The Austrian Ministry of Finance recently published its view on the interpretation of double taxation treaties concluded by Austria in light of home office scenarios during the COVID-19 pandemic. Here, we provide a summary of the key takeaways which may be relevant for your business.
Home office as an employer's permanent establishment
Traditionally, the Austrian Ministry of Finance applies quite low thresholds with regard to the preconditions for constituting a taxable presence of a non-Austrian entity in the form of a permanent establishment in Austria. In particular, in light of home office scenarios, the Austrian Ministry of Finance has quite a strict view – although not yet confirmed by court decisions – and tends to regard a home office as a permanent establishment constituting presence for the employer, which in turn leads to Austria gaining a taxation right with regards to the employer's profits.
For individuals typically working abroad, the border closures in connection with the COVID-19 pandemic may lead to an Austrian employee being stuck in Austria and working remotely from their home office. The Austrian Ministry of Finance has now confirmed that such a case will not typically lead to a taxable presence for the employer in Austria. However, a different approach will be upheld in situations where the employee has already worked from a home office in Austria prior to the COVID-19 pandemic.
Although such clarification is appreciated, some aspects are still open for discussion – for example, whether or not the above described exemption only applies in scenarios where, in non-COVID-19 times, the employer provides the employee with an office space.
Home office constitutes taxation rights for the residence state of the employee
For cross-border working employees, the Austrian Ministry of Finance also clarified that the payable remuneration to these employees working from a home office due to COVID-19 is to be split between the state of residence of the employee (ie where the home office is located) and the employer state (ie where the employee is typically physically present).
Such breakdown of the employee's remuneration is to be effected based on the actual working days of the employee (and their physical presence). Eventually, the state of residence of the employee will either have to exempt the income attributed to the employer state from its tax base, or credit the tax incurred in the employer state from the domestic tax incurred (based on the relevant treaty provisions).
Please note that special bilateral agreements concluded by Austria and another state carry greater weight than (and may deviate from) this approach, such as the agreement Austria has reached with Germany. Pursuant to this bilateral agreement, the working days spent in a home office due to the COVID-19 pandemic are seen as having been rendered in the state where the employee would have been physically present, had COVID-19 not occurred. Austria has also concluded a bilateral agreement with Liechtenstein over the treatment of cross-border commuters.
Allocation of taxation rights for short time work allowances
Pursuant to Austrian tax law doctrine, short-time work allowances granted by federal bodies to the employer – who will then pay such allowance to the employees working short-time – forms part of the employee's taxable employment income. In cross-border employment scenarios, the taxation right for these allowances is basically allocated to the state where the employment services would have been rendered had COVID-19 not occurred.
Deviating from this rule, the taxation right for these allowances remains with the state that actually grants the allowances. This only applies if the relevant tax treaty provides for an explicit rule for benefits/income from social security; an example of this is the tax treaty between Austria and Germany. Such a provision may further lead to a different allocation of taxation rights for remuneration of the employment services actually rendered, and the short-time work allowance, which in turn requires an adaptation for Austrian wage withholding tax purposes.