-border workers will soon have to pay tax in two countries: in their country of residence for hours spent working from home, and in the country in which they work for hours spent in the office. This may be financially disadvantageous and could affect their social-security status. Since COVID-19 has made working from home often no longer a choice, the Dutch, German and Belgian governments have exempted cross-border workers from the usual rules until the end of 2021. But no such arrangements have been made for 2022.

Today marks the release of the annual Cross-Border Impact Assessment of Maastricht University’s knowledge institute ITEM. The report will be presented during a conference in Middelburg, where Minister of State Piet Hein Donner will also discuss a forthcoming report on better cross-border cooperation.

Working from home

One of the basic principles of European law is that individuals can be subject to the social-security rules of one member state only. For example, a resident of Belgium who works for a Dutch company in the Netherlands is entitled to Dutch social security. When this cross-border worker works from home, he or she technically works in Belgium. Cross-border workers who spend 25% or more of their contracted hours working from home fall under the social-security system of their country of residence, not the country in which they work. Under the current rules, working from home on a regular basis can therefore lead to a change of social-security system, in this case from the Netherlands to Belgium. Consequently, cross-border workers may find themselves facing higher costs for health insurance, accruing a smaller pension, or receiving a lower child allowance or benefits in the event of illness or disability.

“Applying these European social-security rules and the rules from current tax treaties to working from home can have negative or, occasionally, positive effects for cross-border workers and their employers,” says Marjon Weerepas, professor of Tax Aspects of Cross-Border Work at UM and ITEM affiliate. “Either way, if nothing changes, the situation for cross-border workers will become even more complex than it already is. One solution may be to increase the working-from-home percentage from 25% to 40%.”

Border effects

The Netherlands is the first country in Europe in which government plans have to be assessed for ‘border effects’, as has long been the case for environmental effects. ITEM advised on the drafting of the Guidelines on Cross-Border Effects (Leidraad Grenseffecten). “To come up with a legal solution to the issue of working from home, policymakers will have to take these guidelines into account if they are to make the appropriate considerations and choices,” says ITEM director Anouk Bollen. “Our knowledge institute fully supports the proposal that Piet Hein Donner is putting forward today to commit to better governance of border regions. This means identifying cross-border obstacles, putting border issues on the agenda with a more extensive mandate during government decision-making processes, granting the legal authority to deviate from regulations where appropriate, and dedicating more human resources to the issue. After all, border issues need not always be solved by law, but decisive action is essential. And that’s what is often lacking.”

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