CROSS-BORDER TAXATION OF HUMAN CAPITAL
Week 5: INTRODUCTION INTERNATIONAL AND EUROPEAN SOCIAL SECURITY - CROSS-BORDER
EMPLOYMENT
Case 8. Turn around
Hillary lives in Prague, Czech Republic, and works for a Czech resident company as of 2011. From 15 October
2016 to 30 November 2016 (46 days) she worked in the company’s factory in Buenos Aires, Argentna. She
returned to Prague for the Christmas holidays and went back to work in the Argentnian factory on 5
January 2017. She returned on 1 May 2017 (117 days). In July, Hillary wanted to show her husband Donald
the Argentnian nature and learn tango dancing. They arrived in Buenos Aires on 1 July 2017 and returned
to Prague on 20 July 2017 (19 days). On 1 August, she was sent to the company’s factory in Montevideo,
Uruguay. She returned from the factory on 15 August 2017. Both on the fight to and from Uruguay, she had
to make an intermediary stop at Buenos Aires airport before contnuing her fight to the fnal destnaton (2
days). The Czech company did not atribute Hillary’s wage costs amountng EUR 150,000 to the Argentnian
and Uruguayan factories.
Where is Hillary’s wage taxed? Explain your answer
FACTS
Hillary
Residence: Czech Republic
Employer: Czech resident company
Wages paid by: Czech resident company
Periods of Travel
15 October 2016 to 30 November 2016 (= 46 days): Worked in the company’s factory in Buenos
Aires (assumed to be a PE there)
Returned to Czech Republic for Christmas
Returned to Argentna 5 January 2017.
Returned to Czech Republic 1 May 2017 (= 117 days)
Returned to Argentna 1 July 2017
Returned to Czech Republic 20 July 2017 (= 19 days)
Flew to Uruguay 1 August 2017 (assumed PE there)
Intermediary stop (connectng fight) both ways (= 2 days)
Returned to Czech Republic 15 August 2017
Total days in Argentna in the calendar year (+ twelve month period) 15 October 2016 – 15 October 2017 =
182 (minus intermediary stops)1
CZ–AR Treaty
a) Enttlement (personal scope)
Art. 1+4(1) = is there a resident/recipient?
o Who is comprehensively liable to tax? comm. 2014 8.3 – 8.7 on Art. 4
o As both countries 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 Rule2 = income is taxable in State of employment = Argentna
Art. 15(2) = Excepton = Income is taxable in State of Residence = Czech Republic
(a) not exceeding 183 days in 12 months = met, 182 days
Par. 5 Com/15 = days in transit in the course of a trip between two points outside the state of
activity are excluded from the computation.
(b) employer (paying remuneraton) is not a resident of State of employment = met, Czech employer
(c) remuneraton not borne by PE = not met? Met?
1
Par. 5 Com/15
2
Par. 1 Com/ 15
, CROSS-BORDER TAXATION OF HUMAN CAPITAL
● = salary must not be paid by, nor atributable to PE
● if PE acts as a separate and independent enterprise engaged in the same or similar actvites under the
same of similar conditons AND is an economic 'employer'
● OECD: base erosion principle, i.e. if deductble from the income of the company. Profts of enterprise
(to whom services are rendered) are subject to tax, because of residence or service atributon to it's PE
[comm.15 para 8 s.4]
○ Common sense, not supported by OECD: employee or employer has to have a
sufficient level of presence in the work state
● Not 'borne by by a PE' if
○ deducton of notonal charge = fctonal deducton [comm.15 para 7.2]
○ remuneraton is atributable to PE as part of a fee for goods delivered or services
provided (see K.Dziurdz and F.Potgens “Cross-Border Short-Term Employment”, p.413)
Par. 7 Com/15 + Par. 8 Com/15 + Par. 8.1 Com/15 = Subparagraphs b) and c) make it clear
that the excepton is not intended to apply where the employment services are rendered to
an enterprise the profts of which are subjected to tax in a State either because it is carried
on by a resident of that State or because it has a permanent establishment therein to which
the services are atributable
Are the services from Hillary ‘atributable’ to the PE?
o Par. 7 Com/15 = Hillary’s salary could be argued to be “borne by” the PE.
o But in this case it is doubtul that the salary can be atributed to the PE.
o Hillary’s salary is therefore taxable in the Czech Republic according to Art. 15(1) of the CZ-
AR Treaty.
