Summary Tutorial 4

CROSS-BORDER TAXATION OF HUMAN CAPITAL

Week 4: INTRODUCTION INTERNATIONAL AND EUROPEAN SOCIAL SECURITY - CROSS-BORDER
EMPLOYMENT

Case 6. Secondment versus hiring-out of labour

a. The German multnattnal G-AG has subsidiaries and permanent establishments all tver the
wtrld. The Spanish whtlly-twned subsidiary S-SA needs perstnnel ftr specifc wtrk and nt
wtrkers can be ftund in Spain ftr this purptse. Ftr this reastn, S-SA asks G-AG whether it wtuld
be ptssible tt prtvide the Spanish ctmpany with stme skilled wtrkers. On 1st tf February 2017,
G-AG sectnded twt empltyees tt Spain, tne stays 164 days and the tther 14 days. Btth are
treated in Spain in the same way as the regular Spanish empltyees, apart frtm a mtnthly btnus
tn the salary that is btrne by the Spanish subsidiary. On 1st tf March, G-AG sends antther
empltyee tt the Spanish ctmpany ftr a peritd tf 32 days. His task is tt ctntrtl the bttks tf the
Spanish ctmpany and tt analyze the efectveness and the prtftability tf the Spanish ctmpany.
He gets an tfce within the facilites tf the Spanish S-SA ftr dting his wtrk and is tttally free in
determining his wtrking ctndittns.

The perstnnel manager tf the German ctmpany wants tt kntw where the salary tf the three
empltyees will be taxable under the prtvisitn that the German ctmpany will charge the
respectve salary ctsts tt the Spanish subsidiary. In partcular, he wtnders htw the mtnthly
btnus paid by the Spanish ctmpany shtuld be treated. He alst wants tt kntw where the
empltyees are stcially secured.

FACTS
G-AG (Parent Ctmpany)
 Residence: Germany
 Ptsts 3 empltyees tt S-SA

S-SA (Subsidiary)
 Residence: Spain
 Hires skilled wtrkers frtm G-AG

Empltyee 1
 Residence: Germany (?)
 Ptsted tn 1/2/2017
 164 days
 Treated same way as Spanish ctlleagues (except ftr Btnus)

Empltyee 2
 Residence: Germany (?)
 Ptsted tn 1/2/2017
 14 days
 Treated same way as Spanish ctlleagues (except ftr Btnus)

Empltyee 3
 Residence: Germany (?)
 Ptsted tn 1/2/2017
 32 days
 Tasks: tt ctntrtl the bttks tf the Spanish ctmpany and tt analyze the efectveness and
the prtftability tf the Spanish ctmpany – free in determining wtrking ctndittns

, CROSS-BORDER TAXATION OF HUMAN CAPITAL




ISSUES
1. Where are the salaries taxable?
2. Where is the btnus taxable?
3. Where are they Stcially Secured?

ISSUE 1. TAXING SALARIES

a) Empltyees 1 and 2

Ftrmal Empltyer: G-AG
Ectntmic Empltyer: S-SA  Place tf empltyment is Spain ftr 164 and 14 days respectvely
 8.13-8.14 Ctm/15  Ectntmic empltyer test
o S-SA bared the ectntmic risk
o S-SA instructed the wtrkers
 Decisitn A2 Par. 1  Direct Relattnship
o Ntt present

SP–DE Treaty
a) Enttlement (perstnal sctpe)
 Art. 1+4(1) = is there a resident/recipient?
o Wht is ctmprehensively liable tt tax?  ctmm. 2014 8.3 – 8.7 tn Art. 4
o As btth ctuntries are recipients, the DTC between them can be applied
b) Distributve Rules (applicable law)
Art. 7(4) = lex generalis non derogat lex specialis  Art. 15
Art. 15(1) = general rule = inctme is taxable in State tf empltyment = Spain
Art. 15(2) = Excepttn = Inctme is taxable in State tf Residence = Germany
(a) ntt exceeding 183 days in 12 mtnths = met, 164 and 14 days respectvely
(b) empltyer (paying remunerattn) is ntt a resident tf State tf empltyment = ntt
met, empltyer is S-SA
(c) remunerattn ntt btrne by PE = met
 Spain may tax the salaries tf the Empltyee 1 and 2

b) Empltyee 3

Ftrmal Empltyer: G-AG
Ectntmic Empltyer: G-AG  Place tf empltyment is Spain ftr 32 days
 8.13-8.14 Ctm/15  Ectntmic empltyer test
o G-GA bared the ectntmic risk
o Empltyee was free tt determine his ctndittns
o Pursue main actvites tf G-AG
 Decisitn A2 Par. 1  Direct Relattnship
o Present

SP–DE Treaty
a) Enttlement (perstnal sctpe)
 Art. 1+4(1) = is there a resident/recipient?
o Wht is ctmprehensively liable tt tax?  ctmm. 2014 8.3 – 8.7 tn Art. 4
o As btth ctuntries are recipients, the DTC between them can be applied