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If cross-border travelers work from home, the business must also pay taxes on foreign earnings. Novartis wants to avoid that, as the group confirmed to SRF. Because corporate income tax rates are significantly higher abroad.
Novartis CEO Vas Narasimhan’s announcement made headlines in July: the group is completely reliant on the home office, even after Corona. In the future, employees in Switzerland must choose whether to work in-house or at home, as long as the home office supports the role.
4,000 employees excluded from privilege
However, a considerable number of employees are excluded from this freedom: cross-border travelers. When the Corona crisis is over, you are allowed to work a maximum of 25 percent of your work hours in the home office.
We want to pay corporate tax in Switzerland.
The reason for this Novartis decision has hardly been discussed so far. It’s about finances: the group would have to pay taxes on part of the company’s profits in the country where the employees work from home. In the case of Novartis, this would mainly affect Germany and France.
Because corporate tax rates in Switzerland are significantly lower than in Germany and France, Novartis wants employees from neighboring countries to return to their workplace in Switzerland after Corona. Thomas Bösch, HR Director at Novartis Switzerland, confirms this to SRF: “Our freedom to work from home only applies within the country and not beyond the border.”
The tax system creates false incentives, so businesses in border areas sometimes dispense with a home office.
Keystone
The background to this is that countries collect an income tax when corporations establish a so-called permanent establishment. “If employees with certain functions work in the head office, France or Germany can define it as a permanent establishment,” says Thomas Bösch. “So taxes are paid there.”
Significantly higher tax rates abroad
A look at the various corporate income tax rates reveals important differences: in Basel, Novartis pays around 13 percent, in France the corporate income tax rate is 28 percent according to KPMG and in Germany is even 30 percent. Cross-border travelers at the head office would therefore cost Novartis dearly.
In Switzerland, Novartis employs about 4,000 people from neighboring countries. They represent around a third of all employees in Germany.
Another problem: social security contributions
In addition to the problem of income tax, Novartis would also have to deal with an administrative problem. These are the employees’ social security contributions. These are billed abroad if employees work more than 25 percent at home.
Re-tracking this billing is incredibly complicated and also very expensive.
“It is incredibly complicated and also very expensive to re-establish this accounting for 4,000 cross-border travelers,” says Bösch. This is another reason why home offices are not compatible with cross-border travelers, according to Novartis’s human resources manager. Especially with social security contributions like AHV, which goes to money. It would cost both the employees and the company many times what they pay in Switzerland.
Disincentives in the tax system
The Novartis case shows that the home office boom will likely continue even after Corona, but that there are also false incentives. Companies try to keep their costs low. This likely means that cross-border travelers commute to work more often than necessary, although the dangers of the pandemic are still present. In addition to epidemiological risks, these incentives also ensure many trips during peak hours.
