Cross-border short-term employment. Seminar B

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1 Cross-border short-term employment Seminar B

for Austrian and International Tax Law, WU

Professor, Aarhus University (Denmark) Martha

Tax (United States) Frank Pötgens Partner, De

2 Introduction & Panelists Panel Chair: Frederick Zimmer Professor, University of Oslo (Norway) Panelists: Dr. Kasper Dziurdź Research Associate, Institute for Austrian and International Tax Law, WU (Austria) Anders Nørgaard Laursen Associate Professor, Aarhus University (Denmark) Martha Klasing Partner, KPMG LLP Washington National Tax (United States) Frank Pötgens Partner, De Brauw Blackstone Westbroek, Professor, VU University Amsterdam (Netherlands)

3 Article 15 Par. 1: The place of work principle Par. 2: Taxable only in residence state of employee if: stay in work state does not exceed 183 days (litra a), and employer not a resident of the work state (litra b), and salary not borne by a PE of the employer in the work state (litra c)

4 Seminar Outline Main issues: Concept of employer Remuneration borne by a PE PE by reason of short-term cross-border worker Employer taxable in work state for technical fees etc.

5 Terminology Resident state of employee: State R State where the work is carried on: State W Formal employer (typically in State R) Economic employer (typically in State W)

6 Object and Purpose Para 6.2 of Commentaries to Art. 15 Coherence between the deductibility of the salary costs and the assignment of the taxation right to the work state; and Reducing the administrative burden as a result of source state taxation

7 Object and Purpose Certain case law underlined the relevance of the coherence principle German Federal Tax Court (BStBl II 1995, p. 405) Dutch Supreme Court (BNB 2002/125)

8 Object and Purpose International trade & movement of personnel Prevent excessive administrative burdens Criterion: sufficient level of presence Compensation for reduced tax revenue? Administrative burdens deductibility Residence deductibility Historical perspective: no intention to link taxation to deductions especially under Art. 15(3)

9 The Concept of Employer Pre-1992 OECD Commentaries domestic law meaning [via Art. 3(2)], or autonomous interpretation [e.g. because art. 3(2) is inapplicable; Netherlands and Germany] domestic withholding agent concept is irrelevant [see, however, para of the Commentaries to art. 15 OECD Model]

10 The Concept of Employer OECD Commentaries Economic meaning in international hiring-out of labour cases Ambiguities Obscurities only to cases of abuse? unclear structure

11 The Concept of Employer Different responses by jurisdictions the UK and Denmark applied an economic concept to both abusive and bona fide cases The Netherlands (authorities) and Germany applied an economic concept only to abusive cases

12 The Concept of Employer 2010 OECD Commentaries work states following an economic employer approach (by interpreting employment ) integration (pre-selection) and additional objective criteria (including authority and control)

13 Commentary Example 1 State R State W Company R Company W Provide Training to Company W Personnel

14 Commentary Example 3

15 Commentary Example 4

16 Case 1 State R State W Company R Formal Employer Company W Economic Employer (Slaughterhouse)

17 Case 1 Company R Company W Recruitment Contract Remuneration etc. Substitute worker Disciplinary sanctions Qualification Tools & materials Instructions Responsibility & risk Work schedule Hourly fee

18 Case 1 State R Formal employer concept = Company R 183-day rule applicable (if no PE) State W Economic employer concept = Company W 183-day rule not applicable

19 Case 1 Company R Company W Recruitment Contract Remuneration etc. Substitute worker Disciplinary sanctions Qualification Tools & materials Instructions Responsibility & risk Work schedule Hourly fee

20 Application of 2010 Commentaries Dynamic or static - Applicable to all treaties? Applicable only to treaties signed after effective date? Formal versus economic approach

21 The Danish Case Dutch resident butchers hired out to a Danish resident company (1997 and 1998) Taxing rights under the DTC Who is the employer?

22 The Danish Case DTC concluded in : Int l hiring out of labour Formal employer approach 1997: DK Begin to apply economic employer approach NL Ministry of Finance Disagrees: formal employer approach unless abusive DK Ministry of Taxation Application of the Commentaries

23 The Danish Case Danish Supreme Court: No agreement or common practice regarding the interpretation of the DTC No evidence that the Netherlands from 1997 did not acknowledge an economic employer approach No collision between taxing rights Only a disagreement on the concrete assessment

24 Case 1 Company R Company W Recruitment Contract Remuneration etc. Substitute worker Disciplinary sanctions Qualification Tools & materials Instructions Responsibility & risk Work schedule Hourly fee

25 Case 1 State R Formal employer concept = Company R State W Formal employer concept Domestic hiring-out of labour Out-bound hiring-out of labour Economic employer concept = Company W In-bound hiring-out of labour (!) 2010 Commentary: economic employer?

26 Employer Presumptions Sufficiently integrated? United Kingdom < 60 days of physical presence: no! Netherlands 60 working days (in-bound & intra-group): no! Germany > 3 months of intra-group secondment: yes! Only for in-bound / intra-group? Integration (not) alone decisive?

27 Case 2 State R State W Company R Human Resources (Cost) Centre PE Sale, Local Support & Marketing

28 Remuneration borne by a PE PE not taxable Exemption, Article 8 (transport enterprise), etc. Object and Purpose Deductibility vs. administrative burdens

29 Permanent Establishment Assumption: Company R = employer Services PE can activities of an employee create a PE? OECD Commentary Possible deemed PE on basis of an enterprise providing services

30 Services PE Applicable to services provided by an enterprise to a 3rd party Not services provided to the enterprise by the employee Commentary on Article 15 is relevant; article 5 and article 15 should be read together and interpreted consistently

31 Case 3 State R State W $ Company R Employer (Investment Bank) Company W Subsidiary (IT & Back Office)

32 Case 3 Company R Company W Employee is requested by Company W to provide banking and finance expertise in the creation of a new trading algorithm Charge with a mark-up (profit element)?!

33 Case 3 Art. 5, PE: furnishing of services through employees or other personnel Other than included services as defined in Art. 12 Art. 12, WHT: fees for included services Payments in consideration for the rendering of any technical or consultancy services if such services make available technical knowledge, experience, skill, know-how, or processes

34 2010 Commentaries Article15(2) Do they achieve objectives? Should concept of economic employer be abolished? If not, what else could be considered to simplify and address disputes?

35 Cross-border short-term employment Seminar B

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