The temporary restriction on the free movement of people as a result of the COVID-19 pandemic may prevent employees from staying in another country or traveling for work, as they have been accustomed to in the past. In such cases, these people are forced to carry out their activities in the location where they have been residing during the pandemic, e.g. from their residence. Due to the fact that the local as well as international legislation work in determining tax residence, the place of income taxation and affiliation to social security legislation with both residence and place of business, there is uncertainty as to whether this situation has an impact on taxpayer obligations.
The Czech authorities are not approaching this issue in a uniform manner.
In the spring of 2020, when the first measures against the free movement of persons entered into force and a number of companies began to introduce or extend the possibility of working from home, the social security authorities of the Czech Republic issued their first and, as yet unchanged, statement. They reassured the public that, in their interpretation, employees should remain under the original insurance scheme for the duration of the temporary measures. The reasoning was that this was a temporary situation which was caused without regard to the taxpayer’s intentions and, if there is a presumption that the taxpayer’s activity will continue in its original format after the end of emergency measures, there is no reason to reassess the social security affiliation.
From the social security point of view (i.e. social and health insurance), assigned employees and their employers are therefore not obliged to notify the locally competent social security office in the Czech Republic of this temporary change of situation (i.e. home office in the Czech Republic or abroad). There is also no obligation to return previously issued certificates of affiliation to Czech social security legislation (A1 certificates), provided that, after the end of the extraordinary restrictions, these people will continue to work in the territory of more than one member state as before.
However, as the habits of taxpayers who have the opportunity to work from a home office for a long period of time change during the ongoing pandemic, we believe that the assumption of continuing in the original formats will not be met in all cases. For this reason, in some cases, there will be a real reassessment of affiliation to social security legislation.
Following measures taken by governments in many countries to curb the spread of the COVID-19 pandemic, the OECD has issued a series of recommendations on how to approach the situation. As part of this, it also published a manual on how specific states should approach these measures from the international taxation point of view, including the issue of a possible change in the residence of individuals. However, the Czech Tax Administration has not openly stated that it intends to follow this recommendation. Rather, the results so far show that it will apply the wording of specific bilateral agreements on the avoidance of double taxation. In addition, the opinion is based on the wording of the OECD Model Treaty, therefore, it is always necessary to take into account not only the assessment of aspects of the specific situation, but also the wording of the relevant bilateral agreement. The situation will be monitored further in the Czech Republic.
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