11.09.2023Germany signs new protocols to tax treaties with Austria and Switzerland
Protocols include BEPS and MLI measures and treatment of cross-border workers
On 21 August 2023, Germany signed protocols to the double tax treaties (DTTs) with Austria and Switzerland during a joint meeting of the finance ministers of the German-speaking countries Germany, Austria, Switzerland, Luxembourg, and Liechtenstein. The DTTs with Austria and Switzerland were last amended in 2010. The protocols aim to incorporate into the DTTs: (1) various measures related to base erosion and profit shifting (BEPS) and the Multilteral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), (2) new developments to the OECD Model Tax Convention on Income and on Capital, and (3) updated general treaty policies of the countries.
Protocol to the Germany-Austria double tax treaty
The protocol to the Germany-Austria DTT includes an update of the provision applicable to cross-border commuters, allowing for more flexibility and taking into account the increased significance of working from home. In order to qualify as a cross-border commuter under the DTT, it would be sufficient to work in the defined border area and have the main residence in this area. Days spent working from home would no longer qualify as harmful for qualification as a cross-border commuter under the DTT. The definition of the cross-border area would be simplified and slightly expanded. Matching MLI provisions would be incorporated into the DTT.
The protocol must be approved by the legislative bodies in both countries and is expected to become effective as from 1 January 2025. The updated cross-border commuting provisions would, however, be applicable as from 1 January 2024.
Protocol to the Germany-Switzerland double tax treaty
The protocol to the Germany-Switzerland DTT includes the introduction of a general anti-abuse rule (i.e., a principle purpose test) and the obligation for a corresponsing profit adjustment in cases involving related parties.
The protocol also includes a provision in article 24 (Elimination of Double Taxation) of the DTT, clarifying that the DTT does not oppose the application of a qualified domestic minimum top-up tax as a result of the implementation of the OECD Pillar Two global minimum tax rules in relation to permanent establishments in one of the countries.
In addition, the protocol includes updated and clarifying rules related to the taxation of pension payments to public servants, as well as various consultation agreements that were concluded between both countries in the past, specifically with regard to the taxation of cross-border commuters.
The protocol must be approved by the legislative bodies in both countries and is expected to become effective as from 1 January 2025.
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