International labour dispatch within corporate groups: Who is the employer for tax purpose?
By Carina Langegger, Prodinger & Partner
The question that frequently arises when multi-national corporate groups work on projects across several borders is: Which country has the right of taxation?
Most of the Double Tax Treaties (DTT) which follow the OECD MC determine that the taxation right is allocated to the country where the labour activity is performed. The state from which the labour is dispatched will hold the taxation right if the following three requirements are met:
a) The recipient is present in the other state for a period not exceeding the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned;
b) The remuneration is paid by an “employer” who is not a resident of the other state;
c) The remuneration is not borne by a permanent establishment which the “employer” has in the other state.
In many countries it is unclear whether the dispatching or receiving company should be considered as the employer for tax purpose. Many countries consider the employer to be the company which bears the financial cost with regards to Article 15 of DTT (such as Canada, Denmark, Germany, Italy, the Netherlands and the USA), Austria, however, has so far kept hold of the civil law employer approach.
Due to a ruling of the higher administrative court in May 2013, this practice changed and Austria now follows the economic approach. As a result, in many cases where labour is dispatched from or to Austria, allocation conflicts due to a deviating interpretation of the DTT of the involved countries shall now be a thing of the past.
Prodinger & Partner St. Johann Steuerberatung GmbH & Co KG, St. Johann im Pongau, Austria
T: +43 64 12 40 77 2526
Carina Langegger is the expert for International Tax Law within the Prodinger Group. She studied International Business and International Tax Law in Austria, Spain and the UK. During her work with a Big Four company in Germany, she gained experience with international transactions and is now taking care of all international issues within the Group.
PRODINGER | GFB WIRTSCHAFTSBERATUNG has been a leading partner for SMEs for over 50 years. An independent tax and business competence centre with a strong network and a wide range of services for business projects, entrepreneurial requirements and miscellaneous undertakings.
The Prodinger group has 11 offices across Austria. It provides extensive advice on all Austrian and international tax issues.
published: June 2014