As of 01 January 2016, the canton of Zurich has changed the practice for calculating Swiss working days for foreign / non-Swiss employees. As a consequence, the number of working days subject to wage withholding tax to be considered by the employers in Switzerland increases. This change affects all employers in Zurich with employees who are not tax resident in Switzerland and who are, thus, subject to wage withholding tax.
Previous practice valid until 31.12.2015
Previously, only the working days effectively rendered in Switzerland were subject to taxation. In this context, the only days considered relevant for tax purposes were (1) those on which employees physically worked in Switzerland; (2) sick days in Switzerland, provided the illness did not prevent the employee from leaving the country; and (3) presence days on which the performance of work duties was not possible due to exceptional circumstances. The respective Swiss working days were verified using a calendar.
New practice valid from 01.01.2016
The new publication also mentions that only the working days effectively performed in Switzerland shall be subject to taxation. However, for reasons of simplification, Swiss working days are now determined by assuming 20 fictitious working days per month and then subtracting the effective foreign working days. In this context, working days in a country other than Switzerland, as well as arrival and departure days on which all or the majority of the work was performed in a country other than Switzerland, are considered foreign working days. The respective foreign working days are to be verified using a calendar.
Consequences of the new wording in practice
To verify the foreign working days, the employee has to use a calendar, as before.
Scope of taxation in Switzerland
Based on the old practice, the gross income was allocated to a foreign country using the ratio between foreign working days and total working days. This led to paid non-working days such as vacation days and sick days being distributed proportionally to total working days performed in Switzerland and abroad and being taxed accordingly. The new rule leads to all paid foreign non-working days being subject to taxation in Switzerland.
Due to the wording chosen, there is an increased risk of double taxation of the respective income by both the country of residence and Switzerland.
The tax administration of the canton of Zurich is planning to review established rulings with respect to the new practice and to demand modifications, if deemed necessary. Future rulings have to follow the new regulation. In future, in exceptional cases, case-specific rulings are to remain an available option.
In view of the current federal court practice
In several instances, the federal court has determined that the liability to pay taxes in Switzerland requires the personal presence of the employee in Switzerland. Due to the simplified formula described above, however, the days subject to taxation include not only Swiss working days, but also foreign non-working days (such as vacation days and holidays), which stands in contradiction to current jurisdiction.
In view of the double tax treaties
With regard to earned income, the double tax treaties entered into by Switzerland limit the taxation right of Switzerland for non-Swiss resident employees to the income earned for working days actually performed in Switzerland.
Conclusion and next steps
The new regulation leads to a simplification of the procedure for the tax authorities. At the same time, however, the tax authorities expand the taxation right for Switzerland in a way, not in line with the current court practice and the double tax treaties in force. In addition, it can be assumed that other cantons might consider following the example set by the canton of Zurich, adjusting their practice accordingly.
There is no need for action in cases in which the employee has only one employer and works exclusively in Switzerland.
However, in case the employee works abroad on a regular basis or has multiple employers (in Switzerland and abroad), the consequences should be analyzed in more detailed. In case the new approach leads to a less favorable tax treatment or triggers an over-taxation or double taxation, it is recommendable to analyze the respective case and applying for a ruling confirmation. We will gladly support you in this.
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