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Current developments in international mobility

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​In the current edition of our newsletter, we provide you with an overview of recent developments in the areas of tax law, HR advisory, and national wage tax. Key topics include cross-border employment, updated home office regulations, and recent court decisions in tax and social security law. Among other subjects, we examine qualification conflicts under double taxation treaties, the role of permanent establishments, recent rulings by the European Court of Justice concerning intergovernmental cooperation, and the growing compliance and HR challenges associated with remote work.​
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Qualification conflicts in double taxation agreements using the example of management board members' remuneration 

Double taxation agreements play a key role in international tax law. These bilateral treaties allocate taxing rights to individual states and aim to avoid double taxation of individuals and companies.  

However, the mechanism to avoid double taxation may get disturbed if the contracting states interpret the provisions of such treaties differently, and so-called qualification conflicts arise. In consequence, both contracting states claim the right to tax the same income. In practice, qualification conflicts often relate to the allocation of taxing rights over management board members' remuneration and refer to Articles 15 and 16 of the OECD Model Tax Convention. 

Specifically, such a qualification conflict exists between Germany and the Czech Republic over the taxation of management board members. Example: A management board member of a German limited liability company (GmbH) is posted to the Czech Republic to assume management responsibilities for the Czech company. He is registered as a management board member in the Czech Republic and retains his German employment contract. His remuneration is recharged to the Czech company on a pro rata basis. He maintains his residence in Germany, also when he stays in the Czech Republic. The management board member works three to four days a week in the Czech Republic and one to two days in Germany. He spends weekends with his family in Germany. 

Individuals having their residence or habitual abode in Germany are subject to unlimited income tax liability on their worldwide income. Germany qualifies the income of a management board member working under an employment contract as income from employment (Section19 of the German Income Tax Act (EStG)), regardless of the state of residence.  

In this context, Germany interprets and applies the double taxation agreement between Germany and the Czech Republic as follows: 
  • Germany applies Article 15 DTA DE-CZ to the taxation of management board members’ remuneration. 
  • Under Article 15 para. 1 DTA DE-CZ, Germany has the right to tax the days worked in Germany and exempts from German tax the days worked in the Czech Republic because the remuneration is recharged to the Czech company. 

However, the Czech revenue authorities qualify the income of management board members under Article 16 DTA DE-CZ as remuneration of supervisory board members and administrative board members and interpret the double taxation agreement as follows: 
  • No separate allocation of taxing rights according to working days. 
  • ​Taxation of all income from work as a management board member in the Czech Republic. 

Thus, the income of management board members attributable to days worked in Germany is subject to double taxation because both Germany and the Czech Republic claim the right to tax it. 

Only a few double taxation agreements include a special provision for management board members' remuneration that resolves this qualification conflict and prevents double taxation (for instance, the double taxation agreements between Germany and Austria, the Netherlands or Sweden). 

Therefore, any cross-border activities of management board members require careful planning and review of tax laws to identify their potential impacts before the planned measure is implemented. In the case of the qualification conflict described above, certain employment agreements (so-called split contracts) may help avoid double taxation, provided they are appropriately implemented and documented. 
  
Law

ECJ strengthens the principle of cooperation between EU Member States in social security 

In its judgment of 23 January 2025, in Case C-421/23, the European Court of Justice (ECJ) clarified that EU Member States' social security institutions are required to engage in structured dialogue and conciliation procedures, even when A1 certificates have been fraudulently obtained. 

Background of the case 
In the present case, a Portuguese employer fraudulently obtained A1 certificates on the basis of purported postings of workers, with the intent to evade social security contributions in the host Member State, Belgium, while continuing to pay contributions in Portugal. In response, the competent Belgian authority demanded the retroactive registration of the affected workers under the Belgian social security system. Subsequently, a Belgian court convicted the employer in criminal proceedings for the evasion of social security contributions. 

Decision  
The Court of Justice of the European Union (CJEU) held, first, that Regulation (EC) No 883/2004, which governs the coordination of social security systems within the EU, EEA, and Switzerland, remains applicable even in cases where A1 certificates have been fraudulently obtained. Secondly, the Court emphasized that, even in cases of manifest fraud, the competent authority of the host Member State may not act unilaterally. Instead, it must first seek dialogue with the institution of the Member State of origin before a national court may establish the existence of fraud in the context of criminal proceedings. 

