Frontier Workers’ Tax and Social Security Status in Europe – Optimizing the Legal Status in a Changing Landscape

Abstract

This report of the European Region of IFA evaluates the tax and social security implications of frontier workers in Europe. The exact meaning and scope of “frontier worker” differ in tax law and social security law. Several relatively old tax treaties contain special tax provisions attuned to the cross-border situation of frontier workers that deviate from the general allocation rules for employment income (article 15 of the OECD Model). The common characteristics of these special treaty provisions of daily return and geographical proximity may lead to unconscious tax biases in a changing landscape of digitalization and globalization. Tax treaties – primarily drafted at a time when physical presence was the most reliable element in determining taxing rights – are not attuned to the increasing flexible forms of frontier work, which have gradually developed and are becoming more prevalent. Enhanced means of communication tools and transportation enabling telework and highly mobile work (e.g. individuals who reside in one state and work in more than one other state), amongst others, have increased the mobility and diversity of frontier work. Frontier workers may also encounter difficulties in equal treatment with obtaining tax and social benefits. Further inconveniences may arise from the deviation of social security rules from tax rules. The key challenges in the legislative framework suggest the need to revise the definition and legal status of frontier workers, especially in the aftermath of the COVID-19 pandemic. Suggestions are made to minimize the detected application and interpretation problems, and to enable a better coordination of tax and social security rules.