Recent EU Court ruling increases flexibility for EU commuters

EU judgement: Work outside EU/EEA, Switzerland & UK may count when deciding if cross-border work at home is substantial.

Background

According to the EU Regulation 883/2004 a cross-border worker (a person who normally works in multiple EU countries) must belong to the social security system in the country where the employer is located, unless a substantial part of the work (25 % or more) is performed in the country of residence. Previously, this has been interpreted to only include work performed in the EU/EEA, Switzerland and the UK, and not work performed in third countries. Hence, the 25% threshold was only measured against work in other EU countries. This is also reflected in how most applications for A1 certificates are constructed, which only include the option to specify the percentage of work in EU countries and not third countries.  

The case at hand 

In the case at hand the employee was a resident in Germany, working for a Swiss employer. The employee applied for a Swiss A1 certificate based on a working pattern where 10,5 workdays per quarter was performed in Germany, 10,5 workdays in Switzerland and the remaining workdays in third countries. Hence, if work in third countries was included in the calculation, the work in Germany amounted to approximately 16 %. However, if only work in the EU/EEA/Switzerland was included, the work in Germany amounted to 50 %, meaning the employee would belong to German social security.  

Court judgment 

The EU Court found that all activities performed within the employment should be considered meaning that also activity in third counties should be included when assessing whether a substantial part of the activity is made in the country of residence. In the present case this means that the person should belong to Swiss social security. 

EY comments 

The court ruling offers an increased flexibility and predictability for cross-border workers within EU/ EEA and Switzerland as it clarifies that third country workdays should be taken into consideration in the calculation of the employee’s work pattern. The new ruling primarily affects cross-border workers who pursue part of their activity as an employed person outside the member state of where the employer is established as it offers increased flexibility regarding work from home.  

This clarification is important for employers as well as employees. For employers, a shift to the country of residence for social security coverage often entails an obligation to register in that country and payment of social security fees in accordance with national regulations. This means an unpredictability in costs as well as processes. For the employee, predictability when it comes to social security coverage is important for well-being and sense of security, since social security benefits are a large part of the welfare system.  

It is important to monitor and document the locations where activity is pursued to secure compliance and also to avoid risk of unforeseen costs and administration. 

Occasional business trips to other EU/EEA countries 

The judgment may also be relevant when a commuter takes occasional business trips to other EU countries. The multi-state rules apply only to work that is 'normally' carried out in two or more member states, excluding any 'occasional' work in an EU country. As a result, occasional business trips are not subject to the multi-state rules. Recent case law from the EU Court distinguishes between the determination of when an employee 'normally' works in multiple member states and the calculation of the work-split. The Court clarifies that the work considered for determining whether an employee 'normally' works in two or more member states is different from the work used to calculate the work-split. 

Example 
When evaluating whether the multi-state rules apply to business travel, the nature and amount of the foreseeable work in each EU county must be considered as well as the wording of the employment contract. When calculating the work-split, only the amount of foreseeable work is included regardless of whether this work is performed ‘occasionally’ or not. This is especially relevant for commuters utilizing the special Framework Agreement in Telework, allowing the employee to work 50% from home, while only having ‘occasional’ business trips to other EU countries. Such occasional work may still count towards the work-split.  

Special consideration for Swedish employers

It should also be noted that when applying for an A1 certificate it is common that the relevant authority requests a specification from the employer regarding the split of work between different countries, often referred to as a work split certificate. As one of few EU countries, the Swedish authorities have until now specified in their guidelines that work outside the EU/EEA does count towards the work-split. However, the Swedish A1 application form does not currently include countries outside EU/EEA and Switzerland why it is important to specify these separately in the application.  

The A1 application must be filed in the country in which the employee lives. For cross-border commuters working in Sweden, the application must therefore follow the application procedure of a foreign authority. In general, EY sees that work outside EU is not part of a standard A1 application form. Until this is accommodated for, the work split must be specified manually.  

EY are happy to help you navigate the rules to understand the impact and obligations for your business and employees. If you have any questions, please contact us if you have any questions! 

 Authors 

• Sevim Güven, Partner, People Advisory Services Tax, 072 230 95 20
• Eva Ahlin, Director, People Advisory Services Tax, 073 055 87 11
• Adam Rewucha, Director, People Advisory Service Tax, +45 25 99 44 65
• Frida Sundin, Manager, People Advisory Services Tax, 076 854 83 31