What does this mean? 
The judgment reaffirms that the competent authorities of the respective Member States are required to cooperate before taking decisions concerning the application of their national social security legislation—unilateral measures are not permissible. 

Principle of Loyalty 
The Court of Justice once again underscores the importance of the principle of sincere cooperation between Member States. This principle obliges national authorities to coordinate with one another before levying social security contributions retroactively or prospectively—even in cases involving fraud. 

Conclusion 
The judgment strengthens legal certainty for workers and businesses operating across borders. It makes clear that only through cooperation between national authorities can compliance with the EU rules on the coordination of social security systems be ensured—regardless of whether A1 certificates were lawfully or fraudulently issued. 

Abolition of the remonstration procedure in the visa application procedure as of 1 July 2025  

The Federal Foreign Office has abolished worldwide the remonstration procedure previously used in the visa application procedure with effect from 1 July 2025. This measure affects both the Schengen visa application procedure and the national visa application procedure. 

Legal nature and previous function of the remonstration procedure 
The remonstration procedure was an optional, internal administrative remedy that was not regulated by law. It was used to review visa rejections by the relevant diplomatic mission abroad. This procedure had no legal basis; rather, it was a voluntary remedy in the visa application procedure. The procedure was introduced because the appeal procedure outlined in Section 68 para. 1 sentence 2 no. 1 of the German Code of Administrative Court Procedure (VwGO) did not apply to decisions made by the Federal Foreign Office's diplomatic missions abroad. Therefore, the remonstration served as the visa law equivalent of the appeal procedure. 

Reasons for the abolition 
The abolition draws on the results of a pilot project conducted at several German visa sections since June 2023. The evaluation has shown that eliminating the remonstration procedure freed up considerable human resources, which increased efficiency in application processing. As a result, more applications were processed, and waiting times were significantly reduced. 

Legal protection after the reform 
The abolition of the remonstration procedure does not affect the legal action provided for in Section 42 VwGO. Applicants may appeal against negative decisions directly to the administrative court. Alternatively, they may file a new visa application, including additional documents, if necessary. 

Digitalisation as compensation 
To compensate for the elimination of the low-threshold legal remedy, the national visa application procedure has been digitalised worldwide since 1 January 2025. The structured online application procedure via the international portal aims to improve the quality of applications and reduce the need for subsequent corrections, which were often the cause of remonstrations. 

Critical assessment 
From a constitutional perspective, the measure is not without issues. Although legal protection by the courts remains intact, a cost-effective and quick review mechanism, which was particularly important for economically weaker applicants, is no longer available. Therefore, the measure strikes a balance between increasing administrative efficiency and maintaining access to effective legal protection.  

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Payroll​
 

New regulation for cross-border commuters working from home between Germany and the Netherlands 

Generally, the Double Taxation Agreement (DTA) between Germany and the Netherlands grants the right to tax income from non-self-employment to the state where the employment is exercised. Therefore, the salary of employees who reside in one contracting state and work in the other is taxed in the latter.  

However, if employees work from home in their state of residence, a respective part of their salary is taxable there. This leads to an allocation of the right to tax between the state where they live and the state where they work.  

According to a notice of 16 April 2025 from the North Rhine-Westphalia State Office for Taxes, the DTA will be amended so that up to 34 days of working from home will be treated as if the employee had worked from their state of employment. In these cases, the salary will not have to be allocated between the states.  

If the employee resides in the Netherlands, Germany's right to tax will apply under Section 49 para. 1 no. 4a sentence 2 of the German Income Tax Act (EStG). According to this provision, the employment is exercised or utilised in Germany.  

These changes must still be ratified by both national parliaments. Moreover, both states have signalled their intention to negotiate further exemptions. It remains to be seen how the specific amendment will be worded. 


HR-Advisory
 
Work without borders? Remote work abroad as a challenge for HR to find the right balance between compliance and employee retention  
The world of work is becoming increasingly global, and so employees' expectations for flexible working models are rising. Remote work abroad is no longer an exotic concept but a frequent request to HR departments. But what does this mean specifically for companies? What legal and organisational aspects do HR managers need to consider? 

The desire for flexibility vs. the reality for HR ​
More and more employees want to work abroad temporarily or permanently – whether as part of a so called workation, for family reunification or for personal lifestyle reasons. This creates new challenges for HR: It is crucial to establish customised processes, identify potential risks and at the same time strategically seize the opportunities that arise in terms of employer branding and employee retention. 