Case 9. Harry Eastwood
Harry Eastwood is specialized in computers and has a contract with Antal Inc., an American company that is
listed on the stock exchange. On 1 January 2016 Eastwood is posted for two years (so tll 31 December
2017) to Antal Services BV, a Dutch subsidiary company of the corporaton. His spouse and daughter have
come to the Netherlands too. Eastwood receives a salary from Antal Inc., the American parent company.
The salary is in principal $100,000, but there is also compensaton by means of a Tax Equalizaton Payment
(‘TEP’). The TEP compensates him for any excess taxes he has to pay due to his postng in the Netherlands.
The TEP will be paid in March 2017. Eastwood partcipates in the Antal Employees Stock Ownership Plan.
This plan gives employees the right to buy stocks in Antal Inc. at a 7.5% discount of the market price (with a
maximum of 10% of the salary a year), under the conditon that the employees keep the stocks for three
years after the purchase. If an employee sells the stocks before the three year period, then the discount will
have to be paid back. The plan is executed by LaSalle Natonal Bank at Chicago. The lent discount is charged
to Antal Services BV in The Netherlands. Dividends are distributed on the Antal Inc. stocks. Eastwood wants
the stock dividends to be paid out to his bank account with LaSalle Natonal Bank in Chicago.
FACTS
Harry Eastwood
Residence: Czech Republic
Employer: Antal Inc, USA company
Wages paid by: Antal Inc, Parent Company
SALARY ITEMS/ISSUES TO DEAL WITH
Salary: 100,000 $
TEP (assumed to be the NL 30% rule here, excess taxes paid due to relocaton)
Paid in March 2017
Stock Ownership Plan
7.5% Discount
Max use of 10% of salary per year to buy these stocks
Stock must be kept for 3 years after purchase date
Week 5: INTRODUCTION INTERNATIONAL AND EUROPEAN SOCIAL SECURITY - CROSS-BORDER
EMPLOYMENT
Case 8. Turn around
Hillary lives in Prague, Czech Republic, and works for a Czech resident company as of 2011. From 15 October
2016 to 30 November 2016 (46 days) she worked in the company’s factory in Buenos Aires, Argentna. She
returned to Prague for the Christmas holidays and went back to work in the Argentnian factory on 5
January 2017. She returned on 1 May 2017 (117 days). In July, Hillary wanted to show her husband Donald
the Argentnian nature and learn tango dancing. They arrived in Buenos Aires on 1 July 2017 and returned
to Prague on 20 July 2017 (19 days). On 1 August, she was sent to the company’s factory in Montevideo,
Uruguay. She returned from the factory on 15 August 2017. Both on the fight to and from Uruguay, she had
to make an intermediary stop at Buenos Aires airport before contnuing her fight to the fnal destnaton (2
days). The Czech company did not atribute Hillary’s wage costs amountng EUR 150,000 to the Argentnian
and Uruguayan factories.
Where is Hillary’s wage taxed? Explain your answer
FACTS
Hillary
Residence: Czech Republic
Employer: Czech resident company
Wages paid by: Czech resident company
Periods of Travel
15 October 2016 to 30 November 2016 (= 46 days): Worked in the company’s factory in Buenos
Aires (assumed to be a PE there)
Returned to Czech Republic for Christmas
Returned to Argentna 5 January 2017.
