Frontier work and smart working

The Italian Internal Revenue Service's response 171/2023 to an interpellation request allows for important clarifications on the topic of frontier work and smart working.

In particular, examining the position of a frontier worker who was seeking clarification on his position after the expiration of the Covid Agreement of 20 June 2020 (which expired on February 1st, 2023 and allowed teleworking for frontier workers on an "exceptional and provisional" basis), the Agency clarifies that the status of tax frontier worker should be recognized only for employees who travel abroad on a daily basis. Therefore, even a single day's work from home would be enough to forfeit the status of tax frontier worker and, consequently, the 1974 Agreement providing for exclusive taxation in the state where the activity is carried out.

It follows that, in the absence of the application of the 1974 Agreement and pending the new Agreement that will presumably enter into force in 2024, the only reference, at the transnational level, is the Double Taxation Convention between Italy and Switzerland. The Convention stipulates in Article 15 that, in matters of employment, the power of taxation lies with the worker's state of residence, unless the worker does not carry out his or her activity in another state. In the latter case there will be concurrent taxation in both countries.

The consequence, in the present case and expired Covid Agreement, is that the worker:

- will suffer exclusive taxation in Italy for income generated in smart working in Italy (because State of residence and State of the source of income coincide).

- will suffer taxation in both Italy and Switzerland for income produced while working in the Confederation, with the possibility of claiming a tax credit for taxes withheld abroad.

Keep in mind that Switzerland will continue to levy withholding tax on the worker's entire income. It will then be up to him or her to apply by petition for a refund of the excess withholding taxes (request for correction of withholding taxes).

It is evident how the complex procedure (and the timeframes dictated by the different deadlines for recovery) poses difficulties for the employee.