Avoiding legal pitfalls: Where HR needs to focus 
Labour legislation 
  • Remote work abroad is generally not automatically covered by the existing employment contract. To ensure clarity and legal certainty for both parties, a supplementary regulation is recommended, such as a supplementary agreement or a corresponding works agreement. 
  • Even for shorter stays abroad, certain labour laws of the host country may need to be followed, for example, regarding working hours, work break regulations or public holidays. A careful review of the relevant national legal framework covering these and other relevant aspects is therefore recommended. 

Social security 
  • Within the EU, the European Economic Area (EEA) and Switzerland, employees temporarily working abroad require an A1 certificate to prove that German social security law continues to apply. 
  • Outside the EU, the EE​A and Switzerland, the lack of uniform regulations can lead to double insurance or insurance gaps. In such cases, individual social security advice is strongly recommended to identify and avoid risks for companies and employees at an early stage. 

Tax aspects 
  • Permanent establishment risk: If employees regularly or permanently work from abroad, this may lead to the company having a permanent establishment for tax purposes in the respective country. Consequently, this may trigger far-reaching implications, such as additional tax obligations, registration obligations and possible sanctions. 
  • Wage tax liability abroad: Depending on the length of stay and local tax laws, employees may be subject to wage tax abroad. This may also affect payroll and tax returns in Germany. ​

Visa and work permit 
  • Within the EU and the EEA: Citizens of the EU and the European Economic Area generally do not need a visa or work permit. ​However, registration obligations or similar may apply in the respective country of residence, especially for longer or repeated stays. ​
  • Outside the EU and the EEA: In many third countries, a visa or work permit is required for professional activity, even for short-term remote work from a hotel room or holiday flat. Some countries now offer special digital nomad visas that are specifically tailored to location-independent employees. 
  • Special note for third-country nationals with a German work permit:  Caution is advised when employees from third countries with a German residence permit travel abroad for employment. This permit is generally only valid for work in Germany. Temporary work abroad – even within the EU – may jeopardise residence status or require additional permits. Individual review and legal advice are strongly recommended in this case. 

Implementation in practice: Recommendations for HR 
Develop guidelines 
  • Clear internal policies on duration, countries, permit procedures and return regulations create transparency and legal certainty. 
  • A reasonable way to get started could be a pilot project, such as remote work within the EU. This would allow HR professionals to gain initial experience, test processes and refine them using real-life examples before rolling out the initiative on a larger scale. 

Establish permit procedures 
A structured application and review process helps identify potential risks at an early stage and take targeted countermeasures. The use of suitable IT tools can significantly reduce administrative effort and make HR processes more efficient and transparent. 

IT and data protection 
Working from abroad may pose security risks. HR should work closely with IT and data protection officers to ensure an appropriate level of security, especially for work outside the EU. 

Conclusion: Remote work abroad as a strategic HR issue 
Remote work abroad is more than just a trend – it is a strategically relevant field of action for modern HR work. By establishing clear processes, understanding legal risks and providing employees with transparent information, an employer may offer flexibility while protecting the company's interests.

Do you have any questions on this topic? We would be happy to advise you personally – get in touch with Ms Katharina Seitenberger, Associate Partner and responsible for HR Advisory: katharina.seitenberger@roedl.com 
 
     
National salary tax
 

BFH: No employer status for a permanent establishment under tax treaty law 

If employees from abroad are physically present and work in Germany, they are subject to limited income tax liability on their income from that work in accordance with Section 1 para. 4, Section 19 para. 1 and Section 49 para. 1 no. 4 letter a of the German Income Tax Act (EStG). However, if Germany has concluded a double taxation agreement (DTA) with the employee's home country, Germany's right to tax may be restricted. 

According to Article 15 para. 1 and para. 2 of the OECD Model Tax Convention, which most DTAs concluded by Germany follow, the right to tax remains with the country of residence (home country) if all of the following requirements are met: 
  • the employee is present in the country of employment for a period or periods not exceeding in the aggregate 183 days within a calendar year/fiscal year/any twelve-month period, 
  • the remuneration is not paid by an employer who is a resident of the country of employment, and  
  • the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the country of employment.  