Returned to Czech Republic 1 May 2017 (= 117 days)
Returned to Argentna 1 July 2017
Returned to Czech Republic 20 July 2017 (= 19 days)
Flew to Uruguay 1 August 2017 (assumed PE there)
Intermediary stop (connectng fight) both ways (= 2 days)
Returned to Czech Republic 15 August 2017
Total days in Argentna in the calendar year (+ twelve month period) 15 October 2016 – 15 October 2017 =
182 (minus intermediary stops)1
CZ–AR Treaty
a) Enttlement (personal scope)
Art. 1+4(1) = is there a resident/recipient?
o Who is comprehensively liable to tax? comm. 2014 8.3 – 8.7 on Art. 4
o As both countries 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 Rule2 = income is taxable in State of employment = Argentna
Art. 15(2) = Excepton = Income is taxable in State of Residence = Czech Republic
(a) not exceeding 183 days in 12 months = met, 182 days
Par. 5 Com/15 = days in transit in the course of a trip between two points outside the state of
activity are excluded from the computation.
(b) employer (paying remuneraton) is not a resident of State of employment = met, Czech employer
(c) remuneraton not borne by PE = not met? Met?
1
Par. 5 Com/15
2
Par. 1 Com/ 15
, CROSS-BORDER TAXATION OF HUMAN CAPITAL
● = salary must not be paid by, nor atributable to PE
● if PE acts as a separate and independent enterprise engaged in the same or similar actvites under the
same of similar conditons AND is an economic 'employer'
● OECD: base erosion principle, i.e. if deductble from the income of the company. Profts of enterprise
(to whom services are rendered) are subject to tax, because of residence or service atributon to it's PE
[comm.15 para 8 s.4]
○ Common sense, not supported by OECD: employee or employer has to have a
sufficient level of presence in the work state
● Not 'borne by by a PE' if
○ deducton of notonal charge = fctonal deducton [comm.15 para 7.2]
○ remuneraton is atributable to PE as part of a fee for goods delivered or services
provided (see K.Dziurdz and F.Potgens “Cross-Border Short-Term Employment”, p.413)
Par. 7 Com/15 + Par. 8 Com/15 + Par. 8.1 Com/15 = Subparagraphs b) and c) make it clear
that the excepton is not intended to apply where the employment services are rendered to
an enterprise the profts of which are subjected to tax in a State either because it is carried
on by a resident of that State or because it has a permanent establishment therein to which
the services are atributable
Are the services from Hillary ‘atributable’ to the PE?
o Par. 7 Com/15 = Hillary’s salary could be argued to be “borne by” the PE.
o But in this case it is doubtul that the salary can be atributed to the PE.
o Hillary’s salary is therefore taxable in the Czech Republic according to Art. 15(1) of the CZ-
AR Treaty.
Case 9. Harry Eastwood
Harry Eastwood is specialized in computers and has a contract with Antal Inc., an American company that is
listed on the stock exchange. On 1 January 2016 Eastwood is posted for two years (so tll 31 December
2017) to Antal Services BV, a Dutch subsidiary company of the corporaton. His spouse and daughter have
come to the Netherlands too. Eastwood receives a salary from Antal Inc., the American parent company.
The salary is in principal $100,000, but there is also compensaton by means of a Tax Equalizaton Payment
(‘TEP’). The TEP compensates him for any excess taxes he has to pay due to his postng in the Netherlands.
The TEP will be paid in March 2017. Eastwood partcipates in the Antal Employees Stock Ownership Plan.
This plan gives employees the right to buy stocks in Antal Inc. at a 7.5% discount of the market price (with a
maximum of 10% of the salary a year), under the conditon that the employees keep the stocks for three
years after the purchase. If an employee sells the stocks before the three year period, then the discount will
have to be paid back. The plan is executed by LaSalle Natonal Bank at Chicago. The lent discount is charged
to Antal Services BV in The Netherlands. Dividends are distributed on the Antal Inc. stocks. Eastwood wants
the stock dividends to be paid out to his bank account with LaSalle Natonal Bank in Chicago.
FACTS
Harry Eastwood
Residence: Czech Republic
Employer: Antal Inc, USA company
Wages paid by: Antal Inc, Parent Company
SALARY ITEMS/ISSUES TO DEAL WITH
Salary: 100,000 $
TEP (assumed to be the NL 30% rule here, excess taxes paid due to relocaton)
Paid in March 2017
Stock Ownership Plan
7.5% Discount
Max use of 10% of salary per year to buy these stocks
Stock must be kept for 3 years after purchase date
