Income tax in the case of cross-border posting of workers

Germany: In the case of a posting abroad, the first place of work is usually at the host company.

In no less than three recent decisions, the Federal Fiscal Court (Bundesfinanzhof, BFH) ruled that the so-called „first place of employment”, which is decisive for income tax purposes, in the case of a posting abroad is the fixed place of business of the host company where the employee works for the duration of the posting.

It is not uncommon for employees (also within a company group) to work for a certain period of time at (sister) companies abroad by way of a posting of employees. As a rule, the employment relationship with the home company is „suspended” for the duration of the posting. From the perspective of income tax law, the question arises in these cases as to where the so-called „first place of employment” is located in relation to the foreign activity. This is important for assessing the extent to which the posted employee can deduct the costs, e.g. for his home abroad or the flights between his home country and place of work, as income-related expenses.
The „first place of employment” is defined in section 9(4) sentence 1 EStG as the fixed place of business of the employer, an affiliated company or a third party designated by the employer to which the employee is permanently assigned.
In the cases decided by the BFH, the judges assumed that the employee was „permanently assigned” to the foreign company on the basis of an employment contract with the foreign company that was limited to a period of 3 years. The suspended employment relationship in Germany did not change this assessment, nor did the fact that the employee had kept his home in Germany during the posting.
The ruling shows that even in the case of a temporary posting, special attention should be paid to the tax consequences of the posting in order to avoid unpleasant surprises. A „first place of employment” is not impossible in this context; however, caution is required in the contractual and actual structuring of the posting.

Source: BFH, decision of 17.12.2020 – VI R 21/18; VI R 22/18 and VI R 23/18

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