New consultation agreement on Article 15 (4) Tax Treaty Germany - Switzerland: Companies need to take action

Art. 15 (4) Tax Treaty Germany - Switzerland provides that, subject to Art. 15a Tax Treaty Germany - Switzerland (cross-border commuters), an individual who is a resident of one Contracting State but who acts as a member of a board of directors, director, managing director or authorized signatory of a corporation resident in the other Contracting State is taxed on the income from this activity in that other State, unless his activity is delimited in such a way that it only includes tasks outside that other State.

Basically, the managing director of a Swiss AG, for example, who lives in Germany and also performs a large part of his working time in Germany from his home office, is nevertheless liable to tax in Switzerland with his managing director's income. Only if Switzerland does not actually tax such income, the right of taxation reverts to Germany.
In the opposite case, the managing director of a German GmbH who, however, has his center of vital interest in Switzerland with his family and also works from home, will generally be liable to tax in Germany with his managing director’s income.

Previously, Art. 15 (4) Tax Treaty Germany - Switzerland was limited only to persons entered in the commercial register (e.g., persons with commercial power of attorney, directors, deputy directors, vice-directors, general managers, board members, managing directors, etc.).

With the above-mentioned consultation agreement, the group of persons under Art. 15 (4) Tax Treaty Germany - Switzerland was extended to include the following persons:

• Persons with sole signatory authority without designation of their function in the Swiss Commercial Register,
• Persons with joint signatory authority without designation of their function in the Swiss Commercial Register,
• Persons who are not recorded in the Swiss Commercial Register, but who hold a position within a corporation that is comparable to the persons stipulated in Art. 15 (4) Tax Treaty Germany - Switzerland in terms of management and representation authority according to the overall circumstances of the individual case. The management and representation authority must at least correspond to the commercial power of attorney (Prokura). Proof can be provided, for example, by an authorization to represent the company externally which is more extensive than a power of attorney.

In addition, other criteria (which do not have to be fulfilled cumulatively) play a role in the classification, depending on the company’s size, sector, and affiliation to a group of companies:

• the amount of the salary,
• the classification in one of the highest salary levels within the company,
• the granting and the amount of a profit share / profit bonus,
• the granting of a special non-cash benefit,
• the number of persons bound by instructions,
• authority to independently hire and dismiss employees of the company,
• promotion/advancement connected with a change or extension of the scope of activity,
• no application of legal limitations on maximum working hours

Thus, an entry in the commercial register is no longer mandatorily required in order to be covered by Art. 15 (4) Tax Treaty Germany - Switzerland, with the consequence that the income is taxed in the company's state of residence.

Employers should carefully review the taxation of employees who may be subject to the above regulations and make appropriate adjustments if necessary.

The application of the above consultation agreement applies to all open cases.

The term of this agreement is limited to December 31, 2025, unless the respective authorities agree on a continuation.