If any of these requirements is not met, the country of employment is entitled to tax the remuneration.  ​
​
In its judgment of 12 January 2024, the German Federal Fiscal Court (BFH) has confirmed the revenue authorities’ view that a foreign permanent establishment of a domestic company is not considered an employer within the meaning of the respective DTA. Therefore, if an employee is hired at a foreign permanent establishment of a domestic company, Germany has the right to tax the remuneration if the employee works in Germany, even if only for a few days. This is because the requirement of letter b) above is not met. 

In the case at hand, the lawsuit was brought by a German-based SE with branches abroad (including the Netherlands, Japan, France, Great Britain, Belgium, Switzerland, Spain, Italy, Australia, Denmark, Greece, Canada, Singapore, Ireland, Norway). Branch employees performed work in Germany for short periods (never exceeding 183 days), including activities such as training courses, seminars, workshops, project work or management forums. The costs were borne by the respective branch and not reimbursed by the head office.  

According to the case law of the BFH, not only the employer under civil law (which was the SE) but also another natural or legal person can be considered an employer within the meaning of the DTA if it bears the economic burden of the remuneration for the performance of dependent personal services (employment). However, this only applies if a person is resident in one of the Contracting States. Since this does not apply to a permanent establishment, a permanent establishment cannot be an employer within the meaning of a DTA.  

Then, the domestic company, as the domestic employer, is obliged to withhold and remit wage tax (Section 38 para. 1 sentence 1 no. 1, para. 2 and para. 3 sentence 1, Section 39b and Section 41a EStG). The employer must therefore calculate the salary attributable to the days of employment in Germany, taking into account the Federal Ministry of Finance (BMF) letter of 8.10.2024 (German Federal Tax Gazette BStBl. 2024 I, 1308).  

To simplify the calculation of wage tax, the employer may forgo retrieving the ELStAM (Information on the electronic wage tax card) and calculating wage tax at the employee's tax rate and instead tax the salary at a flat rate of 30 per cent plus solidarity surcharge in accordance with Section 40a para. 7 EStG (church tax does not apply to persons with limited tax liability). However, the prerequisite is that the work performed in Germany must not exceed 18 consecutive working days. The employer is liable to pay the flat-rate wage tax (Section 40 para. 3 EStG). However, this tax burden may be passed on to the employee by internal arrangement (agreement under labour law). No annual payslip is required, as the flat-rate taxed salary and the flat-rate wage tax are not included in any income tax assessment in Germany.  
BFH judgment of 12 January 2024, file no. VI R 25/22. 

​BFH: No deduction of income-related expenses if a taxpayer relocates to set up a home office 

Relocation costs are income-related expenses and so can be reimbursed tax-free by the employer if the relocation is for work-related reasons. 

The employee's profes​sional activity must be the primary reason for the change of residence. Personal reasons may only play a minor role. Objective circumstances must demonstrate this. A professional reason recognised by case law includes scenarios such as reducing daily commute time by at least one hour, changing the employer (with a reduced commute time) or moving out of company-provided accommodation. Once a professional reason is evident based on objective criteria, any personal reasons of the taxpayer for moving to a particular flat (e.g. larger flat or condominium) become irrelevant. If personal reasons played a role, relocation costs could never be deducted as income-related expenses. 

In the case at hand, the taxpayers moved from an approximately 65 square metre flat to an approximately 110 square metre flat in the same district in the summer of 2020. The larger flat allowed them to set up two home offices, which was considered more practical by the taxpayers due to the coronavirus pandemic and their continued remote work thereafter, allowing each spouse to use a full-size monitor, which was not feasible when working from the kitchen table. While the fiscal court acknowledged the professional reason for this relocation, the German Federal Fiscal Court (BFH) rejected it. According to the BFH, the initial opportunity to set up a home office is not an objective criterion for determining whether the relocation was for professional reasons. The choice of a flat – also in terms of location, size, layout and use – is rather dependent on the taxpayer's private decisions and may therefore be attributed to lifestyle under Section 12 no. 1 sentence 2 of the German Income Tax Act (EStG). 

The BFH is well aware that the world of work has changed dramatically. However, the increasing acceptance of home office, telework and remote work does not alter the fact that the wish to work from home is primarily driven by personal considerations. Therefore, it cannot be assumed that the reason for moving is almost exclusively professional.  
BFH judgment of 5 February 2025, file no. VI R 3/23. 

Deduction of income-related expenses for the business use of a private car by an employee who has been provide​d with a company car by their employer  

If an employee uses their private car for travel outside the place of employment (business trip), they can claim the actual vehicle costs incurred for such travel as income-related expenses instead of the flat-rate mileage reimbursement rate, which is currently 0.30 euro per kilometre driven (individual mileage reimbursement rate, Section 9 para. 1 sentence 3 no. 4a sentence 1 of the German Income Tax Act (EStG)).  

The individual mileage reimbursement rate is determined based on the proportion of business trips in the total mileage and the actual vehicle costs (including VAT) incurred over a twelve-month period. One-off payments, such as special lease payments, must be distributed over the period for which they are paid in accordance with the Federal Fiscal Court (BFH) judgment of 21.11.2024, file no. VI R 9/22 (not yet published in the German Federal Tax Gazette (BStBl)). The mileage reimbursement rate calculated in this way can be used until there is a significant change in circumstances (cf. R 9.5 para. 1 sentence 4 of the German Wage Tax Regulations (LStR)).  

Many employers reimburse their employees only the flat-rate mileage rates for business trips made using their own car. The employee can then claim the difference between the actual costs incurred and the tax-free reimbursements as income-related expenses in their personal income tax return. If a company car is provided to an employee (also) for private use, employers generally do not reimburse mileage expenses incurred for trips with the private car, as the company car should primarily be used for business trips for cost reasons. An appeal is pending before the BFH as to whether and to what extent an employee may claim the individual mileage reimbursement rate as income-related expenses in such a case. 

In the case at hand, the employee was provided with a company car (a diesel Multivan) for both business and private use. The car could also be used by the employee's spouse/cohabiting partner provided there were no business-related conflicts. The employee also privately owned a sports car purchased a few years earlier. Due to the low mileage of that car, the individual mileage reimbursement rate was 2.28 euro per kilometre.  

In the relevant year, the employee used his private car for some business trips and claimed income-related expenses at the individual mileage reimbursement rate, as the employer did not reimburse tax-free travel expenses. 

The revenue office did not recognise these income-related expenses, questioning the business nature of the expenses due to the high amount of costs incurred. According to Section 9 para. 5 sentence 1 in conjunction with Section 4 para. 5 sentence 1 no. 7 EStG, the reasonableness of expenses must be assessed if travel expenses affect the employee's lifestyle. The deduction of income-related expenses should be limited to the portion of income-related expenses which a prudent and conscientious taxpayer in the same situation as the employee would consider reasonable. In accordance with Section 9 para. 1 sentence 3 no. 4a EStG, this is a flat rate of 0.30 euro per kilometre driven. 

However, the fiscal court ruled in favour of the employee, stating that the only decisive factor for travel expenses to be considered business expenses is that the trip is business-related. This is particularly true if there is a direct business reason (e.g. visiting a business partner) and private travel interests are not the main focus of the trip. It does not matter which means of transport the taxpayer chooses. Also the principle applies that it is irrelevant for the deduction as income-related expenses whether the expenses claimed were objectively reasonable and necessary.  

Therefore, travel expenses can generally be claimed as income-related expenses even if a business trip was made using a private car instead of a company car. This is because the choice of means of transport cannot be used to infer a private reason for travel expenses if the trip itself is directly work-related. 

However, the amount of deductible income-related expenses may be limited if expenses that affect lifestyle are considered unreasonable “according to common understanding” (Section 9 para. 5 sentence 1 in conjunction with Section 4 para. 5 sentence 1 no. 7 EStG. The fiscal court denied this in the case in dispute, as the expenses claimed amounted to less than three percent of gross wages and were therefore not disproportionately high.  

It was also irrelevant to the fiscal court why the employee used the private car instead of the company car. Therefore, it did not decide whether the business use of a private car by an employee who had been provided with a company car by their employer was generally contrary to common understanding and was therefore “unreasonable” within the meaning of Section 4 para. 5 sentence 1 no. 7 EStG. The EStG does not provide for such an adjustment.  

As there are still fundamental questions about whether and to what extent employees may deduct income-related expenses for using their private car for business purposes if they have been provided with a company car, and whether the one percent rule also applies if the company car is mostly used for personal purposes, the fiscal court has allowed an appeal. 
Lower Saxony fiscal court judgement of 18 September 2024, file no. 9 K 183/23, Rev. BFH file no. 30/24 

 
In the Spotlight: Kazakhstan, Central Asia​​​​
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